Smart Buying Essentials
Unloading Your Old Car
Your options:So you've considered all the advantages and disadvantages of keeping your old car, and you've decided to go for it - you're going to buy your brand-new dream car. But what about Old Faithful? How are you going to get rid of the car you're driving now?
Most folks face several options. They can trade it in to the dealer for the new car. They can sell it themselves. Or - and this is something of a popular new wrinkle - they can donate it to a charity and take a tax write-off. Each option has its benefits.
Trade With the Dealer
The easiest and quickest solution is to swap keys with the dealer; in return for a trade-in allowance on the new car, you give him your old car. It happens all on the same day. You have no ads to write. You don't have to spend time waiting by the telephone or giving test rides. You don't need to worry about smog or safety certificates, which are, in some states, the seller's responsibility. You don't have to concern yourself with paperwork regarding title transfer. And you'll get the money for your used car immediately, an important consideration if you need cash from your old car to help pay for the new car.
Moreover, in many states, the sales tax on the new car is figured on the difference between the value of your trade-in and the new-car cost rather than the full purchase price of the new car. For example, if the dealer gives you $10,000 for your old car and you pay $20,000 for the new car, you'll pay sales tax on the $10,000 difference. In a state that charges a 6 % sales tax, you'll save $600 in taxes by trading in your old car. In effect, you'll be getting $10,600 for your old car.
A lot of advantages, to be sure. But there is one major disadvantage to trading with the dealer: Money. Even if you live in a state that figures sales tax on the difference between the trade-in value and new-car cost, you'll probably end up leaving money on the table if you trade. Many car buyers find it hard to believe, but new-car dealers make more money from selling used cars than they do new cars. Dealers typically earn nearly twice as much profit on the sale of a used car than on a new car.
In order to do this, they must buy low and sell relatively high. That's why a dealer will most likely give you a "wholesale price" or "low book value" on your trade - and many times, even less. The difference between high book value and low book value can amount to thousands of dollars - money that you can never hope to see if you trade the car to a dealer.
The dealer will invariably have to put money into your old car before it goes on the lot. Even if your vehicle is in fine shape, the dealer may have to perform to repairs - say, a safety check or a set of new tires. And if it goes into a certified-used car program, it can cost the dealer $1,500 or more to get the vehicle ready for sale. The dealer will also have to advertise the vehicle, pay sales personnel, plus interest and overhead costs. Or, if the vehicle isn't one he's likely to keep on his used-car lot because it's too much of a clunker or it doesn't fit the dealership's mix (a Yugo at a Mercedes dealer), he'll have to wholesale it. The wholesaler will have to make a profit, and the dealer who finally ends up with the old heap will have to make a profit. All of which means the dealer can't give his customers full retail value for their old cars and still make healthy profits on them.
Sell the Car Yourself
If you sold the car yourself, you might get a figure between the wholesale and retail prices, earning yourself hundreds, or even thousands, of dollars more on your old car. But before you decide to sell it on your own, ask yourself these questions:
- Is there a demand for the car? A convertible sports car in June or a four-wheel-drive truck in October could be an easy sell. But don't get popularity confused with demand. Though Camrys are one of the most popular sedans in the land, your old Camry could be a tough sell if the market is flooded with used Camrys.
- Is your car in great shape? Cream puffs not only sell more quickly, but they'll require less of your time and money to get ready for sale.
- Do you live in a relatively high-population area? If you live in a remote area, you may find it hard to procure buyers.
- Are you able to deal with the public? Sellers who live alone, or who feel vulnerable in some way, may be unwilling to open up their garages, and perhaps their homes, to strangers shopping for used cars.
If your answer is "no" to any of these questions, you probably shouldn't try to sell your car to a private party. You might, however, consider selling to a new-car dealer who sells the same make as your used car. That is, instead of trading your old Camry with the Ford dealer who is selling you a new Explorer, see if a Toyota dealer will buy your Camry. New-car dealers are always looking for clean, late-model used cars of the same make as their new-car franchise, especially if they have certified used-car programs. The Toyota dealer may give you more for your Camry in what car dealers call a "street sale" than the Ford dealer will give you as a trade-in.
Donate the Car
But there is another option: Donate your car to a favorite charity and take a tax write-off. You must, however, itemize deductions on your tax return, and the IRS says that only about one-third of all taxpayers do. Car donations seem to be all the rage among charitable organizations as a fund-raising scheme. The charity will usually hire a company to process the car; operable cars are sold at auction, while inoperable cars are broken up for parts and scrap metal. The charity will typically get around 60 percent of the proceeds.
Donating a car is easy. Simply call the charity and they'll usually come fetch the car with a tow truck - whether the car runs or not. They'll provide you with a receipt, though they'll let you fill in the vehicle's value. The IRS will expect you to take a "fair market value." If you claim the car is worth more than $5,000, the agency will require an independent appraisal. For cars worth less, you'll need to document the car's condition. Take a photo of the car and a pricing printout from IntelliChoice.com.
If you claim the car is worth say, $4,000, and you're in a 28% tax bracket, you'll be getting $1,120 for the car. And beyond the tax savings, you will have the satisfaction of helping a worthy charity. Just be certain it IS worthy. Though car donations are sought by many well-known and respected groups - from the Salvation Army to the Multiple Sclerosis Association of America - law enforcement officials have prosecuted several so-called "charities" around the nation that turned out to be nothing more than used-car lots. Give to a charity you know.
A Marketing Plan
Make an honest assessment of your old car and what it needs in the way of repairs. If your car is a worn-out heap, you'll probably decide that it isn't worth the trouble of fixing it up and selling it yourself, and that you'll either donate it to a charity or take whatever you can get from the new-car dealer and be done with it. But if your car is basically a clean machine and you want - or need - to get top dollar for it, you should have a marketing plan. And as anyone on Madison Avenue will tell you, a successful sale involves the right packaging, the right price and the right advertising.
Fix it up. A cream puff will not only command the highest price, it'll be easier to sell. If relatively inexpensive items aren't working, fix them. Small dings or star breaks in windshields can often be fixed for less than $50, without replacing the windshield. Small dents can be removed inexpensively with "paint-less" dent removal procedures. And important safety features - brakes, lights, wipers, tires - should be in good working order. But it probably won't make sense to rebuild an old car's engine for $3,000; you'll never recoup the money.
Once you've made any worthwhile repairs to your car, it's time to turn your attention to its cosmetics. It's amazing, but buyers will often overlook mechanical ills if the paint shines and the interior seems fresh. And conversely, a vehicle in good mechanical shape but with a ratty appearance will usually turn off buyers. So by all means, spruce up your old car, even if you've decided to trade it to the dealer. A good detailing job one that includes the engine compartment can be worth its $100 or $150 cost several times over.
Set the price. When you've transformed the old buggy into a "meticulously maintained" motorcar, you'll need to attach a price to it. If you've decided to trade, you'll want to know if the dealer is offering you a fair price. If you've decided to sell it yourself, you'll need a fair asking price. Recall those two prices mentioned earlier, low and high book value. Expect the dealer to give you low book value. High book value is what the dealer will ask for the car once it's on his lot. It's the value of a car that's been reconditioned and comes with a warranty - something that you, as a private seller, won't usually be able to offer a buyer. As a private seller, you should ask a price somewhere between low and high book value.
Ah, but where do you find these values? The Kelly Blue Book and NADA Used Car Guides are often in banks or credit unions. Many sites on the Internet give used-car pricing, including Kelly Blue Book (www.kbb.com), NADA (www.nada.com) and IntelliChoice (www.intellichoice.com). Like the price guides, the best sites will require you to be very specific about your car, including its condition, mileage and equipment. Mileage can make a big difference in value. A four-year-old Honda Accord Sedan EX-V6, for example, with only 25,000 miles on the odometer will be worth around $1,800 more than the same car with 45,000 miles.
But keep in mind that these "book" values provide you with only a general pricing framework. What truly matters are prices in your local market. To find these, look in your local newspapers' classifieds to see how similar cars are priced. Or pick up a local edition of "The Recycler" or "Auto Trader" at a convenience store. These publications also have Internet sites-(www.recyler.com) and (www.traderonline.com)-that list cars for sale in your area.
Negotiate with the dealer. Now that you've taken care of your car's packaging and pricing, you're ready to negotiate with the dealer - if trading your car to the dealer is the approach you've chosen. Beware, however, of any dealer slights of hand. Some dealers may advertise that they'll give you 100% of the original sales price of your old car when you trade. But inevitably they'll end up offering the original sales price - minus all costs associated with fixing wear and tear or any necessary repairs, which will add up to thousands. Or the dealer may offer you an unexpected high trade-in price. But remember the Golden Rule of Car Buying: Keep negotiations for your new car separate from those for your old car. Otherwise, what the dealer giveth for your old car, he may taketh from the new car (in terms of a price reduction).
Write an ad. If you've decided to sell the car yourself, the next step is to write an enticing ad. Include the brand name, the year, the model and any important features - such leather upholstery or a four-wheel-drive system. If the miles are low for the car's age, if you're a non-smoker, or if you can supply all the car's service records, you may want to mention those points, too. And if there's space in the ad, note the car's color. Always include a price, even though you're willing to negotiate. Place the ad in your local newspaper, the tabloids like the Auto Trader or Recycler, or in one of the many Internet sites that take advertising, like Excite Classifieds(www.classifieds2000. com). A good photo always enhances an ad.
Handle buyers. Once the calls, or e-mail messages, start coming in, be prepared to answer questions from the potential buyers. Don't lie or misrepresent the car in any way, either verbally or in your advertising. In private-party sales, most state laws assume the car is being sold "as is" with no warranty. But if the seller makes statements about the car that turn out to be lies, the buyer could have a winning case in court for the cost of the repairs or for return of the purchase price. On the other hand, this doesn't mean you have to volunteer every possible ill. Unless you're certain that the odd noise you sometimes hear means that the transmission is shot, don't mention it. Just answer questions honestly and to the best of your knowledge.
Dangers, unfortunately, lurk in our modern society. Take a few precautions when prospective buyers come to test drive your car. Schedule meetings during daylight hours, and when family members or a friend can be with you at your home. Ask the prospective buyer for identification - a driver's license, at least. Write down the information and leave it at home when you go on the test drive. Don't let anybody drive the car without you. And have your friend or family member accompany the two of you if you have doubts about being in a car alone with a stranger.
A serious-and prudent- buyer will want to have the car checked out by a mechanic. As long as the mechanic is not too far away, as long as you drive the car to the shop, and as long as the buyer pays for the inspection, that's a reasonable request. It could also protect you from potential liability should the buyer later accuse you of not disclosing a problem. But before you allow an inspection, agree to a sales price. Ask for a deposit that's refundable only if serious problems are found during the inspection and if you decline to pay for the repairs or reduce the sales price.
Close the sale. In closing the sale, write out a receipt that says, "This car is sold AS IS, with no warranty, explicit or implied." Put both party's names and addresses on the receipt. Put the year, make and model of the car on the receipt, as well as the Vehicle Identification Number (VIN), the time and date. Both parties should sign the receipt. Give one copy to the buyer and keep one for your records.
As payment, do not accept anything except cash or a certified bank check. If it's a certified bank check, have the buyer meet you at your bank where your banker can examine the check and accept it for deposit; certified checks can be forged and they can be subject to stop-payment. Only then should sign over the title and hand over the keys to the car.
You should also visit your state's Department of Motor Vehicles-or its Internet site-and see if you need to perform any other duties, such as supplying a valid smog certificate. Be sure to obtain, complete and send in any forms required for you to release your liability for the car after the sale. Otherwise, you could be held responsible for parking tickets or traffic violations if the buyer neglects to promptly re-register the car. And inform your insurance agent that you no longer own the car.
