Let's say you are looking to buy a house. You find one in a neighborhood you like, and you know how much the seller is offering to sell it for its "listing price."
You'd like your broker's help figuring out what that house is "worth" what a fair price would be for that particular house. So you ask your broker to research what similar houses in that neighborhood have sold for recently.
Suppose your broker came back and said, "Here is a list of comparable houses, and what their listing prices were." "Well," you respond, "That is mildly interesting, but what I need to know is what they sold for. Most likely none of those sellers got their asking price. Only if I know the actual transaction prices for the other houses will I have some idea of what a fair price is for the house I want."
This concept may seem self-evident. But if it is, why do consumers forget all about it when they go shopping for a used car? Here is what frequently happens.
You find a used car you are interested in on a dealer's lot, and you need to figure out how much you are willing to pay for it. The negotiation process is about to begin, and you want it to result in your buying the car for a fair price.
All too often, however, the dealer will direct your attention to a printed price guide and often it will be the Kelley Blue Book. (Kelley publishes more than one price guide for used cars, but the one your dealer is likely to use is the one labeled "Kelley Blue Book Auto Market Report Official Guide," the version of the book that Kelley sells to dealers.)
The salesperson will look up the car you are shopping for in the Kelley Blue Book, and will point to the "retail" price for that car. And then he will assert that since the price he is asking is quite a bit less, you should rest assured that he is asking a fair price. The implication is: why negotiate further?
But what is that "Kelley Blue Book" value he showed you? Is it the price at which cars like yours have recently sold to other buyers? Is it even an estimate of the actual transaction prices?
Surprising to most used car buyers, it is not! It is only an estimate by Kelley of the "listing" prices being asked by dealers not what they are really getting for the car. As Kelley forthrightly says in the book, these are "suggested retail values" (although we bet that your dealer won't show that to you). The book clearly states:
SUGGESTED RETAIL VALUES represent Kelley Blue Book's estimated dealer asking price. The actual selling price may vary substantially. (Italics added.)
Yes, we agree with that: In our opinion, they do vary substantially. And in most cases, they are likely to be substantially lower than the asking price. After all, how many sellers of houses, or anything negotiable for that matter, get their asking price?
And as the version of the Kelley Blue Book that Kelley offers to consumers states:
Retail Values represent what a dealer may ask for the vehicle once it has been inspected, reconditioned and possibly warranted. This is the "Asking Price" and you may expect to pay less. (Italics added.)
Yes, based on our research, you often may expect to pay a lot less.
Our advice is simple: If a salesperson whips out a copy of the dealer edition of the Kelley Blue Book and points to one of its retail prices, say to him or her: "It is nice to know the price that Kelley thinks dealers are asking for this car, but can you show me what dealers are actually selling this car for?"
And if the dealer says that Kelley doesn't publish those values, ask him to tell you the dealer retail Edmunds.com True Market Value® for the car. That TMV® price is the estimated average selling price for your car, and it's what you need to know to negotiate a fair price.
To find a dealership that knows how to treat shoppers right, please visit Edmunds.com's Dealer Ratings and Reviews.