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If you’re planning to buy a used car or sell your old vehicle, a car appraisal is a critical part of the process. The appraisal will determine how much the car is worth and give you an idea of how much you may be able to get, or have to pay, for the car.Here’s a look at your options and resources for a car appraisal.
What Is a Car Appraisal?
New cars come with what is known as the manufacturer suggested retail price, or MSRP. This is the price the automaker suggests that dealers charge for the vehicle. However, cars lose their value through a process known as depreciation, and will require an appraisal to determine their current value at any point in time. The car appraisal process considers a variety of factors, including the vehicle’s make and model, trim level, mileage, condition, age, and local market conditions.
Who Administers a Vehicle Appraisal?
There are a number of ways to get a car appraised. Some are free, while others come with a fee. Here’s a look at your options.
Self-Appraisal
Whether you’re buying or selling a vehicle, you can use an online valuation tool, such as Kelley Blue Book or Edmunds, to estimate a range in your vehicle’s value at no cost. You simply input basic information about the car, such as its vehicle identification number (VIN), license plate number, and zip code, in order to get a range of resale values for your area. As part of the evaluation, these sites will typically pull the vehicle history report to determine whether past accidents affect its value. On average, a minor accident can reduce the value of a car by 10% to 30%, while a severe accident could lower its value by 50% or more.
Car Lenders
If you’re in the market for a used car and getting financing outside of the dealership, the lender will typically send an appraiser to value the vehicle before offering a loan agreement. This is to be sure that the loan amount isn’t higher than the car's cash value.With most auto loans, the car you’re purchasing acts as collateral for the loan. If you default on the loan, your lender can seize the vehicle and sell it to recoup its losses. That’s why a car financing company wants to make sure the car’s value and the loan are aligned.There is typically no cost to you for this service, and you can often use a lender appraisal as a negotiating tool to help you get a better deal on the car.
Dealerships
If you’re trying to sell your car to a dealership or trade it in toward the price of a new vehicle, the dealership will do its own appraisal. This appraisal will typically involve similar research you have done, as well as an examination of the exterior, interior, mechanics, and overall condition of your vehicle. They may also conduct a test drive before offering a final value. The dealer's valuation is not necessarily indicative of the fair market value of the car, however. In fact, it’s often less. The reason is that the dealer needs to turn a profit. This profit will be the difference between what they pay you for the car and what they can sell it for, or the fair market value.It may be helpful to do some research of your own through valuation websites before you go in for a dealer appraisal. That way, you’ll have a sense of how far off fair market value their offer is and have some negotiating power.
Professionals
If you're buying or selling a collectible car, or need to value a car as part of a legal proceeding (such as a divorce or bankruptcy proceeding), you may want to turn to an independent professional appraiser. Professional appraisers have expertise in sales of similar vehicles and will give the car an unbiased examination and appraisal. Unlike the other appraisal methods listed above, this one is not free. A professional appraisal can run at least $100, and often significantly more.
Factors That Influence Car Appraisals
Many factors can have an impact on the value of a car. Here’s a look at some of the most important.
Mileage
Cars that have higher mileage tend to be worth less due to wear and tear. The more a car gets driven, the more likely it is to experience minor damage or for components to wear out. According to the Federal Highway Administration, the average annual number of miles a driver puts on a car in the U.S. is 13,476. If you’re driving more than that, the value of your car could take a hit.
Condition
The condition of your car plays a major role in its value. Scratches and dents on the exterior or damage to the interior can lower its value, as can any components that need replacing, such as worn out brake pads or a slipping transmission.
Car Usage
How a buyer plans to use the car you’re selling will affect its value. As mentioned, a dealer will typically offer a lower appraisal in order to make a profit on reselling the car. A private buyer, on the other hand, might be more likely to agree to the fair market value of a car found on online valuation sites.
Location
Where you’re selling or buying a car will also impact its value. A convertible will likely be in higher demand (and command a higher price) in Los Angeles than in Boston. A pickup truck, on the other hand, might have a higher value in a rural area than in a city.Recommended: 3 Ways to Increase the Value of Your Car
Is a Car Appraisal Necessary to Refinance Your Car?
No, you typically don’t need to get a formal appraisal to refinance your car. The lender will likely look up the value of your vehicle themselves before approving a new loan. They’ll also consider your loan-to-value ratio as part of the loan application process. This ratio compares what you owe on the car versus what the car is worth. If you owe less than what the car is worth, you might be able to get a better annual percentage rate (APR). If you owe more than the worth of the car, however, it means you are upside down on the loan. You may still be able to refinance your car even with an upside-down car loan, though it will depend on your credit profile and how much you owe. Borrowers with good credit can often qualify for up to 120% of the value of the car, while borrowers with bad credit may qualify for around 80% of the car’s value.
The Takeaway
Car appraisal is an important step when buying or selling a used vehicle. Whatever side of the deal you are on, it can put you in a better position for negotiation.Fortunately, there are a number of ways to get a car appraised, including online calculators, lender appraisals, and professional appraisals. Which appraisal option will work best for you will depend on your needs.
Frequently Asked Questions
What Is an appraisal for a car?
Do you need to get a car appraisal to refinance your car?
How long does it take to get a car appraisal?
Photo credit: iStock/sasar
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About the Author
Austin Kilham
Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.
