Determining the current worth of a car can be tricky. You might start wondering whether the vehicle still retains its original cost and whether it is worth the price of a comparable replacement vehicle. Maybe you are debating between a dealer’s trade-in price vs what you could get selling it off in a private listing on Craigslist. Let’s talk about the fair market value of a car and how to calculate it.
One thing to know here is that there is no one exact value for a vehicle. That is what the fair market value concept sets out to resolve.
There are many ways the fair market value can affect your finances, like how it is associated with an insurance claim, solving a tax query, or selling a valuable asset. By understanding the concept behind the fair market value, you are better equipped to evaluate the value of your help and gain the most lawful and accurate result for your finances.
In today’s article, we will learn the definition of the fair market value of cars, when you may have to use it, and what to keep an eye out for when setting the fair market value.
- What Is Fair Market Value?
- Purpose Of A Car’s FMV
- Tools To Determine The FMV
- Calculation Process & Tips
Fair Market Value
The term fair market value is used to describe the present value of an asset. Alternatively, it can also tell us what a product would sell for on an open market. It’s improbable that you will have to use fair market value every day. Still, it can have a significant effect on your assets when matters like car sales, taxes, insurance, real estate deals, and other sections of your financial journey in the long run.
According to Edmunds, fair market value is also called actual market value, and it is an average of the price other people have paid for a vehicle. Some additional factors that can determine the fair market value of cars include supply and demand, brand reputation, and other features. Moreover, the fair market value generally does not include fees such as local taxes.
If the vehicle is popular, the fair market value is more likely to be somewhat similar to the original sticker price (MSRP). Based on the availability of the vehicle in your area, auto dealerships can charge you over the MSRP. Cars that offer more options are usually on the expensive end of the cost spectrum. But, you have to do a bit of legwork to know the fair market value of cars.
Meanwhile, older or less popular vehicles may be priced similar to the invoice price, the price received by the manufacturer from the dealer. However, not every dealership will disclose these digits as they could negatively impact negotiations. Not to mention how hard it is to decide the invoice price just from one glance at the receipt as it takes into account multiple technical costs.
Try browsing listings online and note how many rival dealerships ask for your desired vehicle—no need to be afraid that the car of your choice is somewhat out of your price range. Dealers often mark up their online inventory to attract potential buyers to discourage negotiations.
Why Market Value Is So Important
Apart from giving you a higher leverage point, a fair market value makes your chances of getting your desired car higher. Less experienced buyers can quickly settle for the face value set by dealers when purchasing a vehicle.
You can get yourself a better deal and save significantly with a bit of research. Given you play your cards right, you may walk out by paying a sum extremely close to the vehicle’s invoice fee.
Measuring the car’s fair market value also assures that the trade-in adequately compensates all parties. After completing their production run, selected cars appreciate value since they come with specific packages, features, or colors. A suddenly discontinued vehicle can be pushed into the spotlight, increasing demand almost overnight.
Purpose Of The Fair Market Value Of A Car
Chances are, you are working with fair market value because you have an unclear perception of the worth of your assets. In these cases, you can benefit from knowing how to determine fair market value – and why this becomes an issue to begin with.
You might have to work with the car’s fair market value when handling taxes, insurance claims, real estate dealing, or auto sales. In addition, it may have a role to play in situations related to business accounting. Each case is unique, but these are some of the more common instances in which fair market value is concerned.
Fair Market Value Of Car, Purposes #1. Taxes
Based on your year’s financial activity, your annual taxes might require some level of fair market value estimates or calculation. When filing tax returns, it is commonly used if any donations were made to a certified organization.
Suppose you dropped off a box of used goods at Goodwill. You must calculate the value of those goods to apply for a tax deduction. Each donation has a fair market value which will act as the base here.
Fair Market Value Of Car, Purposes #2. Insurance
When your car is in an accident with another vehicle or object, it might need to be replaced. Selected auto insurance policies will provide you with the vehicle’s cash value for that. In this case, the actual cash value equals fair market value. This isn’t the price you paid for the car – it is what you could get if the car had been sold before the accident damaged it.
Insurance policies vary in terms and conditions, so make sure to go through yours very carefully.
Fair Market Value Of Car, Purposes #3. Auto Sales And Real Estate
In a car sale or real estate transaction where one willing seller is interacting with a willing buyer, the price that the two parties agree on and is reasonable is the fair market value. In real estate, fair market value can also serve as the base of property taxes.
It is essential to know that the fair market value might not be the final sale price. Even if your uncle agrees to sell you his old car for $200, it does not mean that $200 counts as fair market value. In simpler words, the fair market value can be termed as what the car would be worth in a regular private sale or at an auto lot.
Fair Market Value Of Car, Purposes #4. Investing
In terms of investments, an asset’s fair market value in one’s portfolio is the present bond, fund, or stock price in the market. To calculate a publicly traded stock’s fair market value, you must average the highest and lowest selling prices for a particular day.
Fair Market Value Of Car, Purposes #5. Loan Collateral
When applying for a loan, the lender may ask for collateral to secure the loan. A car is often used as collateral for a loan. The lender will assess the fair market value of the car to determine how much they are willing to lend. This is important because the car’s value will serve as a safety net for the lender in case the borrower defaults on the loan.
Remember, the lender will typically loan an amount that is less than or equal to the fair market value of the car. This is because if the borrower defaults, the lender may need to sell the car to recover the loan amount, and selling it at fair market value is the most realistic expectation.
Fair Market Value Of Car, Purposes #6. Divorce Settlements
In the event of a divorce, assets must be divided between the two parties. A car is often a significant asset that needs to be addressed in the settlement. The fair market value of the car will be used to determine its value in the settlement. This is crucial because it ensures that the division of assets is fair and equitable for both parties.
It’s important to note that the fair market value of the car may differ from the amount owed on the car. The amount owed is not considered in the division of assets.
Fair Market Value Of Car, Purposes #7. Donating a Car
When donating a car to a non-profit organization, the IRS requires the donor to determine the fair market value of the car. This is important because the fair market value of the car is used to determine the tax deduction the donor can claim. However, if the charity sells the car without using it or making significant improvements, the donor’s deduction is limited to the gross proceeds from the sale.
Keep in mind that the IRS has specific guidelines on how to determine the fair market value of a donated car, so it’s important to consult a tax professional or the IRS website for more information.
Fair Market Value Of Car, Purposes #8. Estate Planning and Settlement
In the process of estate planning or settling an estate, it is often necessary to determine the fair market value of assets, including cars. This is crucial for several reasons. First, it helps in determining the value of the estate for tax purposes. Second, it assists in the equitable distribution of assets among heirs.
For example, if a deceased person’s estate includes a car, the executor of the estate will need to determine its fair market value. This value will be used in calculating any estate taxes owed and in distributing the assets among the heirs.
Fair Market Value Of Car, Purposes #9. Lease Buyout
At the end of a car lease, you may have the option to buy the car. The fair market value of the car will be used to determine the buyout price. It is important to know this value to decide if buying the car at the end of the lease is a good deal.
Fair Market Value Of Car, Purposes #10. Depreciation Calculation
Depreciation is the decrease in the value of an asset over time. For tax purposes, businesses may be able to deduct the depreciation of their vehicles. The IRS has specific guidelines on how to calculate depreciation, and the fair market value of the car is an important factor in this calculation.
Fair Market Value Of Car, Purposes #11. Gift Tax
If you give a car as a gift, the IRS may require you to pay a gift tax. The fair market value of the car will be used to determine the amount of the gift tax. This is important because it can have a significant impact on your tax liability.
Fair Market Value Of Car, Purposes #12. Bankruptcy Proceedings
In bankruptcy proceedings, the fair market value of your assets, including your car, will be used to determine how much you owe to your creditors. It’s important to know the fair market value of your car to ensure that your debts are accurately assessed and that you are treated fairly in the bankruptcy process.
What To Look Out For
Now that you know the various purposes for finding out the fair market value of a car, it’s important to know what to look out for when determining this value.
- Condition of the Car: The condition of the car plays a significant role in determining its fair market value. A car in excellent condition will have a higher value than one that needs repairs.
- Mileage: The number of miles on the car also affects its value. Generally, the lower the mileage, the higher the value of the car.
- Make and Model: The make and model of the car are also important factors. Some makes and models are more desirable and therefore have a higher value in the market.
- Options and Features: The options and features of the car, such as leather seats, sunroof, navigation system, etc., can also affect its value.
- Market Demand: The demand for the car in the market is another important factor. If there is a high demand for the car, its value will be higher.
- Geographical Location: The value of a car can vary based on its location. For example, a convertible may have a higher value in a warm climate than in a cold climate.
- Seasonal Demand: The demand for certain types of cars can vary by season. For example, 4×4 vehicles may be in higher demand in the winter months.
- Vehicle History: The history of the car, including accidents, maintenance, and recalls, can also affect its value.
- Economic Conditions: The overall economic conditions can affect the demand for cars and, therefore, their value.
- Comparable Sales: The sale prices of similar cars in the area can also affect the fair market value of a car.
Remember, the fair market value of a car is not a fixed number. It can vary based on several factors, including the ones mentioned above. Therefore, it’s important to consider all these factors when determining the fair market value of a car.
Car Value Lookup
Fortunately, many online sources will help you determine the FMV of vehicles without any charge. Here are two of the most popular ones:
1. Kelley Blue Book (KBB)
Kelley Blue Book is a trusted online guide that can give you an obvious idea about cars’ current fair market value. Its working principle is based on performing extensive market research and monitoring car sales trends across different markets. Moreover, it considers aspects like the present economic state, vehicle sales trends, and many more.
KBB comes up with a number that is both location-specific and accurate.
Edmunds will give you a value based on the actual present sales. Generally, it generates a specific market value for customers. This amount depends on sales and updated information on the price the locals near you are willing to pay for your car.
Another factor that can significantly affect the fair market value of any car is the location. Localities can vary in their estimates of a vehicle’s FMV as each place deals with unique economic trends. To use this tool, visit the Edmunds website and input all the required information into the form.
3. NADA Guides
The National Automobile Dealers Association (NADA) provides NADA Guides, an essential tool for determining a vehicle’s fair market value. NADA Guides consider many factors such as make, model, mileage, and overall condition of the car. They also include the prices of similar vehicles sold in your region. This resource is widely used by car dealers, insurance companies, and other automotive professionals.
To use NADA Guides, visit their website and enter the necessary information about your vehicle. The tool will then provide an estimated fair market value.
AutoTrader is another popular online platform for buying and selling cars. It is also a valuable resource for determining the fair market value of a vehicle. AutoTrader allows you to search for similar vehicles in your area and see the prices at which they are listed. This information can help you estimate the fair market value of your car based on what others are asking for similar vehicles.
Remember to take into account the mileage, condition, and features of the cars you are comparing to your own. This will help you get a more accurate estimate of your car’s value.
CarGurus is an online automotive marketplace that provides a car valuation tool. The tool analyzes current listings and recent sales data of similar vehicles in your area to provide an estimated fair market value for your car. The website also provides a trade-in value and a private sale value, which can be helpful if you are considering selling your car.
To use the CarGurus valuation tool, visit their website and enter the necessary information about your vehicle.
6. Factors to Consider
When using online tools to determine the fair market value of your car, it is important to consider several factors that can affect the value of a vehicle. These include the make and model of the car, its age, mileage, overall condition, and any additional features or options. Other factors that can influence a vehicle’s value include the demand for that particular make and model, the current economic climate, and local market conditions.
It is also important to remember that the fair market value of a vehicle can vary from one region to another. Therefore, it is essential to use tools that take into account the local market conditions in your area.
7. Other Considerations
In addition to using online tools to determine the fair market value of your car, it is also advisable to get a professional appraisal. A professional appraiser can provide a more accurate and detailed assessment of your vehicle’s value. They will consider all the factors that can affect a vehicle’s value and provide a comprehensive report.
Additionally, if you are considering selling your car, it may be helpful to have it inspected by a mechanic. A mechanical inspection can identify any potential issues that could affect the car’s value. Having a detailed inspection report can also be beneficial when negotiating with potential buyers.
In conclusion, determining the fair market value of a car involves considering several factors and using various online tools and professional services. By taking the time to accurately assess your vehicle’s value, you can ensure that you get a fair price when selling or trading in your car.
Calculating Fair Market Value Of Car
As mentioned before, the fair market value of cars is what someone would pay for them on the open market. How much would you expect to pay if you buy something today? That’s what fair market value tries to explain.
The simplest way to register fair market value is by viewing the stock market. Investing in single shares of stock gives you a reliable and quick way to decide the fair market value. Check the listed price of the stock on a stock exchange, and you should get a pretty decent idea of the fair market value. Calculating the fair market value of anything but stocks isn’t always that simple.
These are three ways in which you can determine the fair market value of a car:
1. Measuring Your Car’s FMV
- Visit Kelley Blue Book or Edmunds. On the main page of these sites, check for an icon or a tab that mentions “Price My Car.” Clicking on this tab will redirect you to a form that you must fill out. The website will use the information provided to provide a market value estimate for the vehicle.
- For the most part, these sites offer free estimates. However, additional fees may be thrown into the mix when you wish to list your car for sale on their platform.
- Enter the exact model and year of your vehicle. Head to the used car section after leaving the main website, and one of the first bits of information you will have to enter is the date of creation. Provide the date of production for the model and type of the vehicle. You can find this on the owner’s manual, or it can appear on the interior of the driver’s door.
- If you aren’t sure about the year, try entering a date range. If you are unsure of the model, check similar vehicles on the Internet until you find one identical to yours.
- Supply your vehicle’s mileage. For this, check the odometer, and you will see some numbers there. You may have to turn on the engine to see this on newer vehicles. Enter these digits where they are needed on the FMV website. As a rule of thumb, cars with fewer miles are generally worth more than those with more.
2. Get All The Details Right
- Enter your city name or zip code. This information lets the website cater to your particular area, which is essential as a vehicle’s FMV can change according to demand and supply. If one type of vehicle is in high order in one place, the FMV will show the changes.
- For instance, for city-dwellers, smaller vehicles might be more in demand and possess higher FMVs.
- Make a list of all the amenities and options of the vehicle. Walk around your car from one end to the other, making a list of everything that makes it unique compared to other vehicles.
- Options such as power locks and windows will be for the comfort or convenience of the driver. You may list AC, chrome mirrors/bumpers, sunroof, window tinting, sound system, leather interior (it might also help to learn how to clean leather car seats), and guidance systems (if available).
- Most importantly, be honest about the condition of your vehicle. It will help assess it in terms of interior, exterior, and mechanical state. Check for any problems in these respective areas. Go through all the levels given by the website and select whichever fits your car the closest.
- For example, a vehicle that doesn’t run any longer may be evaluated as “Not Running” or “Poor” in the mechanical segment.
- Print out or save copies of the final report. Once you have entered all the required information, press the tab at the foot of the page to have the pricing report. Read over it once the account is produced. Save a PDF file, and make sure to print out some copies for reference.
- Buyers may also wish for a copy of the estimate to ensure that the price they are asking for is reasonable and fair.
3. Making Comparisons With Other FMVs
- FMVs are different when it comes to trade-in value. Internal Revenue Service says that an FMV approximates the sales number that a buyer and private seller would agree to for a vehicle. On the other hand, a trade-in value is what a dealership would ask for. You also have to consider that an FMV is measured based on potential sellers/buyers (willing, not forced).
- Trade-in values of secondhand cars are often changed by dealers to increase car sales. The results are much more consistent with an FMV.
- Provide useful comparison information if you are unsure of the exact data. If you are helping someone else get an estimate or analyzing an older car, it is likely unlikely that you have every detail the website asks for. In that case, enter a series of years to create an available value range.
- Suppose you know that the vehicle was manufactured in the early ’90s. Enter in 1991, 1992, 1993, and 1994. The values will differ with every passing year.
- Judge your vehicle against others presently for sale. Make sure to check your local newspapers’ automobile listings. Or, visit a used auto seller, enter the zip code, and check similar vehicles in that area. Your asking price has to be identical to the ones in the neighborhood.
- Suppose you want to sell a 1998 Mustang. Check the local paper for other listings. The actual number may be slightly higher than the vehicle’s FMV, but it should be significantly closer.
4. Changing Your Car’s FMV
- Modify the FMV of your vehicle if you are taking a while to sell it. Any vehicle’s FMV can change if you take too long to sell or donate it, meaning it is time-specific. Re-visit the estimation websites every month and enter your vehicle’s information to receive an updated FMV. You might also want to increase or decrease your vehicle’s asking price based on the new estimate.
- For instance, you might find a convertible’s FMV increasing during warmer seasons since they are more in demand.
- Thoroughly clean your car. You can either do this yourself or choose to bring it to a detailing shop. There, you can remove any flaws, like marks on the upholstery. The cleaner the car, the higher its value. Suppose the exterior has some imperfections; touch up the areas with some paint.
- It’s important to know that professional detailing is expensive. Compare the advantages of an elevated FMV vs the additional price for cleaning.
- Hire a mechanic to evaluate and repair any mechanical issues. For collectible or newer cars, ask a trusted, local mechanic to assess the condition. Then, determine if the price of repairing these issues will elevate your EMV enough to offset the expenses. Minor repairs like changing the window wipers (and learn how to change windshield wipers) be a total game-changer if you show that your vehicle is in better condition overall.
5. Be Fair In Your Pricing
Thanks to the nature of FMV, you are allowed a little variability when determining the value of an asset or item. Please don’t stray too far from the fair market value or lie about it. If you do, you will be considered a fraud and may face legal action.
Check out other sellers and online resources for comparable items to decide the most objective amount. Average the price of some similar items, which should help you find a reasonable FMV that you can apply to your transactions.
We urge you to be as honest and impartial as possible when deciding the fair market value of cars. If you have some form of doubt, we suggest consulting with a certified financial attorney or advisor who specializes in dealing with your particular situation. A few specific assets can be taken to professional appraisers to remove personal subjectivity from the process.
How To Determine Fair Market Value Of A Totaled Vehicle
If your vehicle has been damaged in an accident, you may get a visit from an appraiser sent by your insurance company. The appraiser will evaluate if the car can be fixed for anything less than its FMV. If yes, the insurance company will pay to have your vehicle repaired. If the repair cost surpasses the car’s fair market value, the insurance company is obligated to deliver you the FMV.
So what to do if you aren’t on the same page as your insurance company about the vehicle’s value? Insurance companies are infamous for undervaluing a car. If you think you can negotiate with your insurance company by yourself, here are some tips to help you:
- Ask the insurance company to ask their claim adjuster to estimate your car’s fair market value (given it was in an accident). If the valuation made by the company is higher, you have the right to get exactly that amount from them. It is then your insurance company’s job to collect the said amount from the opposing party’s insurance company.
- You can use the NADA guide, Kelley Blue Book, or Edmunds to measure value. All these sources are accurate in providing how much your car is worth. Showing your insurance company ads of used vehicles similar to yours with their asking prices, you have to show them how much the comparable cars are being sold for in the market.
- If you had any recent fixes done to your car, make sure to provide a copy of the receipt to the adjuster. This can help you show that your car’s value was more than the “average” car of that model and make. This also applies to any special equipment added to your vehicle, like upgraded rims or tires.
Facts about Fair Market Value and Its Uses
- Fair market value is the amount that someone is willing to pay for an asset on the open market.
- Fair market value is often used when dealing with taxes, real estate transactions, auto sales, and insurance claims.
- When donating items to a qualified organization, fair market value is used to determine the value of the donation for tax deduction purposes.
- Actual cash value in an insurance claim is the same as fair market value, and it refers to what the car would be worth in a fair transaction before the damage.
- In a real estate or car sale, fair market value is the price that both the buyer and seller agree on as reasonable.
- Fair market value can be determined by looking at online resources and sellers to find comparable items and taking the average price of a few similar items.
- It is important to be fair and impartial when determining fair market value to avoid accusations of fraud.
- If unsure, consulting a professional financial adviser or attorney with a specialty in dealing with the situation or taking certain assets to professional appraisers can help.
- Fair market value can have big consequences for finances if used improperly.
- Fair market value is a concept that aims to solve the problem of determining the exact value of an asset, such as a car, and understanding how it works can help achieve the most accurate and lawful result for one’s finances.
Fair Market Value Of Car: In Conclusion…
The fair market value of cars is a simple concept that can significantly impact your finances if mishandled. Somewhat view the value of any asset you purchase or sell, or else you can run into fraud accusations. You shouldn’t have a lot to worry about as long as you make a reasonable attempt at getting an accurate number.