The difference between book value and market value

Selling your car? Make sure you understand the difference between book value and market value…

If you’re thinking about selling your car, chances are you need to know what it’s worth, right? But how does one determine the value of one’s car when there are so many factors at play? And what is the difference between the book value and the market value?

The motor trade commonly refers to the “book” value of a car. This refers to the prices published in the Transunion Auto Dealers’ Guide, explains Jamie Surkont, director at used car retailer getWorth.

“The book is used as a guide or base pricing instrument and one must still take into account many other factors that can affect a car’s selling price or market value,” he says. “Factors such as the condition and history of the car, it’s colour and mileage, demand, the state of the economy or inflation rate can all impact the car’s actual value.”

“The book value is therefore a price guideline that the automotive, insurance and car finance industries use in order to arrive at an approximate value. The market value, on the other hand, is the price that can actually be obtained by selling an asset on a competitive or open market. Therefore, in car terms, it is the price you will be able to sell it for.”

Surkont says that the guide shows two numbers for each car variant and year – a retail price and a trade price. “When many people refer to ‘book’ value, they often aren’t aware there are two prices within the book,” he adds.

Another problem many people face is that they have been led to believe that the book value is what their car is worth in the open market. This is not the case, says Surkont.  “The book value is a rough guide to what you might get paid. Real market values might be higher or lower – sometimes by quite a large amount.”

He says that the best way to estimate the market value of your car is to do your homework. “Go onto websites and compare similar cars to yours. Be realistic about the condition of your car and inspect your car with fresh eyes, as if you were a buyer,” he adds. “Blemishes, damage and mechanical issues will affect what you will get. Then make allowances for the dealer’s margin or the discount that someone buying privately would normally expect. Older cars, slow sellers or cars that are difficult to price would require a higher margin.”

“Popularity of a car doesn’t necessarily mean it will command a high price – it depends on the market at the time. For example, Hyundai i10s and Volkswagen Polo Vivos might be popular cars, but when the rental car companies flood the market with thousands of ex-rentals it will depress the prices.”

He points out that people who want to sell their cars have always had various options available to try to achieve the best value – selling privately, trading in or selling to a dealer for cash.

One can try to get closer to a retail value by selling a car privately, but Surkont points out that this is also the most inconvenient and risky selling process. “Aside from security issues and the time and effort it can take, the inability to deal with a buyer’s current vehicle and the difficulty in raising finance for a private sale can scupper many potential deals.”

Trading in your car is certainly convenient, but you don’t want to just accept the first offer you get. “Even if the price appears solid, you might be subsidising it through an inflated price on your new car,” says Surkont.

“Look for options that offer you more,” he advises. “For example, with getWorth you get a firm offer based on actual market data. You not only get piece of mind that you are getting what your car is really worth, but also an upfront cash payment and the profit when the car sells.”

There are ways to help you get a better price no matter which route you choose. Surkont offers his tips on how to ready your car for a sale:

  • Clean your car, inside and out. A dirty car full of trash makes a negative impression, and a buyer will ask themselves whether the car was also poorly cared for.
  • Be honest about the condition. It’s not going to increase your price, but honesty will increase your chances of a successful sale.
  • If it is close to a service, then get that done before selling. If a buyer knows that a car has recently been checked mechanically, their confidence in the car will be higher.
  • Make sure your basic maintenance is up to date – if the brakes are shot, or the tyres bald, replace them.
  •  Should your car require minor cosmetic panel work, instead of fixing it yourself, rather sell it to a reputable car retailer that will get it fixed properly. You will save money in the long-run.
  • Get your admin together. Find your registration papers, find your spare key, find your service book!