The importance of researching resale value before you buy

The importance of researching resale value before you buy

#BeavertonCarGuy

 

I want to thank all of you who have written and called in asking for automobile advice. I really enjoy helping people buy and sell their vehicles.

This month, I would like to discuss the case of those who bought a car during the height of COVID19 pricing spike but now finds that they need to sell that car at a loss just a few years later.

Meet Sam, a friendly chap who needs to sell his car. Sam was in need of an SUV even though COVID19 was running rampant and very few vehicles were available. Pricing was also completely off the charts but this did not deter Sam from getting his dream car. He had always wanted a Mercedes Benz SUV and so in 2021, purchased a pre-owned, certified 2018 GLE 350 4Matic from a local dealership. Sam added some personal touches to the vehicle, such as fancy wheels and performance tires and this cost him an additional $2500. Sam paid a whopping $50k for his dream car and felt he had made a great purchase and with the new wheels and tires.

Fast forward just about 2.5 years and Sam now needs a different vehicle that will better serve his family’s changing needs. He tried to sell his Mercedes Benz on Craigslist but it sat for 8 weeks with buyers messaging him with offers well below his listing price. Sam is not a car guy and so does not understand the market much, nor does he realize why the offers were coming in so low.

Well, let me explain. It is well known that European vehicles tend to depreciate faster than any other vehicle on the market, hands down, plus they tend to cost up to three times more to maintain than, say, a Japanese car. Couple this with the inflated price Sam paid for it during the height of the pandemic and this makes the resale value much lower than he expected.

Fortunately, Sam had a friend who referred him to me. As usual, I’m happy to help so took a look at the car and ran the numbers just to see where the valuation comes in. I also checked the Carfax for the history report.

Bad news for Sam. If you remember, Sam had replaced the factory wheels with black wheels and lower profile tires. This is great for some folks, but for others, taking away from the factory look of the vehicle is a big negative. The stock wheels were polished aluminum which, in many people’s opinion, is the cleaner look.

To sell the car, I made a few calls to my colleagues who deal more in European vehicles and the first seven bids were at $25k mark. Sam hadn’t driven it much, less than 20k miles in 2.5 years. So, what this means is that the car had lost almost exactly half its value in that short amount of time. More importantly though is that Sam stands to lose $25k, plus the cost of the aftermarket wheels and tires. Needless to say, Sam could not believe that this car has depreciated that much in such a short period of time.

Over the course of a few days, I was able to get a slightly better bid on the car, coming in at $27k which was good news but with Sam owing about $30k on his car loan, he’s basically walking away empty handed.

The moral of the story. In today’s world we need to be smart with our money, and that means being smart with our purchases. Buying something to look cool without good research beforehand is often not a wise choice. Vehicle purchases are our number two largest expense in life. This is why making an informed decision based not only on the price of the car when you buy it, but also on its projected resale value later on, is super important. And if you don’t believe me, just as Sam. He’ll teach you his hard learned lesson.

 

If anyone needs help purchasing/leasing or finding a new or pre-owned vehicle (or selling one), please allow me to assist you. Email fergusonautobrokers@gmail.com