Drive Virtually Free: Smart Used Car Buying Advice

Recently, a friend came to me for some advice on whether he should keep his current car or move to something new.  He has major car fever just like me, so his dilemma is a nice one to have: whether to stay with a Porsche Cayman S or move to a 2008 BMW M3.

Now, it is of course almost always less expensive to keep the car you have rather than move to another car if they are similar in class, age and price.  There are significant transaction costs associated with changing cars every few years – taxes, fees, transportation and time spent searching for the car.  Luckily, he is in a state where he doesn’t have to pay sales tax on car purchases, so the cost associated with frequently changing cars isn’t as high for him.

He wanted to know how much more it would cost him to switch to the M3, so that he could make an informed decision about whether it would be worth the extra cost or not.

If you can’t tell, I love spreadsheets.  So I decided to make a spreadsheet that breaks down all of the costs of keeping one’s current car versus moving to a different car.

I separated the variable costs from the fixed costs, so that I could see how the cost of ownership would change with the number of miles driven.  Some of the fixed costs aren’t purely fixed – your insurance and depreciation will depend on how many miles you drive per year, but since they won’t change that much within 5,000 miles higher or lower than average driving, I consider them to be fixed costs.  I included an opportunity cost in there because even if you are able to buy your car in cash, you are still losing the ability to invest the money that is tied up in the car.  If you finance your car, this takes the form of interest.

The variable costs are things that I have discussed before – maintenance, repairs and fuel.  I used actual costs for the Porsche in this example and estimated the costs on the BMW based on published numbers for fuel economy, my personal experience with the tire wear, and I was able to set many of the costs to $0 since they would be covered under the free maintenance program.

If I didn’t have this data, I could have used Edmunds’ True Cost to Own tool to make similar assumptions.  I had to use this for the depreciation figure as well.  Consumer Reports also offers this data with a paid subscription to their site, but sometimes data specific to high performance cars is not available.

After I had all of the assumptions plugged in, I summed up the costs in each section and was able to compare them.  The operating cost on the M3 is lower for the first few years because of their included maintenance program.  However, the depreciation, opportunity cost and tax and registration make the car more expensive to own over the next 1 year period.  In my friend’s case, he lives in a state that doesn’t have sales tax, so that item would be $0 as well and the two cars become similar in annual costs.

So, what did he decide?  He’s a car freak like me, and thought it was time to change despite the higher cost, so he’ll be shopping for a new car soon!

Selling your car privately is the best way to go, but always remember to be wary of people trying to take advantage of you.  If it’s too good to be true, it usually is.  Here are 4 common scams to watch out for:

Advance-Fee Fraud (Nigerian Scam)

So named because any of those who have attempted this scam in the past are located in Nigeria, this is one of the most common scams to look out for.

The scammer will typically send you an e-mail telling you that they will pay you full price and then some, without ever seeing the car beforehand.  There is often an elaborate story about how the buyer is a powerful foreign leader or businessman working overseas and the e-mails are typically riddled with misspellings and generally poor English.  They will tell you that the extra money is for you to use to ship the car to them, and they trust that you will send them any remaining money once the transaction has been completed.

People who fall for this scam will happily deposit the check, ship the car, and then send the remaining funds back.  Soon after that, they will be notified by their bank that the check they deposited was a fake and the funds are being withdrawn from their account.  At this point, the poor soul will have lost the car along with the money that was sent over to the scammer.

If you spot this scam and you get bored, stringing the would-be scammer along can provide you with a good deal of entertainment.  Otherwise, send these e-mails straight to the trash.

Bad Checks

This is a much simpler scheme: a buyer may come to purchase your car, but write you a personal check.  Even if you say that you want to see the funds in your account before they can take the car, you can still get scammed because while the funds will show up in your account within a few days, it usually takes several weeks for a personal check to truly “clear”.

The best way to avoid this is to never accept personal checks under any circumstances.

Counterfeit Cash

While many suggest that cash is the only way to make sure that you won’t get ripped off, don’t forget that counterfeiters are still working hard to make bills that will fool you.  The easiest way to avoid this scam is to refuse cash payment for the car.  If you decide to accept cash, have the bills inspected at the bank for authenticity or try using a counterfeit detection pen (using iodine solution), which you can buy from drug stores or supermarkets.  If you’re worried about hurting the buyer’s feelings, cite a past incident and tell them that you make it a point to always check for counterfeit cash.

Fake Escrows

An escrow service, which is used to collect the buyer’s payment for the seller, is designed to remove risk from a large transaction.  Unfortunately, scam artists are setting up fake escrow services to lull their victims into a false sense of security.  Typically, the buyer will suggest an escrow service to use to buy your car, often sending a link to a website that may look very legitimate.  Look carefully at the links and the webpage that you have been sent to.  If you have any doubts, go to the official site of the true escrow by typing the address into your browser yourself.  Send the link you have received to the escrow service asking them to validate it.

A sure sign of this scam is a buyer insistent on using a particular escrow service.

The Solution

So, with all of this deception going on, what’s a seller to do?  You have to collect payment somehow.

If you can, go to the bank with the buyer so that you can actually see them having the cashier’s check drawn.  While you can fake any payment method, the cashier’s checks often have security features that are tough to duplicate without a serious effort, and banks can tell you whether they are valid or not.

If you have a bank account at the same institution as they do, ask about having the funds directly transferred from the buyer’s account to your account.  This makes it almost impossible for the buyer to use a fake payment method.

Don’t let this put you off selling privately.  Most buyers are legitimate and the few who aren’t make the problem seem worse than it is.  If something doesn’t seem right, follow your instincts and take a second to check the payment method out.

Selling your car privately can be a hassle, but it is definitely worth the thousands of dollars you will save versus trading your car in or selling it to a used car lot.  Car dealers are experienced with negotiation and know how to get your car for as little money as possible so that they can increase their profits when they resell the car.

So, in order to sell your car privately, you’ll need to create an ad for it.  Your advertisement is like a resume – it just gets you an interview with prospective buyers.  Make it as engaging as possible to set your car apart so that you can attract multiple buyers.

Where should I advertise?

• AutoTrader
• Craigslist
• cars.com
• eBay Motors
• Local newspapers

How do I prepare my car for sale?

This is a critical component of selling which is overlooked by a surprising number of sellers.  To prepare your car for sale so that you can sell it more quickly and for a higher price, you should:

• Restore the car to factory condition as much as possible. Most people won’t want the same modifications as you – they are just looking for a car that is the same as the one from the factory.  If there are any small problems like scratched trim pieces which can be replaced.  You should also look at getting the car aligned and making sure that the tires are in good shape and are a matched set.
• Clean the car up! So many people show their car without washing it, with trash in the back seat and so on.  Remove everything from the car that you don’t need on a day-to-day basis.  Take a few hours to wash, wax and detail the car inside and out or pay someone to do it for you.  Put yourself in the buyer’s shoes – what would you think if you went to look at a car that wasn’t even kept clean?  You could be losing the sale or at least hundreds of dollars by not doing this.

What should my asking price be?

Look at Kelley Blue Book, Edmunds True Market Value and National Automobile Dealers Association (NADA) guides to estimate the value of your car.  Kelley Blue Book tends to value cars higher than what they are actually worth, in my experience.

Also look at the ads of other similar cars in your area to get an idea of pricing.  Call some of the sellers and ask if they have sold their cars.  If they have sold them, ask what the final price was – don’t be shy.  If they haven’t sold them and they say that they’ve been on the market for a while, you know that their asking price is not competitive (or something is wrong with their car).  Print out these ads as well as the price estimates from the above sites for reference when people come to see the car so that you can show that you’ve done your research.

I like to price my car in the lowest third of similar cars (cars of the same make, model, and similar mileage and year, within the same generation).  So, if there are 10 similar cars, I will price mine to compete with the 1st, 2nd and 3rd cheapest.  This will move your car more quickly and also put you in a position to invite multiple buyers to get them to compete and perhaps start a bidding war.

How do I make the car look good in pictures?

Take pictures of the car just after it has been cleaned.  Find a suitable location for the photos, like a secluded mountain road.  In front of your house is fine as well, but just make sure that there is no clutter in the background.  The time of day will affect the lighting, and while I’m not an expert photographer, I find that pictures come out best at the beginning or the end of the day when the sunlight is not too harsh.

It’s important to take lots of pictures to make sure that the buyers don’t feel as though you are hiding anything.  To cover the entire car, I will typically take the following nine photos:

1. Front driver side 3/4 view
2. Front view, head on
3. Front passenger side 3/4 view
4. Rear passenger side 3/4 view
5. Rear view, head on
6. Rear driver side 3/4 view
7. Driver door open, with a view into the car
8. In the car, with a view of the entire dashboard
9. A photo of the instrument cluster, showing the mileage

Also take photos of anything else ahead of time that buyers will be interested in seeing, such as modifications you’ve chosen not to remove or damage to the car.

Good photos will set your ad apart from the rest, since so many people fall flat here, posting up poor quality and/or not enough photos.

What should I write in the ad?

You will be limited in the amount of space you have to write your ad, but try to focus on what makes your car stand out among other similar cars in the area.  Stress the strengths that your car might have, such as:

• Desirable, premium features such as a sport package, navigation or upgraded leather
• Premium wheels
• Low mileage
• First owner
• Kept in a garage
• Highway mileage
• Full maintenance history
• No dings or scratches
• No accidents
• Clean title
• Major scheduled service completed
• Remaining factory warranty or extended warranty
• No modifications (if this car is a favorite of tuners, this can differentiate your car)

Like most people, I hate when someone wastes my time. If you’ve ever sold anything through classifieds, you know the frustration of dealing with buyers who aren’t serious.

There are definitely more ways to identify people who are just looking rather than who want to buy, but in general, my experience has been that you shouldn’t waste your time with anyone who falls into the following categories:

• Someone who hasn’t already seen an example of the same car already (or one that is similar). Usually, people do not buy the first car that they look at, and these folks are still in the beginning phases of shopping.  They won’t have any reference point against which to evaluate your car and in my experience, are never ready to buy.  You may get the primacy part of the primacy-recency effect, but it seems that usually the convenience of buying the car you’re already looking at leads people to buy cars near the end of the shopping cycle.
• Someone who is undecided between different makes and/or models of cars. These folks are in a similar category as the ones who haven’t seen a similar car to yours already.  If someone is still deciding on what kind of car they want, don’t bother showing them your car, because more than likely they will come over, drive it and then tell you that they need to go look at another model before making any decisions.
• Someone who wants to buy sight-unseen. Not only do you have to be especially wary of scams with these individuals, but usually if someone claims they are ready to buy from out of state without seeing the car, they’re just poking around and trying to see what kind of deal they can get.  I have bought cars from out of state, but the difference is that I’ve always wanted to test drive them first.
• Someone who wants to negotiate over the phone, never having seen the car. These people seem to just be asking the same question to 100 different buyers, trying to use the shotgun approach to finding the lowest price.  They usually ask something like, “What’s the lowest price you’ll take?”  Without having seen the car or even having asked any other questions, they don’t know anything about its quality relative to other cars, so if you are priced competitively you can be pretty sure that these folks are just going to waste your time.
• Someone who is generally not knowledgeable about the car. My favorite question was from a friend who was selling his BMW M3, which is on par with a Porsche 911 in straight line acceleration – he said someone asked him, “Is it fast?”  If someone generally doesn’t know their stuff about your car, they are probably still in the beginning phases of shopping and will be using your time to learn about the car rather than actually evaluate whether it is the right car for them to take home that same day.

If you feel like you want to spend time with every prospective buyer, feel free to do so.  As with anything, there are exceptions to these guidelines and they aren’t hard and fast, so you may find buyers that I would have pegged as tire kickers early on.  My point is that you should try to focus on people who know what they want, have done their homework and are ready to buy because they are much more likely to take the car home and are less likely to waste your time.

If you have more suggestions, do feel free to share your experiences in the comments section.

One of the most effective and probably simplest ways to increase your sale price (through a private sale) is to use the principle of scarcity; items in short supply are considered more valuable.

The way it works is simple in principle, but slightly more difficult in execution.  When you have written an ad that generates sufficient interest in your car that multiple people have expressed interest in seeing it, schedule the prospective buyers to come at the same time.

One benefit to this is that it will save you a ton of time dealing with different buyers separately.  If you schedule buyers to come at different times, you might take up your whole weekend showing the car, because you are constrained by the fact that you need to be around when they show up.  Inevitably, people will cancel or try to reschedule, which makes selling the car even more of a pain in the ass because you will probably have commitments at other times in the day which are conflicting.

Even more time is saved because you are greatly increasing the chances that the car will be sold each time you show it.  When a buyer comes and sees someone else looking at the car at the same time, he will see that there is a real chance he might not get to leave with the car unless he acts quickly to capture the deal.

The first time I heard about this technique from a friend, I thought it was a truly novel idea.  I soon found out that in Robert Cialdini’s book Influence, he discusses this exact method of selling cars in a chapter dedicated to the principle of scarcity.  He says that his brother used this technique to flip cars and pay his way through college by buying undervalued cars one weekend and then selling them the following weekend after cleaning them up a bit.

Schedule 2 or 3 prospective buyers to show up at the same time (writing an ad that will do this is really the most difficult part).  When the first buyer shows up, he will begin inspecting the car as you would normally expect.  Once the second buyer shows up, however, mention to him that he will have to wait for the first person to complete his inspection of the car since he arrived first.  Tell buyer #2 that if buyer #1 decides not to purchase the car, they can have a look at it and decide if it is right for them.  If a third buyer shows up, repeat the same process with him.

This does several things to help you sell your car:

• It applies time pressure to the buyers
• It clearly demonstrates the demand for the product (social proof that it is valuable)
• It takes something originally considered abundant and turns it into something scarce

Cialdini points to several experiments indicating that the principle of scarcity is most effective in raising the perceived value of an object or freedom when it is readily available and is subsequently taken away rapidly.

Car salespeople use this technique every day to encourage people to buy, mentioning usually that a car has a unique and highly desirable set of options, or that the model itself is in high demand and/or short supply.