The Proper Way to Determine The Value of a Second Hand Car

The Proper Way to Determine The Value of a Second Hand Car

The Proper Way to Determine The Value of a Second Hand Car

Buying a second-hand car can be a big decision and a big financial commitment. It’s imperative to know the true value of a car which will stop you paying over the odds.

Using our Car flipping 101 philosophy can actually make you money on every car you purchase!

So how do you determine the value of a second-hand car?

By working out the ‘trade’ or bottom cash value first, we can then figure out what the ‘real world prices are of the car in question are, only then we can use our formula to figure out the perfect price to pay.

This article will teach you everything you need to get started.

Let’s go through a few fundamentals you need to consider before making a purchase

The first thing to know is ‘not all cars are made equal’

You need to learn to compare ‘apples to apples’.

Two cars which appear to be the same on the outside can be very different on the inside, for example, one car may be the base model and the other car will be the top of the range fully optioned car with all the bells and whistles.

Options on a car especially more desirable ones such as Leather seats, Sat Nav etc make a difference to the value of a car.

In our opinion, it’s always better to get a car with as many options as possible which will help with resale later on.

What is your intention?

Here at Car Flipping 101 our main reason for purchasing a car is for fun and profit.

This means we look to pick up the best car for the money with the most options, with the view to drive it for a short amount of time (1-6 months) and flip it making a profit or at least break even.

This method allows you to get paid for driving a car for a few months or at least get your money back meaning you have driven the car for free.

You do not have to hold cars for a short amount of time, you can also purchase the car for longer-term ownership which is also fine. This obviously means there will be some value lost on the car when you do eventually come to sell it depending on the condition and mileage etc, however, buying it right in the first place will help you minimise your losses later on.

You make your money when you BUY the car not when you sell it!

It’s important you understand this concept. This ultimately means we must purchase the car correctly with a buffer built into the price from the outset, this gives us some protection to be able to drive the car and cushions us from some short-term depreciation loss.

You can learn more about car depreciation and how it can benefit you from our article here.

The methods we teach here at Car Flipping 101 work better with private sellers, however, the same methods can be used at dealerships although don’t expect to get the cars at the values we are teaching here, as more so this is the kind of stuff dealerships don’t want you to know!

Nevertheless, you will able to determine some of the margins dealerships are making on cars and the deal you thought was a ‘good deal’ may not be what it seemed.

Now you have the basic principles on lock, let’s move onto the actual meat

Stage 1 – Figure Out the Trade Value

The first step in figuring out how much to pay for a car is to work out what the ‘trade’ value or the bottom cash value of that particular car is.

The trade value is the value a ‘trade buyer’ such as a garage or a company like ‘we buy any car’ will pay for your car today.

This value enables the ‘Trade buyer’ to buy cheap and to list the car at a higher price and make some kind of profit on it.

There are some paid tools such as CAP & Glass valuation that help you do this, however, there are free methods that work just fine.

let’s walk through how to do it.

For this example let’s select a very normal BMW 520d M sport

 

  • Go to Autotrader.co.uk
  • Go to Sell your car along the top
  • Click on value your car

 

Now enter the reg and the mileage of the car we want to buy into the boxes and click ‘ get valuation’

Confirm the correct details of the car and first select ‘ i am selling this car’

 

Now two valuations will be displayed

Private sale valuation is £8,080

Part Exchange valuation is £6,790

 

The private sale valuation means how much AutoTrader suggests this car should be listed for, however, we are more interested in the ‘part exchange’ price as this is what the value of this car would be if the car were taken in by a dealer or the ‘trade price’ as we have discussed above’

Now let’s repeat the process above again and this time select the ‘ i am buying this car option’

This will give us some extra bit of valuable information.

 

By doing this we can now see a ‘dealer guide price’ this means this is how much a dealer would look to sell the car for.

We need to keep this figure in mind as once we look to list the car we acquire for sale, we will be looking to beat this price.

Remember we must have an exit strategy in mind before we purchase the car.

Now let’s use another tool to see if the car values we are getting here match up on other platforms.

Now let’s head over to webuyanycar.com

Enter your reg of the car you are looking to buy, you may be asked to provide a few more details here such as how many owners the car had had and if it has a sat nav etc, if the information is not already in the add, then call the seller to obtain the required information.

The car we have selected does not appear to have a sat nav and has 3 previous overs, let’s enter the information.

 

Now continue to the last step and fill out some details

(tip: you can create a separate email account to use just for valuation purposes) and press enter

Our valuation is now displayed, as we can see on this site the valuation is slightly higher than from what we had from AutoTrader.

Recap

To quickly recap we have managed to determine the trade value from Autotrader sits at £6,790 and the trade value from WBAC sits at £7,320, in this circumstance we would take the middle ground from both values and determine a fair trade value for this particular car would be £7,000.

Stage 2 –  Further Research

This stage now requires us to do a little bit of research on some car classified sites such as AutoTrader, Gumtree, eBay etc to determine what other cars similar to ours are being listed for in the real world.

We want to make it absolutely clear you need to only look for cars almost identical to the one we are looking to buy

For example if the car you are looking to buy has a manual gearbox, don’t compare it to a car with an automatic gearbox, if the car your looking to buy has 89,000 miles on the clock don’t compare it to one that has 45,000 on the clock these variables make a big difference in price, (the colour of the car doesn’t matter so much but we have found a white car tends to have a slightly higher premium attached to it).

Remember the principle of comparing ‘apples to apples’

An easy way to do this is by using AutoTrader filters to filter out cars leaving only the ones we are interested in

Once you have found a few, see what the cheapest closely matched car is to the one you are looking to buy and make a note of the price.

Remember when doing this stage of the research to look for both dealer and private seller prices.

The reason we do this step is to confirm how much buffer we could have once we come to list our car for sale (assuming we are going to flip it)

So from our research, we can see that we have found a similar car being sold by a dealer for £8,995 which is some £800 cheaper already.

Final Things to Consider Before Making an Offer

Things you must consider are other expenses which you may encounter when you have purchased the car, some of the things should be worked in the offer you submit.

MOT – Look for a car to have as close to 12 months MOT as possible, this just means a VOSA trained mechanic has looked over it. If there are any advisories on the MOT such has Tyres, brake pads etc then you need to work out what these will cost you to replace, this is a further negotiation point with the seller.

You can check the MOT history of almost any car by going to:

https://www.check-mot.service.gov.uk/

Service History – When was the last service done? Is one due soon? If so you need to factor this into the price, a simple oil change can cost around £50 from a local garage so don’t worry about this too much however again this is another negotiation point

Damage/Scratches/Scuffs – Any cosmetic damage you may need to get fixed on the car will also play into the price as s rule of thumb it would cost around £150 per panel to get rid of a deep scratch, so you need to know beforehand if any exist and if it’s worth your while getting it repaired

 Critical Repairs – sometimes sellers list cars for sale when they are due to have a critical and expensive maintenance repair.

An example of this is a timing belt change, depending on the car the cost could range from £250 – £1,500 so you need to be aware if this work has been done or will need doing.

The best way to know this is to phone up the main dealer service department of the car you want to buy e.g BMW and just ask them what the ‘timing belt’ interval is.

Once you know when it is you can ask the seller if it has been according to manufacturer guidelines.

Note: not all cars have timing belts some have chains, but the point is you should take some time to research the key maintenance items of the car you are looking to purchase, a simple google search should sort this for you.

How to Formulate the Offer

Now we have all the information we need to begin formulating our offer, let’s work through how we would do this. As a rule of thumb on car flipping 101 we look to make a minimum of £500 per car we flip, sometimes we make a lot more, sometimes less but we always work to this formula

We will assume the car we have used as an example does not need any additional money spending on it as per the items above

Trade Price of Car £7,000

Autotrader Recommended selling Price £8,080

Cheapest Similar car listed £8,995

Our list price (when we come to list it for sale) should be cheaper than the cheapest similar car already for sale, so something like £8,795 would be perfect.

Now £8,795 – 500 (our profit for this flip) = £8,295

£8,295 would be the MAXIMUM amount we would be willing to pay for this car if we want to flip the car in a short space of time for a £500 profit.

However, the real key would be to try and get the car as CLOSE to the trade price as possible which only increases the amount of margin we now have in the car and gives us a buffer for any repair work that would need to be done.

Some Cars Will Not Fit This Mould

Some older cars especially cult classics have their own market value, therefore figuring out the trade value on very old cars (15+ years old) may not always work as the trade value may suggest they are almost worth nothing.

However, the best way to approach this is to use the stage 2 method and figure out what the real world values of these cars are and then use that to formulate your offer.

A great way for this is to use the eBay ‘completed listing’ tool to see what types of prices the cars sold for.

Conclusion

Although this may seem like a long process after a few attempts you will have refined this down to a 10-15 minutes research task, it’s important to know these numbers as this will help you not to overspend on a car and increase your chances of making money and having a successful flip

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