Kelley Blue Book Used Pricing Guide
"Arriving at a meeting of the minds on the price of a car isn't easy," said Eric Charles, a Chicago-area used-car dealer and master mechanic. "Every used car is different, and everyone has their own ideas on what each car is worth. That's why a third-party source like Kelley Blue Book is important."
Kelley Blue Book has been an independent source of vehicle values since its founding in 1926. And the fact that it is an independent source of information is important. Because the value
of any new car is nebulous, an unbiased source of information is important in helping both buyer and seller come to an agreement on a vehicle’s price.
Without an established, independent source of vehicle values, each used car price negotiation would be infinitely more complicated. For almost a century, Kelley Blue Book has
provided that unbiased pricing data in its Kelley Blue Book Used-Car Pricing Guide. That information is important to consumers and used-car dealers, and it is also important to others who need it — financial institutions, insurance companies, and governmental agencies. For the used-car pricing information to be useful, it must be accurate, if not "penny perfect." And it must come from a source that is credible and respected. The parties must believe the
used-car pricing is reliable if they are going to rely on it as they negotiate and come to a deal. UsedCars.com uses the Kelley Blue Book Used-Car Guide Book for vehicle values on our trade-in path.
The Product of Research
Kelley Blue Book values are derived from massive amounts of data, including actual sales transactions and auction prices, which are analyzed and adjusted to account for seasonality and market trends. Because the auto market has significant regional differences, they are also adjusted to reflect local conditions in over 100 different geographic areas and are updated weekly to give consumers up-to-date used-car pricing information. To gain all the data necessary, KBB uses several key data sources including wholesale auctions, independent dealers, franchised dealers, and private party transactions. Traditionally, it has relied heavily on wholesale auctions because they reflect information from key sources including consumers, dealers, financial institutions, rental fleets, and leasing companies.
Result of Process
Kelley Blue Book used car values are not precise, and KBB doesn't claim they are precise to the penny. It acknowledges that it is a "guidebook" and that the values it published are estimates. But they are not "stabs in the dark," but instead are estimates based on a well-established process, giant amounts of data, and generations of expertise in determining and, in some ways, establishing vehicle values. Kelley Blue Book calls it "a proprietary editorial process." One key thing to remember is that the used-car values don't have to be perfect to the dollar to be useful to all the entities that need pricing information. Instead, they simply need to be close enough to give the buyer and seller a common understanding of the limits of the transaction.
As former Kelley Blue Book President Paul Johnson once said, "One thing we know about each used car value is that it will be 'wrong,' but each value will be close enough to the
'real' value that it will facilitate the transaction."
The process starts with a thorough analysis of all collected data, and it is informed and leavened with historical trends, current economic conditions, industry developments,
seasonality, and location.
The values that result from the process, in KBB's words, "reflect the most current representation of a changing marketplace and are therefore relied upon by a variety of leading
organizations as well as the average consumer."
The overarching goal is to provide a credible guide in an ever-changing buying-and-selling environment that sees thousands of transactions each day.
Key Used-Car Valuation Criteria
Immense amounts of data are used to produce the values Kelley Blue Book quotes. First, there is market demand. Depending on the area in which a vehicle is being sold, relative demand
has a major impact on its value. An individual used car sold in New York may have a different value — or a different price — than the same used car sold in Iowa. A second criterion is the vehicle's condition. For each used car, the wear-and-tear it has experienced has a major mpact on its value. Assessing wear-and-tear is often a matter of personal opinion, which is why the used-car values can only be used as a guide.
Another criterion is the individual car's equipment level. A car with no extras and that same model car with a full array of high-tech and comfort features will have two different values. Finally, there is mileage, which is a proxy for how heavily worn the vehicle is and how close it is to the end of its useful life.
Used Cars Have Many Values
If you ask, “What is a particular used car worth?”, you might think the answer would be a simple number — say, $10,000. But in reality, each used car has several values. For example, if a used car is sold to an individual — a private party — the seller can usually expect to get more money for it than if that car were sold or traded in to a dealer. Why? Private-party buyers don't plan to resell the cars they buy, so they can afford to pay more for a vehicle than a used-car dealer can. The used-car dealer must buy at a low enough price that the business can make money when selling the car to a consumer after preparing it (at some expense) for sale. Because of factors like these, each used car has a "trade-in value," a "private party value," and a "retail value."
Individual Used Car Values
Kelley Blue Book used-car trade-in value is the amount a consumer could expect to receive from the dealer if she or he traded it in as part of a transaction for the purchase or lease of
another vehicle. Keep in mind that this assumes an accurate appraisal of the vehicle. It is also important to note that the trade-in value is often less than one would receive if selling the car to a private individual, and it could be more than if it were sold directly to a dealer.
The Kelley Blue Book used-car private party value is what a consumer can expect to pay if buying a used car from another consumer. As with all Kelly Blue Book values, the private party
value is a guide. It can change depending on several factors. For instance, if there is a warranty attached to the vehicle, the value is likely to be higher than the general private party value because warranty coverage itself adds value.
The certified pre-owned value of a used vehicle is also typically higher than the private party value. It incorporates the fact that the vehicle is offered with a warranty rather than as-is, which is the way the typical used vehicle is sold. Since warranty coverage offers peace of mind that customers are willing to pay extra for, the "CPO value" reflects that. Of course, no individual seller offers certified pre-owned used cars, so the CPO value takes into account the dealer's profit, cost of advertising, sales commissions, and other costs of doing business.
In the end, the Kelley Blue Book Used-Car Pricing Guide can serve as a good barometer for the buying and selling of a vehicle. When used in conjunction with other pricing research and
common sense at the point of purchase, it can help you ensure that the price you pay or receive is appropriate to current market conditions.
"The goal of any used car pricing guide should be to reflect the current market conditions," Charles said. "In some instances, it can even predict market prices, but at the very least it should tell you what is right and fair at this time."