Selling a creampuff? Buyers know every vehicle wasn’t driven by a little old lady from Pasadena. But studies show that consumers overestimate the type and cost of problems a used car will develop.[1]
Rather than paying a fair value for a used vehicle, many buyers “plan for the worst” and try to incorporate future repair costs into the price they pay now. This “uncertainty discount” lowers the values of all used vehicles, not just those with problems.
Information is the most important part of any transaction. When one party knows more than the other, the party who knows less often makes bad decisions. Imagine how a hand of poker might be played differently if one player knew another player's hole cards!
Perfect information, or knowledge, removes doubt from a transaction and enables both parties to settle on a fair price. When both parties have the same information -- not even all of the information, just the same information – prices more accurately reflect real value and the “uncertainty discount” is no longer a factor.
If you are selling a vehicle, your most important job is removing uncertainty. Even selling a vehicle to a dealer becomes easier if you give the dealer enough information to allow them to offer your vehicle for sale. And You may score yourself a higher appraisal if the dealer feels that they will avoid warranty repair costs when reselling your vehicle.
Many types of vehicle information are available -- from reviews to crash tests to vehicle history. All are important, but none may be as important as a chronology of the vehicle’s service and repair records.
Vehicle History Is ReassuringAfter the U.S. government mandated a formula assigning each vehicle a specific information number (VIN), programmers quickly realized that information could be stored in databases and retrieved fast for each vehicle on the road.One company, Carfax, quickly scrambled to buy state title data and offered the first private Vehicle History Report covering multiple states. Selling vehicle-specific data to consumers and car dealers, Carfax reports quickly leveled the playing field. Even if the data was not always perfect, both parties had access to the same information from thousands of sources, including numbers of owners, states in which the vehicle had been titled or inspected and losses due to reported accidents or flooding. The company soon became the de facto standard for the new field of vehicle history.
Vehicle Service Removes Doubt
Carfax reports included some repair service and maintenance records, but capturing all the data was a Herculean task. With the data decentralized, the only real authority on what repairs or routine service had occurred was the vehicle’s owner.
Industry experts agreed that vehicles sold when buyer and seller both had access to the service history would increase the price. The uncertainty discount is reduced or eliminated when buyers see documentation about how well a vehicle has been maintained and any repairs, however minor they might be.
Manufacturers attempted to mitigate this discounting by offering "certified pre-owned vehicles" with warranties similar to a new vehicle's. This effort helped by offering financial protection, but did not remove the actual uncertainty. Only having all of the information and allowing the buyer to assess the true value does that.
Early Internet efforts to create databases people could use to store this information were difficult to use and incomplete. Newer services like DriverSide.com automate the process and provide an ongoing reminder of when service is due. Car owners can enter the service performed, the facility's name and location, the amount paid, service date and more.
All this information can be easily retrieved for presentation to a potential buyer to demonstrate proper maintenance or that an anticipated repair has already been performed. Meanwhile, buyers can get real market repair estimates and ascertain that even with minor flaws, the vehicle they are considering may not be the money pit their conservative inner voices are warning them that it might be.
Selling At Higher PricesProviding service and vehicle history information removes uncertainty. Consider this: if only 10% of cars have problems, but 100% of used cars are discounted some amount because of uncertainty, having a full mechanical service history creates an opportunity for the remaining 90% of vehicles to receive their fair value. Fairly valuing a vehicle helps you as a seller and a buyer. Any future repairs are easily appended to the existing history. Mechanics and service personnel also can determine what types of service may need to be done, and the buyer can confidently provide to anyone – insurance companies, subsequent buyers or lenders – the complete vehicle history.
Rather than paying a fair value for a used vehicle, many buyers “plan for the worst” and try to incorporate future repair costs into the price they pay now. This “uncertainty discount” lowers the values of all used vehicles, not just those with problems.
Information is the most important part of any transaction. When one party knows more than the other, the party who knows less often makes bad decisions. Imagine how a hand of poker might be played differently if one player knew another player's hole cards!
Perfect information, or knowledge, removes doubt from a transaction and enables both parties to settle on a fair price. When both parties have the same information -- not even all of the information, just the same information – prices more accurately reflect real value and the “uncertainty discount” is no longer a factor.
If you are selling a vehicle, your most important job is removing uncertainty. Even selling a vehicle to a dealer becomes easier if you give the dealer enough information to allow them to offer your vehicle for sale. And You may score yourself a higher appraisal if the dealer feels that they will avoid warranty repair costs when reselling your vehicle.
Many types of vehicle information are available -- from reviews to crash tests to vehicle history. All are important, but none may be as important as a chronology of the vehicle’s service and repair records.
Vehicle History Is ReassuringAfter the U.S. government mandated a formula assigning each vehicle a specific information number (VIN), programmers quickly realized that information could be stored in databases and retrieved fast for each vehicle on the road.One company, Carfax, quickly scrambled to buy state title data and offered the first private Vehicle History Report covering multiple states. Selling vehicle-specific data to consumers and car dealers, Carfax reports quickly leveled the playing field. Even if the data was not always perfect, both parties had access to the same information from thousands of sources, including numbers of owners, states in which the vehicle had been titled or inspected and losses due to reported accidents or flooding. The company soon became the de facto standard for the new field of vehicle history.
Vehicle Service Removes Doubt
Carfax reports included some repair service and maintenance records, but capturing all the data was a Herculean task. With the data decentralized, the only real authority on what repairs or routine service had occurred was the vehicle’s owner.
Industry experts agreed that vehicles sold when buyer and seller both had access to the service history would increase the price. The uncertainty discount is reduced or eliminated when buyers see documentation about how well a vehicle has been maintained and any repairs, however minor they might be.
Manufacturers attempted to mitigate this discounting by offering "certified pre-owned vehicles" with warranties similar to a new vehicle's. This effort helped by offering financial protection, but did not remove the actual uncertainty. Only having all of the information and allowing the buyer to assess the true value does that.
Early Internet efforts to create databases people could use to store this information were difficult to use and incomplete. Newer services like DriverSide.com automate the process and provide an ongoing reminder of when service is due. Car owners can enter the service performed, the facility's name and location, the amount paid, service date and more.
All this information can be easily retrieved for presentation to a potential buyer to demonstrate proper maintenance or that an anticipated repair has already been performed. Meanwhile, buyers can get real market repair estimates and ascertain that even with minor flaws, the vehicle they are considering may not be the money pit their conservative inner voices are warning them that it might be.
Selling At Higher PricesProviding service and vehicle history information removes uncertainty. Consider this: if only 10% of cars have problems, but 100% of used cars are discounted some amount because of uncertainty, having a full mechanical service history creates an opportunity for the remaining 90% of vehicles to receive their fair value. Fairly valuing a vehicle helps you as a seller and a buyer. Any future repairs are easily appended to the existing history. Mechanics and service personnel also can determine what types of service may need to be done, and the buyer can confidently provide to anyone – insurance companies, subsequent buyers or lenders – the complete vehicle history.
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