Car Appraisal: How to Build a Data-Driven Strategy

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“You don’t make money when you sell a car; you make money when you buy it.”

If you agree with this statement, then you already understand the importance of an accurate car appraisal. Appraisal is the lifeblood of any used car program because it has the biggest impact on your bottom line.

That’s right– it’s not just retail sales that drive profit; it’s your ability to buy and sell vehicles at the perfect price. To do that, you need a data-driven approach to appraising used vehicles.

Data-Driven Car Appraisal

Imagine David pulls onto your lot and wants to trade in his 2015 Volkswagen Jetta. David knows the KBB value of his car is between $13,000 and $15,000. However, based on some scratches on the bumper, you appraise it at $11,500. Hoping to earn more, David drives across the street to your competitor, who appraises the Jetta at $12,900. You lose the deal.

Even more frustrating? If you had properly appraised David’s vehicle, you would have known it was still worth $13,100 despite the scratches. You could have offered David even more than your competitor and still made a profitable deal.

What many dealers fail to realize is that you didn’t just lose one deal from David– you lost two. The first deal is obvious: you lost the chance to sell David a new car on the trade-in. But the second deal is just as valuable: You lost a chance to resell his car.

We never want to see dealerships miss out on a car deal. In fact, we care so much about this that we created a feature in VinCue to track it:

vincue missed deals car appraisal

This simple metric is like a canary in a coal mine. If you start to lose too many car deals, you know something is wrong. Most often, lost deals means it’s time to reevaluate your car appraisal strategy.

Appraisal Strategy: Optimize for Turn and Margin

A hammer is only as good as the carpenter. The same is true for data. It won’t do much if you don’t know how to use it. You need an appraisal strategy– a guiding principle for making the best decisions with the data.

A good appraisal strategy focuses on two metrics: Turn rate and margin. It can be summarized into a single question:

“What is the optimal price that gives me the best margin with the fastest turn rate?”

The goal is to strike a balance between the two metrics. Price a car to high and it will sit for too long. Price it too low and you will not make your desired margin.

While margins may vary, the optimal turn rate for a vehicle is 30 days or less. So to refine the question above: “What is the highest price we can offer and still turn this car in 30 days?”

VinCue helps you answer this question in the form of the Real Market Price. This price is based on actual sales in your market, not a general algorithm. VinCue then factors in reconditioning costs and your desired margin to give you the ideal Wholesale Appraised Value.

vincue car appraisal

How to Appraise Vehicles with VinCue

No matter which tool you use for car appraisal, it’s important to factor in every pricing variable. Here’s a step-by-step approach to car appraisal that ensures you get it right every time:  

1. Find the Average Clean Market Price

First, determine the average market price for the vehicle based on make, model, trim, and year. With VinCue, you can find this information in the vehicle directory, by using the search bar, or by looking up the VIN number.

2. Input Odometer and Condition

How much wear and tear does the vehicle have? Be sure to consider the condition and mileage for the vehicle. VinCue will automatically calculate the change in price based on this information.

3. Include Equipment Specs

Does the vehicle have valuable upgrades, like a navigation system, 4WD, or sun/moonroof?  Some factors have a bigger impact than others. Choose the equipment specs and VinCue will tell you the added value of each.

4. Get the Real Market Price

We want to optimize our price for a 30-day turn rate. VinCue gives you this exact number: the Real Market Price. This number factors in the clean market price, odometer, condition, and equipment specs. Real Market Price is the highest you can charge and still expect to turn the car in 30 days.

5. Factor in Reconditioning

David’s Jetta had chipped paint on the bumper and needed new tires. Reconditioning costs like this can quickly eat up margin if they aren’t considered. Plug the estimated reconditioning costs into VinCue and it will be factored into the final appraisal price.

6. Set Your Desired Margin

How much do you want to make off this trade-in? Enter your desired margin into VinCue and it will be factored into the appraisal price along with reconditioning costs.

7. Get the Wholesale Appraised Value

Based on the Real Market Price, reconditioning costs, and your desired margin, VinCue will then calculate the Wholesale Appraised Value. This is the optimal price to pay for the trade-in.

Other Important Appraisal Factors

Context is everything when it comes to winning the appraisal game. Specifically, what is going on in your market, your city, or with your competitors next door? VinCue wants to arm you with the all the data you need to make the best decisions. Here are other important factors to consider when appraising used vehicles:

Compare Similar Vehicles

Want to know how your pricing compares to competition? VinCue will let you see prices and turn rates of similar vehicles in the area. This gives you the assurance that your pricing is competitive.

Turn, Supply, and Volume Rates

vincue turn supply and volume rates

Some vehicles are just hotter than others. VinCue lets you see the average turn rate, volume, and market supply of a vehicle before making an offer.

Most Attractive Features

David’s 2015 Jetta has a higher than average turn rate, but the diesel version of the Jetta has a below average rate. Other cars turn faster with 4WD or a sunroof. Appraising a vehicle at the equipment level helps you find hidden gems and avoid landmines.

Accurate Appraisal Makes All the Difference

As the lifeblood of your used car program, we cannot put enough emphasis on the importance of car appraisal. Not only does it help you meet your desired margins, it also helps you close more deals (which can actually be two deals in one).

VinCue makes it easy to determine the optimal price point for maximizing margin and turn rate. Moreover, it gives you all the information you need to judge appraisals for yourself and make the best decision.