How Do Cash for Cars Companies Price Cars?
Cash for Car companies evaluate cars by using a computer algorithm that considers several factors such as the age, make, model, condition, location and others to determine the price of a car. All of these inputs feed into the system, system digests the information and then calculates a price. The process will vary depending on where the car will ultimately end up, an auction or junkyard. We’ll explore the process below further.
Does a Person or Computer Come Up With the Value?
Today, most pricing is done by a computer using sophisticated algorithms that take all of the factors described above into account and then come up with the price.
In some cases, the price is pre-determined by a junkyard or buyer in a specific location that sets up bids on particular, generally older cars.
In other cases, it’s based on the auction returns where the algorithm looks at the historical returns on a specific car with a similar condition & location and then generates a price.
Auction Pricing vs. Junkyard Pricing
In a scenario where the system determines the car is best suited for an salvage auto auction, the algorithm will take a look at previous sales for a specific car from that auction to come up with an “average sales price.” This is the average price a particular vehicle has sold for in recent months with similar damage and location.
Once the system generates this average, it then removes a certain dollar amount, which the cash for cars company will want for ‘profit. What’s left after this is the offer price to the customer.
An example of this: Let’s say you have the following vehicle you’re looking to receive a price on:
Year/Make/Model: 2010 Toyota Camry
Damage Type: Front end damage
Mileage: 150,000 miles
Location: Orlando, FL
The system will take this information and see that an average selling price at the auction for a 2010 Toyota Camry with front end damage, 150k miles in Orlando is $3,000.
The company wants to make at least $400, so after considering their fees of $100 to the auction house, the system does the basic math. $3,000 (average selling price) minus $400 (profit) and $100 (fees), which leaves $2,500. The $2,500 is the offer price they would pitch to the customer in this case.
If you have an older vehicle that isn’t determined best to be sold by an auction, they will instead sell your car directly to a junkyard, recycler or scrap yard. We’ll refer to these as junkyards. These junkyards buy cars for the metal and parts and do not resell these cars. Based on the year, make, model and weight of the vehicle, they’ll have specific pricing setup for these cars.
The way it works with a cash for cars company is a junkyard will give set pricing for cars they’re interested in and then the cash for cars company will remove a certain amount for their ‘profit.
An example for this scenario:
Year/Make/Model: 1995 Ford Taurus
Damage Type: Mechanical
Mileage: 220,000 miles
Location: NYC, NY
The system will first look for any junkyards that pick-up in the NYC area. If it matches, it will then look to see if any of these junkyards are interested in a 1995 Ford Taurus. If there are junkyards that are interested and filled out a ‘bid’ they want for any 1995 Ford Taurus, that bid will appear MINUS the profit the company wants.
If there are 3 junkyards that appear, all interested in this particular car, then their bids will appear.
Let’s say Junkyard 1 has a bid of $500. Junkyard 2 has a bid of $450 and junkyard 3 has a bid of $400. If the cash for cars company wants a profit of $100 for this car, then the price that will be shown to the customer is the junkyard bid less $100. So the system will see prices of $400, $350 and $300. Since $400 is the highest, that price will be shown to the customer.
What Factors are Important in Determining a Value for a Car?
The most important factors in determining the value of a car are as follows:
- Condition (damage, exterior, mechanical, etc)
- Does it Drive?
- Title Type (clean, salvage, rebuilt)
- Any missing parts
Once these values are all given, it is then fed through a system which does the calculation of the price. Some of these factors have a bigger impact on pricing than others, such as Year, Make, Model and Condition.
Extra options, packages, modifications, etc you have on your car are less important.
How Does the Make and Model Affect Pricing?
The Make and Model of a car are 1 of the most important factors of pricing a car. Foreign cars do better than domestic, so if you have a Japanese vehicle like Toyota vs. a Chevrolet, the Toyota will fetch you more money. In addition, if the model is a SUV or pick-up, these will generally get a higher valuation than a small car.
What About the Condition of the Car?
The condition of the car is right up there with the make and model. Was the car in an accident that caused significant damage and now lost most of it’s value or does it just have some minor scratches? The difference between these 2 play a crucial role in determining the price.
Does the Location Really Matter?
Yes, the location plays a role in the price you get for your car. The market for salvage vehicles are stronger in certain regions of the country, such as the southern states and west coast where returns are higher. In the northeast, however, the returns are not as strong and so the value of the same car will be lower there.
Does Scrap Value Play a Factor At All?
Yes, especially for the older/damaged cars, the value of scrap is an important factor in determining the value of your car. If the price of metal or scrap goes down, that will cause pricing for these older junk cars to decrease, whereas when pricing increases, the price for junk cars will increase.
What About New Tires or a New Battery?
We get this question quite often, do new tires or a new battery impact the value at all? The answer is a resounding No. Unfortunately, because of where these cars end up, the tire quality or battery don’t matter.
What Other Information Do Customers Need to Share?
Some other pieces of information that is important for a company to put a value on your car are photos and a VIN #.
Photos are necessary when the cars are of higher value or if the damage is severe. In these cases, companies will ask you to send them photos of the car so they are confident in the price they give you. In addition, photos of your title are important to ensure the title is able to be transferred to be resold. If it is signed over to has mistakes, the company will be unable to move forward with the transaction.
In addition, a VIN # may be necessary to ensure they have the correct year, make, model, trim info, title, validation and mileage verification which are all important pieces of information in the pricing evaluation.
Do Offers Vary by Calling vs. Filling Out a Form?
No, generally calling or filling out a form does not impact the offer. The reason for this is because whether you call or fill out a form, both price outputs are driven by the same pricing system.
One one hand, when you call, the customer service rep fills out a tool that uses the same exact system that the form system uses. These inputs from the customer service rep vs the online form are both identical on the backend, returning the same price.
This is not always the case however. In some cases, when you call a company, the customer service reps MAY offer you less than what the online price shows because these reps at certain companies are commissioned, so it’s in their best interest to offer a bit less and make the company and themselves a little more money.
You can easily check this by filling out a form after getting a price over the phone to see if that is the case.
Do Offers Change or Expire?
Some companies do change or have offers that expire due to the nature of the business. Since the price of metal, auction pricing and market volatility are constantly changing, this affects the price of so that means the offers given are subject to change or expire after a certain period of time. This is usually shared with customers so they are aware of the chance of offers changing or expiring.
What About the Physical Inspection of the Car?
Some companies will have their tow truck personnel physically check the car before bringing it back so it’s important to be honest with the company up front to avoid any issues after.
If you aren’t up front and the tow truck finds damage that wasn’t initially disclosed, they will contact the office and the price will be re-negotiated or in some cases, canceled altogether. This can lead to a frustrating experience for all parties involved and can easily be avoided.
If the tow truck doesn’t catch any issues, when it is delivered to the auction or junkyard and they catch something, they have the ability to stop the check or worse, involve lawyers. Again, best thing to do is to be honest up front about any issues or damages so that the price given to you online or over the phone is the actual amount you’re given at the time of pick-up.
How Long Does The Entire Price Evaluation Take?
It takes 2 to 3 minutes on average to get a price on your car. Whether you call or fill out an online form, the process doesn’t vary much and the same questions are asked.
Once you answer all of the questions, a price will be given to you. In the cases photos are needed, it may add a little bit of time but generally it takes less than 3 minutes from the moment you start a form or call to you receiving an offer on your car.
If you’re interested in seeing how much your car is worth or what we’d pay you for your car, please call us or fill out our instant online offer form to get started. If you want to contact us for more information, please don’t hesitate to reach out. We’d be thrilled to help you in selling your car today!