4 Most important factors impacting used car price
Usually a price of any commodity or vehicle is defined by its supply and demand. Same should apply to Cars as well but only to some extent and not all. Example: In hot summer more people want to sell their two door convertible, so in that season when market is flooded with 2-door convertible then it will definitely fetch a little lower price. Though this impact is negligible but it’s noticeable. This point alone can help you majorly in finding if your perfect car can actually fit in your car buying budget after seeing it’s real worthy price and not the inflated price.
The car prices that you see in online classifieds website is not quite right as every seller price there vehicle depending on the urgency they are in to sell it. Some sell it at undervalue and some sell it at right value or over value if they decide to wait for few days or a week.
For finding a perfect car buying price, you need to understand that it depends on four major factors combine together to create a perfect resale value: Age, Mileage, Options and Condition.
Age: Every car depreciate majorly as per their age factor roughly as per below table. This further gets complicate based on the car manufacturer region means European and UK Cars will depreciate the most, and then comes the American and Korean brands and then least depreciation will show up in Japanese cars.
- Luxury Cars: 20% depreciation for the first year and then 15% depreciation every year.
- Sports Cars: 20% depreciation for the first year and then 15% depreciation every year.
- SUV and Cross over: depreciation for the 15% first year and then 12% depreciation every year.
- Family Sedans: 15% depreciation for the first year and then 10% depreciation every year.
- Compact Cars: 15% depreciation for the first year and then 12% depreciation every year.
Below example will show how to apply the depreciation on year by year rate:
2009 Model luxury car whose price was 100,000 now values at 35,496 in 2016.
- 2010: 20% of 100,000 = 20,000 valued at 80,000
- 2011: 15% of 80,000 = 12,000 valued at 68,000
- 2012: 15% of 68,000 = 10,200 valued at 57,800
- 2013: 15% of 57,800 = 8,670 valued at 49,130
- 2014: 15% of 49,130 = 7,370 valued at 41,760
- 2015: 15% of 41,760 = 6,264 valued at 35,496
Mileage: After the age, mileage is the second biggest contributor to the value of the car. On an average industry consider 18,000 – 20,000 kms driving in a year. So you need to check the math with number of year old and see if it falls in the industry bracket. Although there is no set rule that how much is too much, but you can factor some plus or minus on final value based on the current mileage of the car. Let’s take above example 2009 car and in 2016 it should be in range of 108,000 – 120,000 Kms. So if actual car has 200,000 kms driven means its 80,000 kms over driven, so for every 10,000 kms you can minus (if it’s more driven) or add (if it’s less driven) 2-3% on the above depreciated final value.
Example: 35,496 x 2% = 710 x 8 = 5,680 (less) OR 35,496 x 2% = 1,065 x 8 = 8,520 (less)
Means: 35,496 – 5,680 = 29,816 OR 35,496 – 8,520 = 26,976 for a 200,000 kms driven car.
Options: Actually this point should not even exist here, if you get the right model and right option price to start the math at first. However, many times you don’t really able to get the Full options, Mid Options and Base option pricing after 3-4 years of age. So as a best practice find out the current difference in percentage of the same model and apply to the final depreciated value. Reason for this exercise is as Japanese and Korean Cars have very minimal percentage difference (5-10%) between full options to the base models, whereas Germans, European and American cars has huge difference close to 20-30% from the base models.
Condition: Last but not least, can heavily dictate the final pricing as Car has a lot to do with the proper maintenance and if previous user was not maintaining it according to the maintenance schedule then the next buyer will suffer heavily. This condition implies to the general exterior and interior condition and plus service maintenance condition. Remember the above math was for an average wear and tear car as per its age. So if you come across super clean car with full dealer service history feel free to bump up 5-7% on the final depreciated value as after all you need to thank such good car owners and vice-versa in the negative condition.
Disclaimer: I have written this and all linked articles to help my friends and family and other car enthusiast’s like you. This is purely based on my own experience. If you know anything more than this I am happy to edit these articles any time. Please leave me a comment and I will accept your changes and improvise these as soon as I can.
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