3) Trade In… the Right Way
There are lots of online car websites that will give you a theoretical value for the car you’d like to sell or trade-in…. That’s a nice guide, but the only real way to tell what your car is worth is to get a few quotes from car dealers, from websites that actually buy cars, or from your own legwork selling to a private party. Here’s a short version—and a more complete one—of how to trade-in right.
First, make sure your car is looking its best, and take it to 2+ local car dealers for written quotes. Compare these quotes with online trade-in services like Carmax, Blinker, or Carvana. (We highly recommend Carvana!)
Second, decide whether you have the time to list your car on a classified site to sell it yourself. You can often get the best price this way because you can capture the dealer’s resale markup. You might see if you could find a private buyer at a higher price than you’ve been offered.
How to Make Sure Your Car Looks its Best
Just an hour can make a big difference in the price you’ll fetch for your car. The quickest thing to do is visit a car wash on the way to the dealerships to get your quotes. At the car wash, you’ll find a giant machine, or a self-service pressure washer, which can clean all the nooks and crannies on your exterior and undercarriage. You’ll also find a commercial vacuum that’s perfect for sucking away years of work or kid mess. Remember to clean and remove all your personal items from the glove box, cup holders, back seat, trunk and other containers.
And don’t forget about the smell. If it’s safe and weather permits, freshen up that ‘old car smell’ by leaving the windows cracked or down overnight.
Pros and Cons of Selling Your Car Yourself
If you’re feeling adventurous, you could list your car on a classified website and try to sell it to a private party (another real person – not a dealer or other car buying corporation). This means, in theory, that you could keep the profit the dealer was going to make when they resold your car. How much is that? The average car dealer sells a used vehicle for almost $21,000 and makes a gross profit of just over $2,000 per vehicle, or about 10% of the sales price. That’s money you can keep in your pocket instead.
While another $2,000 would be great, it will require some extra work on your part. You’ll need to take pictures, gather a bunch of information like your car’s mileage, option packages, VIN number, and write a description of all dents, dings, missing interior parts, etc. Then you’ll need to post your description online, pay a listing fee (usually no more than $100), and wait for some responses.
You’ll also need to speak to people on the phone or by email to answer questions, and most likely accompany a prospective buyer or two on a test drive of your car. And you’ll have to haggle. Whatever price you agree, insist your buyer bring a certified bank check. You might call the issuing bank in advance or on the spot to ensure it’s genuine. Do not accept a personal check for payment, please.
Bear In Mind the Taxes
There’s a tax advantage to selling your trade-in to the same dealer from which you are buying your new car. Here’s an example explaining why: If your new car cost $30,000 and your sales tax rate was 7%, you’d owe the government $2,100 in sales tax. If your trade-in was worth $10,000 and you sold it to the same dealership from which you bought your new car, your “net” transaction is calculated as (new car price – trade-in price), or in our example: $30,000 - $10,000 = $20,000.
Now for the savings.
At that 7% tax rate, you will owe $1,400 in sales tax. That’s right: you just saved $700 in sales tax by trading-in to the dealership. For some, that tax savings reduces the appeal of trying to sell your car in a private party transaction.
There a few exceptions, according to Zacks: If you live in California, Hawaii, Kentucky, Maryland, Michigan, Montana or Virginia, there is no credit or sales tax reduction when you trade-in your car. And if you live in Oregon where there is no sales tax, the calculation is easy – zero tax and therefore zero difference no matter how you sell your used car.