There are at least four different prices that can be applied to any car. They are all a little different from each other and can even change individually over time or if the location is different. The Four Prices are: What You Paid For It, What You Could Sell It For, What You Could Replace It For, and What Some Third Party Thinks It's Worth. Let's look at each of them in turn.



What You Paid For It is not just the price upfront. That is the simplest part. If you paid $1000 for your Fiat, you might think of that as the Price you paid. You have to also include the tax you paid and any parts you added to the car. That is where it gets tricky. Once you start spending money on the car, it is easy to confuse Price with Cost. I can't tell you how many Fiats I have looked at where people tell me "I just put $2000 in this car!" or "I have a $700 stereo that goes with it."


Those things are certainly tangible Costs, but they should not be used to determine Price. My rule of thumb is to only include things that are transferable in the value of the car. So the $2000 just spent on the car may break down into things like insurance, gasoline or even labor for repairs. Out of two grand there may actually only be $200 in parts added to the car that then translate into Price.


For instance: You buy the car, pay $1000 for it, and it needs $250 worth of tires, $75 in brake work and a $23 oil change. Only the $1000 plus the $250 tires and $75 brakes count to me. They made the car change from non-roadable to being able to pass inspection. Customizing becomes a grey area: If I wanted a $700 stereo like the one just installed in the car, I might include that as an added value too. (I am more likely to tell the seller "Fine, keep the stereo and knock $700 off the price." That rarely works, but the point is different people value customizing parts differently.)


What You Could Sell It For is also a valuable pricing perspective. You could stick a sign in the windshield, park the car on the front lawn and wait for offers. Or put an ad in the newspaper and wait for people to call you with their idea of what the car is worth. Ebay has become a popular price comparison destination. You can type in the make & model of your car on the search line and see what other people are asking for (and maybe even getting) for a car similar to yours. I say "similar" because all used cars are different. No two have identical specifications of age, mileage, equipment, service records and location.


What You Could Replace It For is another thing you can look up online, in the classified newspaper ads or Craigslist. If you absolutely had to have the exact car again, check out what others are selling for and that makes a reference point.


What Some Third Party Thinks It's Worth is one of the more interesting ways to view a cars' value. If you wrecked it, how much would the insurance company pay you on your policy? How much does the Tax Man think it is worth? We actually had a Honda Accord Wagon that we got a great deal on, $5,000 at the time, and when we went to register it, the Motor Vehicle folks told us, "No, that year Honda Accord is worth $7,000 and you have to pay sales tax on the higher amount." We had to get a special form and send some notarized documents in to get a refund on the difference in sales tax. (One piece of evidence we saved was the newspaper ad stating the price as "asking $5,000.") How much does the Tax Man think it is worth when you donate it to charity? It used to be you could just claim the "Book Value" and get a credit for that. The rules changed in (2000?) and now you have to get an actual sale price from the auction company or charity to claim on your income tax.


How much does the Bank think it is worth when they write a loan on it? Sometimes the seller can tell right away a car is overpriced. There is an awkward time span for used cars where insurance companies stop writing collision policies and so most finance companies won't write a loan for it and suddenly, the car becomes priced at a level that people could actually save up. The cars become priced more in the region of the down payment needed for newer vehicles.


This is actually a great price-point for used cars. If the lease or purchase deals all need "$3,000 due at closing" there is a HUGE market for used cars in the sub $3,000 range. If you can't quite make the down payment and you need a car, an older, cheaper car is the only deal in town.


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