Before we get started here, to maintain a shred of credibility, I want to offer this word of caution:
PENNY-AUCTION SITES ARE AN EASY WAY TO LOSE MONEY! BE VERY CAREFUL, AND READ THIS ENTIRE POST BEFORE VISITING ONE!
Got that? Good. Now we can start at the beginning.
For those unfamiliar, (and judging by all the google autofill suggestions along the lines of "penny auction scam!" and "penny auction fake!" there are a lot of people who are unfamiliar) penny auctions are sites that host pay-per-bid auctions, where each bid increases the final sale price of the item, usually by--you guessed it--a penny.
That means that the final sale price for these items is crazy low compared to what you'd pay for it elsewhere, but there is a huge, glaring catch: regardless of whether or not you win, you have to pay for every bid you make. These bids are usually in the neighborhood of 10-60 cents apiece, but can sometimes go for as much as a buck a pop. So, yes, while that Samsung 55" LED tv only went for $87.81, that means that for that one winning bid to go through, there were 8,780 unsuccessful bids. If these are coming in at around 60 cents each, the site essentially sold the TV for $5356.41!
Now, that said, there are some rare opportunities for good deals. For example, the site www.ShopBig.com will give you 10 free bids just for creating an account. These bids can be used for anything on the site, but your best bet (and this is true for any site that has one) is the Beginner Auction section. (On this site they're termed "newbie auctions"). These auctions can only be bid on by those who haven't yet won an auction, and as of this writing, all that's available are $15.00 amazon.com gift cards. However, these are 5 cent auctions (meaning the price increases by $.05 per bid instead of $.01), and I was able to score one for $.20 using only two of my free bids. Shipping was a dollar, but still--I came out way ahead there, and I'm an avid Amazonian!
There are a few other sites that will give you free bids, but often these free bids are only usable to buy "bid packs" (looking at you, www.happybidday.com) which are then used in other auctions. Now, there's nothing I find inherently evil about that, but often these "free auctions" have ABSURDLY over-inflated prices, because all the users are trying to get in on them. So, for instance, a bid pack of 150 might sell for around $40-$50. How's that for "free"?
A happy medium is struck by www.beezid.com, which gives new users 10 free bids that can only be used on their cherry-picker auctions (new bidder auction). The competition here is decently steep, but low enough that if you're smart about bidding you might be able to score a 50-100 bid pack or actual merchandise for not a whole lot of money. Especially because as of this writing, when you go to register you can enter in the code "first" or "swim" to get up to $100 off your first purchase, making it likely to be completely free! (Free bids + no money paid for winning bid.)
There's also www.quibids.com, who has a daily contest on their facebook page where the best comment on their status earns 50 free bids.
Long story short, the vibe you should be getting is this: if it seems too good to be true, it probably is. HOWEVER, there are still some opportunities to get good stuff for cheap, if not free.
Here are some tips I've noticed:
1. Don't be the first bidder. In fact, don't even think about ENTERING the auction until the first time the counter "passes" 1 on its countdown (usually by saying "Going", but sometimes by lingering on "1" for a good five seconds.)
2. Track recent wins. Usually bidders win for less bids and cheaper final prices at awkward hours, like early in the morning or late at night. Find the patterns and use your bids to win at weird times.
3. Look for "beginner" auctions. Also aliased "rookie", "newbie", etc, these auctions give you your best chance at scoring wins, because most users aren't allowed to bid on them.
4. Look for auctions sites that aren't inundated with users. The less products available, the less people are bidding, and the less competition you'll have. Of course, this can backfire, since many people aren't going to want you to steal an item that only circulates once a day, so again, watch for recent sells.
5. Don't bid from the main page. The penny auction homepage provides little to no information. Go into the page of the item itself and you'll be able to see about how many people are actively involved in a bidding war and if they're using the site's autobid system or not (it's easier to beat someone who isn't autobidding.)
So, here's hoping you're able to get at least one good deal! Remember, take advantage of free offers BEFORE you go insane and pay for bid packs. That's how sites like these make their money!
Wednesday, May 25, 2011
Monday, May 23, 2011
Used Car Buying Part 4: Closing the Deal
So, you've picked a car and done some preliminary bargaining. Now what?
First things first, make sure you bring everything you need with you to your appointment. By "everything," I mean any carseats and regular cargo that will need to fit in your new car, at least one extra passenger, a print-out of the Kelley Blue Book value for that car (or, even better, the KBB app so you can tweak it while you're standing there), a list of common problem areas from Consumer Guide Auto, and a printout of other cars in the area you're interested in. A lot of people will tell you to come armed with the carfax at this point...to me, that's up to you. You'll ABSOLUTELY need to check out the carfax before you buy the vehicle, but this can give you a stronger negotiating point if they don't have evidence of a clean title in front of them when you're looking at their car. Just as long as you know it's clean, that's good enough.
One document you will want to bring is a bill of sale. You can find this document on your state's DMV website. (Essentially, it's a contract between the seller and the buyer stating that you've paid X for the car.)
When you arrive, the very first thing you should do is an exterior inspection. Have your passenger point out every tiny flaw, from rock chips in the windshield to tiny dings in the door to low tread on the tires. Only then should you take it out for a test drive. Pay attention to how the car feels, sensing for problems. Try the heat and A/C and the radio. Also, run through the list of common trouble areas for that model to make sure yours isn't exhibiting any signs of issues.
When you get back, grill the owners on maintenance. You might feel this is redundant because you already asked about records when you first contacted them, but the whole point here is that you want to see any records they have detailing the car's maintenance record to see what it's had done. A lack of maintenance records also gives you a strong bargaining position.
If you decide that this is a car you'd like to look into buying, you have a couple of options. You can leave and look at the other cars on your list, or you can try to buy it right there. There's a temptation among car buyers to worry that if you leave, someone else will come by to snatch up the deal. But we're dealing with the ads that have been up forever, so our sellers are highly motivated and aren't likely to have any other buyers lined up. You won't lose any negotiating ability by leaving; in fact, you might add a level of desperation.
As you're preparing to leave, (have your passenger talk up the other cars you're on your way to see here) mention the price you discussed with the seller before. If they tentatively agreed to a price, mention some of the flaws you found with the car that you hadn't known about when you first suggested that price. See if they'd be willing to come down another couple hundred dollars. If they say yes, scribble down that number on their paper to have for reference when you go to look at other cars. If not, you still have that first tentative price. If, however, you couldn't agree, ask them again one last time, "What's the lowest you'd take for the car, again?" If you really want to be bold, ask, "So, you're telling me if I can't pay the full amount of X, it's no deal?" That might cause a few owners to hedge a bit. You don't need to browbeat them at this point. Before they can give you another firm estimate, say, "Well, I have a few more cars to look at, anyway, so I'll get back to you. But it's good to know there's some flexibility there."
Repeat this for all the cars on your "to-see" list. Go to a neutral location to figure out which you liked best, and then call that owner. If the price is already where you want it, tell them you're ready to deal, pending a mechanic's inspection on the car. If possible, you'll want to get that done the same day, but you can also do it the next day if necessary. In either case, you'll want to show the seller you're serious by putting up a down payment and getting them to sign the bill of sale. (This gives you legal documentation that the car is yours should they try to sell it to someone else.)
Important note: pay your deposit and the remainder with a cashier's check, not cash. You want to leave a paper trail in case there are any problems.
Now that you've placed the deposit, it's time to visit your local mechanic. You can get a reliable inspection for $40 or less. Shop around, if necessary. We had a great mechanic we trusted, so we used him. He verified that the car was in great condition.
IF IT'S NOT: it's up to you. You can get the mechanic to give you an estimate on repairs and see if the seller will subtract that amount from your final sale price. Or you can back out entirely.
Once you get it sorted, you can get the rest of the check to the seller and get the title (if they have it.) Oftentimes, owners will still owe money on their used cars, in which case, the title is technically owned by the bank that loaned them the money. You can meet the seller at the bank to pay off their loan and get the title, or, if that won't work (like if the bank is out of state) you can wire the money to the bank. There's a load of information on this particular topic online.
And that wraps it up! You've purchased a car. Congratulations!
For my husband and me, we were able to get a 2006 Malibu LS for $4800. The car is in great condition, with super-dark tinted windows (bonus for small, oftentimes sleeping kids!), no dents or dings that we've found yet, and great gas mileage compared to our Chevy Venture. Just for fun, I went online recently to look at other Chevy Malibu's in the area...similar cars were selling for $7500. Not a bad way to cut down on the depreciation rate!
First things first, make sure you bring everything you need with you to your appointment. By "everything," I mean any carseats and regular cargo that will need to fit in your new car, at least one extra passenger, a print-out of the Kelley Blue Book value for that car (or, even better, the KBB app so you can tweak it while you're standing there), a list of common problem areas from Consumer Guide Auto, and a printout of other cars in the area you're interested in. A lot of people will tell you to come armed with the carfax at this point...to me, that's up to you. You'll ABSOLUTELY need to check out the carfax before you buy the vehicle, but this can give you a stronger negotiating point if they don't have evidence of a clean title in front of them when you're looking at their car. Just as long as you know it's clean, that's good enough.
One document you will want to bring is a bill of sale. You can find this document on your state's DMV website. (Essentially, it's a contract between the seller and the buyer stating that you've paid X for the car.)
When you arrive, the very first thing you should do is an exterior inspection. Have your passenger point out every tiny flaw, from rock chips in the windshield to tiny dings in the door to low tread on the tires. Only then should you take it out for a test drive. Pay attention to how the car feels, sensing for problems. Try the heat and A/C and the radio. Also, run through the list of common trouble areas for that model to make sure yours isn't exhibiting any signs of issues.
When you get back, grill the owners on maintenance. You might feel this is redundant because you already asked about records when you first contacted them, but the whole point here is that you want to see any records they have detailing the car's maintenance record to see what it's had done. A lack of maintenance records also gives you a strong bargaining position.
If you decide that this is a car you'd like to look into buying, you have a couple of options. You can leave and look at the other cars on your list, or you can try to buy it right there. There's a temptation among car buyers to worry that if you leave, someone else will come by to snatch up the deal. But we're dealing with the ads that have been up forever, so our sellers are highly motivated and aren't likely to have any other buyers lined up. You won't lose any negotiating ability by leaving; in fact, you might add a level of desperation.
As you're preparing to leave, (have your passenger talk up the other cars you're on your way to see here) mention the price you discussed with the seller before. If they tentatively agreed to a price, mention some of the flaws you found with the car that you hadn't known about when you first suggested that price. See if they'd be willing to come down another couple hundred dollars. If they say yes, scribble down that number on their paper to have for reference when you go to look at other cars. If not, you still have that first tentative price. If, however, you couldn't agree, ask them again one last time, "What's the lowest you'd take for the car, again?" If you really want to be bold, ask, "So, you're telling me if I can't pay the full amount of X, it's no deal?" That might cause a few owners to hedge a bit. You don't need to browbeat them at this point. Before they can give you another firm estimate, say, "Well, I have a few more cars to look at, anyway, so I'll get back to you. But it's good to know there's some flexibility there."
Repeat this for all the cars on your "to-see" list. Go to a neutral location to figure out which you liked best, and then call that owner. If the price is already where you want it, tell them you're ready to deal, pending a mechanic's inspection on the car. If possible, you'll want to get that done the same day, but you can also do it the next day if necessary. In either case, you'll want to show the seller you're serious by putting up a down payment and getting them to sign the bill of sale. (This gives you legal documentation that the car is yours should they try to sell it to someone else.)
Important note: pay your deposit and the remainder with a cashier's check, not cash. You want to leave a paper trail in case there are any problems.
Now that you've placed the deposit, it's time to visit your local mechanic. You can get a reliable inspection for $40 or less. Shop around, if necessary. We had a great mechanic we trusted, so we used him. He verified that the car was in great condition.
IF IT'S NOT: it's up to you. You can get the mechanic to give you an estimate on repairs and see if the seller will subtract that amount from your final sale price. Or you can back out entirely.
Once you get it sorted, you can get the rest of the check to the seller and get the title (if they have it.) Oftentimes, owners will still owe money on their used cars, in which case, the title is technically owned by the bank that loaned them the money. You can meet the seller at the bank to pay off their loan and get the title, or, if that won't work (like if the bank is out of state) you can wire the money to the bank. There's a load of information on this particular topic online.
And that wraps it up! You've purchased a car. Congratulations!
For my husband and me, we were able to get a 2006 Malibu LS for $4800. The car is in great condition, with super-dark tinted windows (bonus for small, oftentimes sleeping kids!), no dents or dings that we've found yet, and great gas mileage compared to our Chevy Venture. Just for fun, I went online recently to look at other Chevy Malibu's in the area...similar cars were selling for $7500. Not a bad way to cut down on the depreciation rate!
Sunday, May 22, 2011
On Being Cheap
I read an article on Yahoo! news recently that ruffled my feathers a bit. It was supposedly a litmus test on whether or not you're "too cheap." One if its pieces of advice was to caution readers that buying items on sale was frugal, but buying everything on sale was just plain cheap.
Exactly, Yahoo! news writer. The only way you and I differ is that you see that as a bad thing.
To me, any item that is priced lower to comparable products is cheap. As a consumer, my goal is to purchase ONLY those items that are cheap. In other words, as much as possible, I want to be paying lower than market value. This is true whether we're talking groceries or automobiles or real estate.
For that matter, it's as true for me now when I'm broke as it will be when I'm wealthy. Financial guru Robert Kiyosaki regularly admonishes, "Remember, you make your money when you buy a home, not when you sell." Or, more commonly we hear, "buy low, sell high." Buy low and make money for appreciating assets; buy low to lose less for depreciating assets.
Yes, I aspire to be cheap. That's how I bought my car for about 30% lower than blue book value with only a week to shop. It's why my husband and I built our computer from parts. It's why I clip coupons and subscribe to my local grocery stores' weekly ads. And you know what? I'm not going to stop being cheap just because I have more money.
Living cheaply doesn't have to mean taking a vow of poverty. To throw some credibility back to Yahoo!, I loved their more recent article about a man who was living a life of relative luxury on $30,000 a year. This is a guy who learned not to look down his nose at the word "cheap."
However, while I applaud that he got the first part right (cutting his spending to buy the same products for less) he falls into the typical American trap by using his powers for good when he could be using them for great. The best example is what he did with his housing. Let's take a look:
Income: 30,000
Housing: got a great deal, mortgage payments are under $500 for a $200,000 home (good deal!)
Now, let's take a look at today's current housing market. He got a HUD home. These are undoubtedly great deals, and there are a lot of other possibilities in almost every market. But he opted for one that was $80,000 and required some work. What if he'd looked for a home that was worth $100,000 and got it for $50k? These are not unheard-of price breaks, and many homes like this can be found in beautiful, safe areas. A $50,000 mortgage might only cost around $300 a month. That's $200 in savings, every single month, off the $80,000 mortgage. Not a world-changing difference, but $2400 a year, or 8% of his annual income.
My point is that too many of us know how to be cheap, but instead of using that knowledge to make our current quality of life less expensive, we're using it to buy more than we could otherwise. This isn't inherently evil--it's just not a million-dollar strategy.
In the above scenario, what if Mr. 30,000 were to invest that $200/month into his Roth IRA? Even assuming a pretty modest rate of return (8.5% annually) he'd have amassed $352,251.31 in tax-free money after 30 years. That's a third of his million right there!
Let's go a step further: he mentions in his article that he spent $150/month on a car payment. What if he'd bought something more affordable that allowed him to pay cash? Now he can invest $350/month. What's the payoff there? A staggering $616,439.79! That's like an annual salary of $20,000 for 30 years, at the price of $350/month. Honestly, can you afford not to be cheap?
The guides I'm writing on spending are designed to help you cut back on common expenses, but it's up to you what you'll do with your savings. Sure, you can use them to buy that flat-screen t.v. you always wanted...or you can use them to invest in your own future.
So, how badly do you want to be a millionaire?
Exactly, Yahoo! news writer. The only way you and I differ is that you see that as a bad thing.
To me, any item that is priced lower to comparable products is cheap. As a consumer, my goal is to purchase ONLY those items that are cheap. In other words, as much as possible, I want to be paying lower than market value. This is true whether we're talking groceries or automobiles or real estate.
For that matter, it's as true for me now when I'm broke as it will be when I'm wealthy. Financial guru Robert Kiyosaki regularly admonishes, "Remember, you make your money when you buy a home, not when you sell." Or, more commonly we hear, "buy low, sell high." Buy low and make money for appreciating assets; buy low to lose less for depreciating assets.
Yes, I aspire to be cheap. That's how I bought my car for about 30% lower than blue book value with only a week to shop. It's why my husband and I built our computer from parts. It's why I clip coupons and subscribe to my local grocery stores' weekly ads. And you know what? I'm not going to stop being cheap just because I have more money.
Living cheaply doesn't have to mean taking a vow of poverty. To throw some credibility back to Yahoo!, I loved their more recent article about a man who was living a life of relative luxury on $30,000 a year. This is a guy who learned not to look down his nose at the word "cheap."
However, while I applaud that he got the first part right (cutting his spending to buy the same products for less) he falls into the typical American trap by using his powers for good when he could be using them for great. The best example is what he did with his housing. Let's take a look:
Income: 30,000
Housing: got a great deal, mortgage payments are under $500 for a $200,000 home (good deal!)
Now, let's take a look at today's current housing market. He got a HUD home. These are undoubtedly great deals, and there are a lot of other possibilities in almost every market. But he opted for one that was $80,000 and required some work. What if he'd looked for a home that was worth $100,000 and got it for $50k? These are not unheard-of price breaks, and many homes like this can be found in beautiful, safe areas. A $50,000 mortgage might only cost around $300 a month. That's $200 in savings, every single month, off the $80,000 mortgage. Not a world-changing difference, but $2400 a year, or 8% of his annual income.
My point is that too many of us know how to be cheap, but instead of using that knowledge to make our current quality of life less expensive, we're using it to buy more than we could otherwise. This isn't inherently evil--it's just not a million-dollar strategy.
In the above scenario, what if Mr. 30,000 were to invest that $200/month into his Roth IRA? Even assuming a pretty modest rate of return (8.5% annually) he'd have amassed $352,251.31 in tax-free money after 30 years. That's a third of his million right there!
Let's go a step further: he mentions in his article that he spent $150/month on a car payment. What if he'd bought something more affordable that allowed him to pay cash? Now he can invest $350/month. What's the payoff there? A staggering $616,439.79! That's like an annual salary of $20,000 for 30 years, at the price of $350/month. Honestly, can you afford not to be cheap?
The guides I'm writing on spending are designed to help you cut back on common expenses, but it's up to you what you'll do with your savings. Sure, you can use them to buy that flat-screen t.v. you always wanted...or you can use them to invest in your own future.
So, how badly do you want to be a millionaire?
Friday, May 6, 2011
Used Car Buying Part 3: Browsing and Negotiating (Private Party)
According to The Millionaire Next Door (which, for those not in the know, is the inspiration for this blog and an excellent resource on the saving/spending habits that will make you rich), the best way to go about buying a used car is to buy from a private party seller. In a previous post, I discussed some of the myths of buying from a dealership, and some of the reasons you still might want to buy from one. If you're here, I'm assuming you're shopping for a used car from a private party.
1. Get Ready.
The first thing you should do is set up a free email account with yahoo, google, or another mail provider. If you already have a secondary email for spam this will work, but a fresh email account is a good tool if you don't want to wade through a long list of requests from deposed Nigerian princes.
2. Get Set.
The next thing you're going to want to do is go to your local online classifieds. Craigslist is probably the most well known, but it's also the most spammy. Here in Utah (also works for Idaho and Wyoming) I use KSL. There are similar websites for other areas around the country.
Once there, you can usually narrow your search for the specific model you're looking for, and usually for a price range. Make sure the results are sortest in order from newest to oldest.
3. Get Smart.
People who have just posted their cars are less likely to be willing to negotiate with you than, say, someone who's had their ad up for months. So right away, I'd go to the last page of cars and start working my way forward. Now, there are two main reasons why these older ads haven't sold: either the car is lousy or the ad is. Your goal is to find lousy ads for good cars. In other words, you want to find sellers who have done a bad job of recommending their car, even though it's good quality. Here's how you do it:
Look for ads that have low-quality or no pictures. It doesn't matter how nice the car is, if the pics are bad or not there, the ad isn't going to be getting a lot of hits. The great thing for you is that the longer this ad is up, the less hits it's going to get. People see that a car has been for sale for a month without a picture and they automatically assume there's something wrong with it. They pass by without bothering to ask the owner for pictures. The seller, meanwhile, feels like nobody is interested in his/her car and so is more likely to do whatever it takes to hold onto a potential buyer.
Look for ads that DO NOT say "O.B.O." This seems counter-intuitive, because you're going to be pitching a lower price. But people who put "O.B.O." (or best offer) in their ads receive more traffic and more offers. More nibbles at the ad means the owner perceives more fish in the sea and is more likely to be a hard negotiator.
Look for ads with brief, undetailed descriptions. For instance, the car I bought had an ad that said, "Great family car, no problems! Plenty of room for car seats!" That was it. No pictures posted. The only piece of information I got from that ad that I hadn't already gleaned from Consumer Guide Auto was that this particular car had given its owner "no problems."
When I pressed for details, this is what I found out: the seller had advertised it as a 2005, but it was actually a 2006 and she hadn't bothered to correct the typo because she didn't know how. They were the first owners. It was a clean title vehicle. They had records of all the regular maintenance that had been performed. There were four brand-new tires and a full-sized spare. Most of the miles that had been put on the car had come in the last year when the husband used it to commute 140 miles a day (highway miles), and the rest were from California ("California car" is a big selling point out here because it means less damage from weather.) Oh, and there was absolutely no damage to the car, inside or out. And apparently the car was silver; the owner hadn't even mentioned the color!
Look for ads that have been reposted many times. This isn't a necessity, but if you notice that every week the owner is lowering their asking price and then reposting the same lousy ad, it's another indicator that they're desperate to sell.
Look for ads with a low number of hits. The fewer people that have even bothered to click on the ad, the less likely the owner has heard from anyone.
4. Get in Contact
I am not a very tough negotiator in person. I couldn't even talk my way out of a speeding ticket! But thanks to the cold, calculating nature of emails and text messages, I can be as hard-nosed as I want.
To begin, since we've targeted lousy ads, you need to get some information. Here are the things you absolutely need to know before you can continue:
1. Is it a clean title? If the title is branded, rebuilt, restored, or salvaged, that means that the car was declared totaled and then repaired. If you buy a car like this, it's likely that it will need more repairs in the future and you'll sell it for much less when it comes time to upgrade. Buy at your own risk. For me, I'll only consider a clean title.
2. Does it have any damage, inside or out?
3. Does it have any options not included in the base price for that trim level?
4. Has the owner performed regular maintenance on the vehicle, and do they have any record of that?
5. Has the car been detailed?
6. What is the exact mileage?
7. Has the owner noticed any problems with the car?
8. Can they get you pictures via email or text?
9. Do they have a copy of the Carfax they can show you?
Next, enter aggressive negotiations. Car hasn't been detailed? The owner doesn't have a receipt for every oil change? Point that out. In your next text message/email, point out the weaknesses in their car as you can see them. Make sure they know how disappointing you find that rock chip in the windshield. You're using a technique that's common in big ticket items like cars and homes: inflating the value of tiny items because in comparison to the overall purchase these items seem tiny. If you walked into Wal-Mart and saw that they were going to charge $300 for four rubber mats, you'd flip. But somehow at the dealer that inflated price for mats seems reasonable. By pointing out the flaws in the car, you can significantly chip away at the owner's asking price.
In your next text/email, ask this question: "What is the absolute lowest price you'd take for your car?"
Whatever they answer, don't get back to them right away. You need to stockpile a list of "absolute lowest price" quotes for leverage coming up. If there are enough ads for similar cars, I'd try to get at least three or four.
Next, starting with your least-favorite car, try to get the owner to go even lower. Tell them you've got several cars with similar attributes that you're trying to choose between (if there's one with a lower asking price, make sure you mention that) and ask if there's any way s/he'd consider dropping another $800 off that price. It's EXTREMELY likely that they'll tell you no, but still drop it by a bit. The next most likely scenario is that they'll tell you they really can't do any better than the price you agreed on. Very rarely, they might agree to go down by that much. If that's the case, let them know you're waiting to hear back on a couple of other offers but (if you're at least somewhat interested) set up a soft appointment for you to come by and look at the car.
Make your way up the list this way, being sure to mention if you have a lower offer in the works to every subsequent owner. It's up to you how hard-ball you want to be here, but don't be a jerk about it. Tell them if there's a reason you're really digging their car over the others so they feel like you're seriously interested and not just arbitrarily milking them.
By the time you get to your first-choice car, you should have several offers to sell for lower than their absolute lowest price. I'd lay your cards on the table here. Tell them you're entertaining several offers but that you do like their car best. Tell them why. But then tell them you really need to put price before anything else at this point and see if there is any way they can lower their price a second time.
If you have the time, (I didn't) The Millionaire Next Door suggest setting a firm price that you won't go above. If the seller says they can't make that happen, ask if they'd be willing to reconsider the price if the car still hasn't sold after another couple of weeks, or a month, or however long. This is more for people who are casually shopping than desperately trying to find a deal before their rental car runs out, but it's a good idea if you can handle it. I actually had an owner on the line who was asking 6300 and wouldn't budge, but after a couple of weeks he emailed me to let me know that if I was still interested he'd now consider my offer of $5000. That's quite the price drop, and all it would have cost me was a couple of weeks and a text.
Now that you have your revised list of prices, print out copies of the information on each car so you have them in hand for comparison. I'd also print out Consumer Guide's list of common trouble spots you can watch out for while test-driving and the KBB information for that make and model of car (if, for some reason, you're still looking at cars that are priced at or above their KBB value.)
With these papers in hand, you're ready to roll. Your negotiations are done (unless you're REALLY into it and want to haggle on-site, in which case, you probably don't need to be reading this guide on negotiating!)
Time to test-drive!
1. Get Ready.
The first thing you should do is set up a free email account with yahoo, google, or another mail provider. If you already have a secondary email for spam this will work, but a fresh email account is a good tool if you don't want to wade through a long list of requests from deposed Nigerian princes.
2. Get Set.
The next thing you're going to want to do is go to your local online classifieds. Craigslist is probably the most well known, but it's also the most spammy. Here in Utah (also works for Idaho and Wyoming) I use KSL. There are similar websites for other areas around the country.
Once there, you can usually narrow your search for the specific model you're looking for, and usually for a price range. Make sure the results are sortest in order from newest to oldest.
3. Get Smart.
People who have just posted their cars are less likely to be willing to negotiate with you than, say, someone who's had their ad up for months. So right away, I'd go to the last page of cars and start working my way forward. Now, there are two main reasons why these older ads haven't sold: either the car is lousy or the ad is. Your goal is to find lousy ads for good cars. In other words, you want to find sellers who have done a bad job of recommending their car, even though it's good quality. Here's how you do it:
Look for ads that have low-quality or no pictures. It doesn't matter how nice the car is, if the pics are bad or not there, the ad isn't going to be getting a lot of hits. The great thing for you is that the longer this ad is up, the less hits it's going to get. People see that a car has been for sale for a month without a picture and they automatically assume there's something wrong with it. They pass by without bothering to ask the owner for pictures. The seller, meanwhile, feels like nobody is interested in his/her car and so is more likely to do whatever it takes to hold onto a potential buyer.
Look for ads that DO NOT say "O.B.O." This seems counter-intuitive, because you're going to be pitching a lower price. But people who put "O.B.O." (or best offer) in their ads receive more traffic and more offers. More nibbles at the ad means the owner perceives more fish in the sea and is more likely to be a hard negotiator.
Look for ads with brief, undetailed descriptions. For instance, the car I bought had an ad that said, "Great family car, no problems! Plenty of room for car seats!" That was it. No pictures posted. The only piece of information I got from that ad that I hadn't already gleaned from Consumer Guide Auto was that this particular car had given its owner "no problems."
When I pressed for details, this is what I found out: the seller had advertised it as a 2005, but it was actually a 2006 and she hadn't bothered to correct the typo because she didn't know how. They were the first owners. It was a clean title vehicle. They had records of all the regular maintenance that had been performed. There were four brand-new tires and a full-sized spare. Most of the miles that had been put on the car had come in the last year when the husband used it to commute 140 miles a day (highway miles), and the rest were from California ("California car" is a big selling point out here because it means less damage from weather.) Oh, and there was absolutely no damage to the car, inside or out. And apparently the car was silver; the owner hadn't even mentioned the color!
Look for ads that have been reposted many times. This isn't a necessity, but if you notice that every week the owner is lowering their asking price and then reposting the same lousy ad, it's another indicator that they're desperate to sell.
Look for ads with a low number of hits. The fewer people that have even bothered to click on the ad, the less likely the owner has heard from anyone.
4. Get in Contact
I am not a very tough negotiator in person. I couldn't even talk my way out of a speeding ticket! But thanks to the cold, calculating nature of emails and text messages, I can be as hard-nosed as I want.
To begin, since we've targeted lousy ads, you need to get some information. Here are the things you absolutely need to know before you can continue:
1. Is it a clean title? If the title is branded, rebuilt, restored, or salvaged, that means that the car was declared totaled and then repaired. If you buy a car like this, it's likely that it will need more repairs in the future and you'll sell it for much less when it comes time to upgrade. Buy at your own risk. For me, I'll only consider a clean title.
2. Does it have any damage, inside or out?
3. Does it have any options not included in the base price for that trim level?
4. Has the owner performed regular maintenance on the vehicle, and do they have any record of that?
5. Has the car been detailed?
6. What is the exact mileage?
7. Has the owner noticed any problems with the car?
8. Can they get you pictures via email or text?
9. Do they have a copy of the Carfax they can show you?
Next, enter aggressive negotiations. Car hasn't been detailed? The owner doesn't have a receipt for every oil change? Point that out. In your next text message/email, point out the weaknesses in their car as you can see them. Make sure they know how disappointing you find that rock chip in the windshield. You're using a technique that's common in big ticket items like cars and homes: inflating the value of tiny items because in comparison to the overall purchase these items seem tiny. If you walked into Wal-Mart and saw that they were going to charge $300 for four rubber mats, you'd flip. But somehow at the dealer that inflated price for mats seems reasonable. By pointing out the flaws in the car, you can significantly chip away at the owner's asking price.
In your next text/email, ask this question: "What is the absolute lowest price you'd take for your car?"
Whatever they answer, don't get back to them right away. You need to stockpile a list of "absolute lowest price" quotes for leverage coming up. If there are enough ads for similar cars, I'd try to get at least three or four.
Next, starting with your least-favorite car, try to get the owner to go even lower. Tell them you've got several cars with similar attributes that you're trying to choose between (if there's one with a lower asking price, make sure you mention that) and ask if there's any way s/he'd consider dropping another $800 off that price. It's EXTREMELY likely that they'll tell you no, but still drop it by a bit. The next most likely scenario is that they'll tell you they really can't do any better than the price you agreed on. Very rarely, they might agree to go down by that much. If that's the case, let them know you're waiting to hear back on a couple of other offers but (if you're at least somewhat interested) set up a soft appointment for you to come by and look at the car.
Make your way up the list this way, being sure to mention if you have a lower offer in the works to every subsequent owner. It's up to you how hard-ball you want to be here, but don't be a jerk about it. Tell them if there's a reason you're really digging their car over the others so they feel like you're seriously interested and not just arbitrarily milking them.
By the time you get to your first-choice car, you should have several offers to sell for lower than their absolute lowest price. I'd lay your cards on the table here. Tell them you're entertaining several offers but that you do like their car best. Tell them why. But then tell them you really need to put price before anything else at this point and see if there is any way they can lower their price a second time.
If you have the time, (I didn't) The Millionaire Next Door suggest setting a firm price that you won't go above. If the seller says they can't make that happen, ask if they'd be willing to reconsider the price if the car still hasn't sold after another couple of weeks, or a month, or however long. This is more for people who are casually shopping than desperately trying to find a deal before their rental car runs out, but it's a good idea if you can handle it. I actually had an owner on the line who was asking 6300 and wouldn't budge, but after a couple of weeks he emailed me to let me know that if I was still interested he'd now consider my offer of $5000. That's quite the price drop, and all it would have cost me was a couple of weeks and a text.
Now that you have your revised list of prices, print out copies of the information on each car so you have them in hand for comparison. I'd also print out Consumer Guide's list of common trouble spots you can watch out for while test-driving and the KBB information for that make and model of car (if, for some reason, you're still looking at cars that are priced at or above their KBB value.)
With these papers in hand, you're ready to roll. Your negotiations are done (unless you're REALLY into it and want to haggle on-site, in which case, you probably don't need to be reading this guide on negotiating!)
Time to test-drive!
Tuesday, May 3, 2011
Used Car Buying: Dealership Myths
When it comes to buying a car, you're never going to hear an ad on the radio or see one on TV encouraging you to buy third-party used cars. You're never going to hear about available financing. In fact, dealerships make it sound like they're really the only reliable option out there.
Here are some myths about dealerships that may influence your decision. At the end of this post, I'll discuss the advantages that DO come with buying from a dealership. What you decide is up to you...in a later post I'll talk about the lessons I've learned from my own experiences and research when it comes to dealing with dealers if you want to go that route.
Myth #1: If you don't have the money to pay cash for a car, you have to go through a dealer
Fact: Banks will loan you money for (many) third-party purchases
Many banks apparently will not give you a loan if the car is older than four-five years, but there are internet companies available that are more flexible and can give you lower interest rates (sometimes their interest rates for private party cars are even cheaper than for used cars!)
Myth #2: Big dealerships can give you a better deal than small dealerships.
Fact: It COMPLETELY depends on the dealerships.
Large dealerships can place big bulk orders, so they can get discounts. They also see a lot of leased cars returning to them. So there's that. However, there are a lot of reasons why little dealerships can win out. First of all, large dealerships are more likely to run promotions that add to the trade-in value of the cars coming in. Since they're taking those cars in at an inflated rate, they're incentivized to resell them at a higher rate, too. Secondly, it's not actually cost-effective for large dealerships to spend a lot of time looking for great car deals at auctions and other locations. For smaller dealerships, though, that's their lifeline. So what you end up with is smaller dealers buying their cars for less, and then trying to sell them for lower than their conglomerate counterparts. Here's an example: when I was car shopping, I found one local dealer who had a 2007 Honda Civic listed at 10,000 as the starting price, with about 75k miles on it. When we went from that dealer to the larger company, they tried to sell us the same model, year, and trim, with about 5k MORE miles, for 14,000. We told him we'd only consider it if they could drop the price below 10,000, and after about half an hour of negotiation, they flat-out told us it was impossible and that they had paid more than that for the car in the first place.
Myth #3: Shopping at a dealership saves you time
Fact: Nope.
On our one day of dealership shopping, my husband and I spend ten hours at five different dealerships (drive time from one to the next is included here.) Any time we tried to get a straight answer on the cost of a car, it took another half hour of negotiating at least, with our most frustrating conversation taking almost a full hour. Contrast that with the time I spent texting third-party sellers, where I was able to negotiate prices at home or at the store or anywhere else, and didn't go to the seller unless I was pretty convinced that I was interested enough in their car to purchase it. No WAY was that more time-consuming that being at a dealer. The only time when I'd say it is efficient to go to the dealer is to do your preliminary test-driving. It's convenient to have an assortment of models available under one roof.
Now, on to the reasons why you might still want to buy from a dealer.
First of all, there are lemon laws in many states, which basically make it illegal for a dealer to sell you a crap car. These laws do NOT apply to private party sellers. So, in other words, you buy from a private party at your own risk. With that in mind, you also have to remember that you will pay more buying from a dealer than from a private party. For instance, the model of car I purchased has an estimated Kelley Blue Book value of $7545 as a private party car in excellent condition, or a retail value (not certified pre-owned) of $9370. That's a difference of $1825. So unless repairs cost more than that, I'm coming out on top.
Also, many cars that are less than five to seven years old are still going to have leases on them, which can be intimidating because it means that you're going to be giving the seller money, but won't be walking away with the title in hand. We'll discuss this in more detail later, but that is an extra bit of security that comes from buying from a dealer.
In summary, consider the peace of mind and mechanical assurances that come from buying at a dealership as an optional surcharge that you can get with your car. If it's worth the cost to you, then go for it. If you're like me and are too poor to spend that kind of money, go with a private party seller.
Here are some myths about dealerships that may influence your decision. At the end of this post, I'll discuss the advantages that DO come with buying from a dealership. What you decide is up to you...in a later post I'll talk about the lessons I've learned from my own experiences and research when it comes to dealing with dealers if you want to go that route.
Myth #1: If you don't have the money to pay cash for a car, you have to go through a dealer
Fact: Banks will loan you money for (many) third-party purchases
Many banks apparently will not give you a loan if the car is older than four-five years, but there are internet companies available that are more flexible and can give you lower interest rates (sometimes their interest rates for private party cars are even cheaper than for used cars!)
Myth #2: Big dealerships can give you a better deal than small dealerships.
Fact: It COMPLETELY depends on the dealerships.
Large dealerships can place big bulk orders, so they can get discounts. They also see a lot of leased cars returning to them. So there's that. However, there are a lot of reasons why little dealerships can win out. First of all, large dealerships are more likely to run promotions that add to the trade-in value of the cars coming in. Since they're taking those cars in at an inflated rate, they're incentivized to resell them at a higher rate, too. Secondly, it's not actually cost-effective for large dealerships to spend a lot of time looking for great car deals at auctions and other locations. For smaller dealerships, though, that's their lifeline. So what you end up with is smaller dealers buying their cars for less, and then trying to sell them for lower than their conglomerate counterparts. Here's an example: when I was car shopping, I found one local dealer who had a 2007 Honda Civic listed at 10,000 as the starting price, with about 75k miles on it. When we went from that dealer to the larger company, they tried to sell us the same model, year, and trim, with about 5k MORE miles, for 14,000. We told him we'd only consider it if they could drop the price below 10,000, and after about half an hour of negotiation, they flat-out told us it was impossible and that they had paid more than that for the car in the first place.
Myth #3: Shopping at a dealership saves you time
Fact: Nope.
On our one day of dealership shopping, my husband and I spend ten hours at five different dealerships (drive time from one to the next is included here.) Any time we tried to get a straight answer on the cost of a car, it took another half hour of negotiating at least, with our most frustrating conversation taking almost a full hour. Contrast that with the time I spent texting third-party sellers, where I was able to negotiate prices at home or at the store or anywhere else, and didn't go to the seller unless I was pretty convinced that I was interested enough in their car to purchase it. No WAY was that more time-consuming that being at a dealer. The only time when I'd say it is efficient to go to the dealer is to do your preliminary test-driving. It's convenient to have an assortment of models available under one roof.
Now, on to the reasons why you might still want to buy from a dealer.
First of all, there are lemon laws in many states, which basically make it illegal for a dealer to sell you a crap car. These laws do NOT apply to private party sellers. So, in other words, you buy from a private party at your own risk. With that in mind, you also have to remember that you will pay more buying from a dealer than from a private party. For instance, the model of car I purchased has an estimated Kelley Blue Book value of $7545 as a private party car in excellent condition, or a retail value (not certified pre-owned) of $9370. That's a difference of $1825. So unless repairs cost more than that, I'm coming out on top.
Also, many cars that are less than five to seven years old are still going to have leases on them, which can be intimidating because it means that you're going to be giving the seller money, but won't be walking away with the title in hand. We'll discuss this in more detail later, but that is an extra bit of security that comes from buying from a dealer.
In summary, consider the peace of mind and mechanical assurances that come from buying at a dealership as an optional surcharge that you can get with your car. If it's worth the cost to you, then go for it. If you're like me and are too poor to spend that kind of money, go with a private party seller.
Monday, May 2, 2011
Used Car Buying Part 2: Picking a Model
You know how much you have to spend. Hopefully you've decided on a class of car (compact, subcompact, flying, etc.) Now it's time to narrow the field.
The amount of time you have to buy a car is going to play a factor in determining how narrow you get. When we were shopping, we had to have a replacement within the week, so we had three or four model types we were considering; we needed to cast a broad net. If we'd had more time, we probably would have gotten more picky, narrowing it down to one model or even one trim level within the model.
However many you're going to consider, here's how to go about it.
1. Find reliable models within that class.
Consumer Guide Auto is a free service much like Consumer Reports. You can use it to look up scores on used cars in your desired category--it even includes a "reviewed as used" section for most models and years. You can see how the car stacks up against others in its class (this is one of the most valuable tools), and where the most common trouble areas are. Find a few that look good to you and continue on to step two.
2. Price the cars you like
Kelley Blue Book is the go-to guide for guessing price. You don't have to price every year of every model you're interested in, but it's a good idea to price at least one year per model design. When asked to put in the mileage, a good average is 15k miles per year. Eliminate immediately any cars whose blue book trade-in value is greater than your budget. If the private party value for a good car is above your budget by a significant amount, you should probably nix that, too. I find you can reasonably expect to pay a little below the private party value--sometimes significantly below, with a motivated seller. But this will give you a good idea where the norms are. (Tip: you can also download the Kelley Blue Book app for your mobile phone to take with you when it comes time for negotiations.)
If every car on your short list got axed, it's time to hit Consumer Guide Auto again and look for older models or models with ratings you can live with. But if you still have a few models you like, continue on to step three.
3. Test-drive every car on your list of possibilities (at a dealership.)
The best way to do this is to call a dealership ahead of time. Explain that you want to come in and test-drive a few different models, but that you absolutely, positively, will NOT be buying that day. All you want to do is to get a feel for how a few models handle. Ask if they have the specific models and years in their inventory. Automalls are a good resource here.
I would also ask to know when they would be the least busy, reiterating that you will not be purchasing and explaining that you don't want to keep a salesman occupied at a time when s/he's likely to be making another sale. If possible, make an appointment at this time. Either way, get the person's name, so that when you arrive you can tell whoever you're working with, "Hey, I talked to ____ about test-driving a few models. I'm not buying today, and s/he said that if I came around this time it wouldn't be too busy so I won't be costing you business." Salesmen are notoriously pushy, but most won't try a hard sell when you've gone to this much effort to establish your intent and minimize the inconvenience to them.
Most.
Anyway, get in the cars. If you have objects you need to fit into the car, take those with you (strollers, carseats, golf clubs, etc.) Ride in both the front and back seats. Take pictures with a camera of features you really liked or disliked, or take notes. By the end of this experience, you should have a list of cars you're interested in buying.
NOTE: it's tempting to skip this step, because obviously you'll be test-driving any cars you seriously consider buying. Resist that temptation! You'll save yourself so much time by eliminating models you don't like now.
If you've done your due diligence, you're ready to start shopping.
The amount of time you have to buy a car is going to play a factor in determining how narrow you get. When we were shopping, we had to have a replacement within the week, so we had three or four model types we were considering; we needed to cast a broad net. If we'd had more time, we probably would have gotten more picky, narrowing it down to one model or even one trim level within the model.
However many you're going to consider, here's how to go about it.
1. Find reliable models within that class.
Consumer Guide Auto is a free service much like Consumer Reports. You can use it to look up scores on used cars in your desired category--it even includes a "reviewed as used" section for most models and years. You can see how the car stacks up against others in its class (this is one of the most valuable tools), and where the most common trouble areas are. Find a few that look good to you and continue on to step two.
2. Price the cars you like
Kelley Blue Book is the go-to guide for guessing price. You don't have to price every year of every model you're interested in, but it's a good idea to price at least one year per model design. When asked to put in the mileage, a good average is 15k miles per year. Eliminate immediately any cars whose blue book trade-in value is greater than your budget. If the private party value for a good car is above your budget by a significant amount, you should probably nix that, too. I find you can reasonably expect to pay a little below the private party value--sometimes significantly below, with a motivated seller. But this will give you a good idea where the norms are. (Tip: you can also download the Kelley Blue Book app for your mobile phone to take with you when it comes time for negotiations.)
If every car on your short list got axed, it's time to hit Consumer Guide Auto again and look for older models or models with ratings you can live with. But if you still have a few models you like, continue on to step three.
3. Test-drive every car on your list of possibilities (at a dealership.)
The best way to do this is to call a dealership ahead of time. Explain that you want to come in and test-drive a few different models, but that you absolutely, positively, will NOT be buying that day. All you want to do is to get a feel for how a few models handle. Ask if they have the specific models and years in their inventory. Automalls are a good resource here.
I would also ask to know when they would be the least busy, reiterating that you will not be purchasing and explaining that you don't want to keep a salesman occupied at a time when s/he's likely to be making another sale. If possible, make an appointment at this time. Either way, get the person's name, so that when you arrive you can tell whoever you're working with, "Hey, I talked to ____ about test-driving a few models. I'm not buying today, and s/he said that if I came around this time it wouldn't be too busy so I won't be costing you business." Salesmen are notoriously pushy, but most won't try a hard sell when you've gone to this much effort to establish your intent and minimize the inconvenience to them.
Most.
Anyway, get in the cars. If you have objects you need to fit into the car, take those with you (strollers, carseats, golf clubs, etc.) Ride in both the front and back seats. Take pictures with a camera of features you really liked or disliked, or take notes. By the end of this experience, you should have a list of cars you're interested in buying.
NOTE: it's tempting to skip this step, because obviously you'll be test-driving any cars you seriously consider buying. Resist that temptation! You'll save yourself so much time by eliminating models you don't like now.
If you've done your due diligence, you're ready to start shopping.
Used Car Buying Part 1: Setting a Budget
Alright. As promised, here's my first how-to post gleaned from months of unemployment. Towards the end of January, my husband was out driving with my son Gabe when our car was hit. It was the other person's fault (she didn't see us when she turned left) but it rendered our car undriveable.
We were initially given a rental for four days (2011 Dodge Charger. Yeah!) while the car was in the shop. However, after the mechanic gave it a closer look it was clear that the car had been totaled (cost to repair > cost to replace.) That came as little surprise to us, since the car was a '99 Venture with 184,000 miles on it and a bit of prior cosmetic damage. It meant, however, that we only had the rental for one week, during the school year, and somehow had to find and purchase a new car during that time. The check from the insurance company was just a few bucks over $2,000 even.
So, what happens now?
The first thing we had to do was establish a budget. This sounds straightforward, but there are a couple of pitfalls that car-buyers fall into when it comes time to make the purchase that you should account for. For example, we initially figured out that we could spend $10,000. We were getting a large tax return (about 6k after credits), so combined with our 2k check and the 2k we had in savings, that gave us 10,000 total in cash. Considering that was essentially 5 times the savings we were used to having available, the amount was definitely drool-inducing. Think of the car we could get! It would be SO reliable!
But there were four big reasons why that would have been a bad idea:
1. Whatever your budget, be sure it's not maxing out your savings.
As I've mentioned, we were unemployed. Although that was about to change, we didn't know it at the time, so spending everything we had would have been foolish. We'd calculated that in order to survive until summer, where as a worst-case scenario we could have found work as technicians installing security systems in another city, we would need 2,000. That, in conjunction with our Air Force stipend, would cover our rent expenses of around 675/month, plus insurance, contracted cell phone expenses, gas, and miscellaneous expenses. It wouldn't leave a lot of wiggle room in case of emergencies, but there was just enough there that we could scrape by. So that left us with 8,000 for the car.
2. Account for extra fees.
Our '99 Venture was cheap to insure. If we got a newer model, it would be more expensive. In our case, it added about $120 to our paid-up-front six month policy with USAA, which would be due in March. In addition, taxes, registration, and fees amount to about 10% of the cost of the car. So right off the bat, we had to subtract that $120 and 10% (800) from our overall budget, since these were costs we'd incur as part of the process. In addition, we knew we wanted to buy direct from the car owners, so we had to anticipate a minimum of about $100 to cover the cost of getting the Carfax and a third-party inspection, or a likely maximum of $300. All of that combined brought our budget down to $6780.
3. Account for the "close-enough" factor
As humans, we tend to round numbers to what we consider "close enough." Sellers know this, which is why you see so many "5999" price tags. They know that even if we KNOW they're doing it, we still tend to place significance on the left digits first. So if I say "my budget is 5,000" I might be swayed to buy a car for 5,999 because it's "close enough." This is especially prevalent in car-buying, where we assume that we can haggle because costs are obviously inflated. The result is that we might end up at a starting price point, but not succeed in haggling to where we want, and still consider it "close enough." Unless you have tremendous reserves of willpower, plan for this in your budget. I'd say, subtract about $15% of your overall budget to cover the cost of your own psyche. If you don't succumb, good for you, you pocketed the extra money! If you do, the good news is, you won't be in the hole because of it. Our new budget: $5580.
4. Be prepared to make minor repairs or do regular maintenance.
Once you purchase your car, you might have to do some maintenance to get it where you want it. New tires, fluid flushes, regular mileage maintenance, and new brake pads can add up quickly, but they also allow a seller to hike up the price if he's the one to do them. Decide on a maintenance budget you can live with (example: "I won't buy a car if regular repairs on it will cost me more than X.") I didn't factor this in when we bought our car so I had to make the decision at the mechanic's when I brought it in for inspection. It was no biggie; we were still definitely within our budget, but if we'd barely eeked by it would have put us over the top.
To save you the time of calculating it out on your own, consider this simple equation: shop in a range between 60 and 70 percent of your initial budget. Our budget clocked in a bit below that because Carfax and insurance fees represented a disproportionately large percentage of our overall budget. If you had a little more money, that would go away. As it is, we were shopping at around that price range because we were planning to spend around $5580, so with haggling, we were looking at cars in the $5,000-$7000 range. You want to give yourself that much wiggle room because the environment of haggling is so built into the car buying experience that even second-hand sellers expect to get less than their asking price (usually), but since they're not professional dealers, they often don't know what're reasonable to inflate the price to. I had a seller who readily agreed to drop the price from $6400 to $5500--almost a 1k difference--after a short text message exchange. I also had one who wouldn't take a penny less than her asking price, even when I had cash in hand and was ready to walk otherwise. It depends on the person...and on your willingness to haggle!
We were initially given a rental for four days (2011 Dodge Charger. Yeah!) while the car was in the shop. However, after the mechanic gave it a closer look it was clear that the car had been totaled (cost to repair > cost to replace.) That came as little surprise to us, since the car was a '99 Venture with 184,000 miles on it and a bit of prior cosmetic damage. It meant, however, that we only had the rental for one week, during the school year, and somehow had to find and purchase a new car during that time. The check from the insurance company was just a few bucks over $2,000 even.
So, what happens now?
The first thing we had to do was establish a budget. This sounds straightforward, but there are a couple of pitfalls that car-buyers fall into when it comes time to make the purchase that you should account for. For example, we initially figured out that we could spend $10,000. We were getting a large tax return (about 6k after credits), so combined with our 2k check and the 2k we had in savings, that gave us 10,000 total in cash. Considering that was essentially 5 times the savings we were used to having available, the amount was definitely drool-inducing. Think of the car we could get! It would be SO reliable!
But there were four big reasons why that would have been a bad idea:
1. Whatever your budget, be sure it's not maxing out your savings.
As I've mentioned, we were unemployed. Although that was about to change, we didn't know it at the time, so spending everything we had would have been foolish. We'd calculated that in order to survive until summer, where as a worst-case scenario we could have found work as technicians installing security systems in another city, we would need 2,000. That, in conjunction with our Air Force stipend, would cover our rent expenses of around 675/month, plus insurance, contracted cell phone expenses, gas, and miscellaneous expenses. It wouldn't leave a lot of wiggle room in case of emergencies, but there was just enough there that we could scrape by. So that left us with 8,000 for the car.
2. Account for extra fees.
Our '99 Venture was cheap to insure. If we got a newer model, it would be more expensive. In our case, it added about $120 to our paid-up-front six month policy with USAA, which would be due in March. In addition, taxes, registration, and fees amount to about 10% of the cost of the car. So right off the bat, we had to subtract that $120 and 10% (800) from our overall budget, since these were costs we'd incur as part of the process. In addition, we knew we wanted to buy direct from the car owners, so we had to anticipate a minimum of about $100 to cover the cost of getting the Carfax and a third-party inspection, or a likely maximum of $300. All of that combined brought our budget down to $6780.
3. Account for the "close-enough" factor
As humans, we tend to round numbers to what we consider "close enough." Sellers know this, which is why you see so many "5999" price tags. They know that even if we KNOW they're doing it, we still tend to place significance on the left digits first. So if I say "my budget is 5,000" I might be swayed to buy a car for 5,999 because it's "close enough." This is especially prevalent in car-buying, where we assume that we can haggle because costs are obviously inflated. The result is that we might end up at a starting price point, but not succeed in haggling to where we want, and still consider it "close enough." Unless you have tremendous reserves of willpower, plan for this in your budget. I'd say, subtract about $15% of your overall budget to cover the cost of your own psyche. If you don't succumb, good for you, you pocketed the extra money! If you do, the good news is, you won't be in the hole because of it. Our new budget: $5580.
4. Be prepared to make minor repairs or do regular maintenance.
Once you purchase your car, you might have to do some maintenance to get it where you want it. New tires, fluid flushes, regular mileage maintenance, and new brake pads can add up quickly, but they also allow a seller to hike up the price if he's the one to do them. Decide on a maintenance budget you can live with (example: "I won't buy a car if regular repairs on it will cost me more than X.") I didn't factor this in when we bought our car so I had to make the decision at the mechanic's when I brought it in for inspection. It was no biggie; we were still definitely within our budget, but if we'd barely eeked by it would have put us over the top.
To save you the time of calculating it out on your own, consider this simple equation: shop in a range between 60 and 70 percent of your initial budget. Our budget clocked in a bit below that because Carfax and insurance fees represented a disproportionately large percentage of our overall budget. If you had a little more money, that would go away. As it is, we were shopping at around that price range because we were planning to spend around $5580, so with haggling, we were looking at cars in the $5,000-$7000 range. You want to give yourself that much wiggle room because the environment of haggling is so built into the car buying experience that even second-hand sellers expect to get less than their asking price (usually), but since they're not professional dealers, they often don't know what're reasonable to inflate the price to. I had a seller who readily agreed to drop the price from $6400 to $5500--almost a 1k difference--after a short text message exchange. I also had one who wouldn't take a penny less than her asking price, even when I had cash in hand and was ready to walk otherwise. It depends on the person...and on your willingness to haggle!
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