What is the book value of a car?
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UPDATED: Jun 17, 2019
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The book value of a car determines the value of a used car. Dealerships and private sellers rely on the book value to determine a fair sale price and you can use the blue book value to help determine if you are paying a fair price for a vehicle.
The book value should never be considered a set price, but as a value range of the vehicle’s worth. There are three main companies that publish blue book values on cars Kelley Blue Book, Edmunds and NADA.
Note that you should not rely on just one book value. By comparing different book values, you will get a better picture of a car’s value.
How was the book value created?
In 1918, Les Kelley founded a car dealership in Los Angeles. He only had three cars and one employee. Kelley made a list of cars he wanted and how much he was willing to pay for them.
The lists became popular with the other dealers and banks so they started using his lists to set prices. In 1926, Les published the list. It had a blue cover and became known as the Kelley Blue Book.
The list stayed a local item until the 1940s. As servicemen started to return from World War II the demand for cars spiked. Most automakers were still producing wartime materials, which forced people to look at used cars.
The Kelley Blue book expanded nationwide and for that time, was the only standard for assessing the value of used cars.
How is the blue book value calculated?
Several factors are considered to determine the book value of a car. Let’s first look at how the databases are created. Used car sales are analyzed from a variety of sources such as:
- Bank leases
- Private sales
This information is then combined with
- Historical trends
- Current economic demands
- Location-based sales
to provide a value based on not only the car, but also where the car is being sold. Additional data is used to determine the value of a specific cars (such as optional features and custom modifications).
In order to determine the full picture of what a car is worth, the following factors are taken into consideration:
- Year, make, and model
They compare cars of the same year, make, and model with similar mileage, condition, and location. From this, they look at past sales and current economic demand. This gives them a clear picture of what a car could expect to sell for.
Let’s look at an example: Say you live in North Carolina and own a 2007 Dodge Caliber. Your car has 60,000 miles on it and only minor scratches.
After you plug in the info and answer a few questions to determine the car’s condition and any special features that may increase its value, you can see trade in value or private sale value.
So for a final result, the car has a trade-in value of roughly $7,000 based on the features I gave it. This price can now be used to determine if a fair price is being offered.
How do I find book value of a car?
The book value of a car can be found online by simply entering information about the car into the quote tool as done for the sample above. The more information you have, the more reliable the quote will be.
All three major companies have websites with online tools to help you. Manuals are still printed and sold that determine a car’s book value. These can be found at auto parts stores, libraries and bookstores.
These may be harder to navigate if you do not know how to use them. Some car dealerships may also help you find the book value of your car.
How is book value used?
A book value is a great tool whether you are selling or buying if it is used properly. For people selling a car the blue book value is a very good place to start a forming a sales price for a vehicle.
Before you can sell something, you have to know what it is worth and the blue book is a good market indication of value. A book value tells you what you can expect to receive from a private sale or a trade-in.
Trade-in value is what you can expect to receive if you want to sell your car to a dealership. The reason this price is lower is to allow for overhead costs and markup.
Dealerships need to be able to pay a competitive rate, but still be able to make a profit when they resale.
Now let’s consider using the book value when purchasing a used car. You can use the book value to determine if a price is too high. Nobody wants to overpay for a vehicle.
You should expect to see a slight markup if purchasing from a dealership. Remember they are there to make a profit, but the book value can tell you if they are asking too much.
Banks also use the book value when deciding on car loans. If a vehicle is priced way over value, then it is not a good investment for them. Most banks will only finance a certain percentage of a car’s book value.
As you can see the book value of a car is more than just a simple valuation for your model but a foundation for car values nationwide.
Much like any valuation model the book value may not always accurately reflect the value of your vehicle but its certainly a good resource to use for a range for similar vehicles.