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June 2, 2014

Reasons a Written Offer Is Not the Same as Retail Prices for a Car

Anyone who is selling a car needs to go through a certain process with dealerships. The car is appraised and then a written offer is given for the vehicle. Some people are surprised at this offer. The offer does not usually match the retail price for similar vehicles posted by the dealership online or in the lot. This is not a mistake. Written offers and retail prices are almost never the same. There a few reasons why written offers do not match retail prices.

Cost of Repairs and Reconditioning

One of the first reasons is that the cars purchased from sellers almost always need a little work before being offered for sale. The dealership takes on this responsibility. Even a car in good shape might need to go through a comprehensive inspection that could identify small problems that require repairs in order to meet dealership standards. Dealerships must also maintain the car while it is waiting to be sold. This can involve regular cleanings or other tasks. Repairs and reconditioning can increase the asking price later.

Administrative Costs

The reality is that selling a used car online or through a dealership is not simple or easy. The cars that are purchased by the dealership need to be inspected and then categorized. Inventories need to be modified. The vehicle needs to be added to current promotions or to the dealer website. Additionally, salespeople will be spending time selling the car to potential buyers. All of these costs are part of the overhead of selling a vehicle. Administrative overhead affects the price of the car.

No Two Cars Are Exactly the Same

Cars that look similar are not necessarily the same. Even two cars of the same make that are the same model year could have differences. It is important to understand that these small and sometimes unnoticeable differences can affect price by a noticeable amount. Even a difference as simple as air conditioning or a dashboard CD player can change the price. Some differences such as the type of transmission or the number of cylinders will affect what buyers are willing to pay. Just because vehicles look the same does not mean that they are the same.

Shifting Demand

There are situations where demand has shifted between the time when a retail price was posted and when the next similar car is being appraised. The dealership might not change the retail price that was already posted. The dealership might have simply not gotten around to changing the price. The written offer is going to be partially based on what consumers will pay for the car right now. If the demand for that type of vehicle has dropped, then the price is likely to be lower.

Guarantees and Warranties

A final reason retail prices are different from written offers is because the cost of guarantees and warranties is figured into the price. Dealerships are expected to offer guarantees and warranties when a person buys a car. The cost of these warranties is generally added to the price of the vehicle. This can inflate the retail price so that it is higher than the written offer for a car.

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