In times like today, winning and doing more appraisals is critically important. Industry veteran lays out a four-step process for doing just that.
By Frank Scott
Trade-in appraisals are a boon to both new- and used-vehicle sales and a great way to acquire core used-car inventory without paying auction and transportation fees. And all it takes is saying the following to every customer who drives onto your lot:
“Hey, I see you drove up in that Dodge Charger (or whatever). We’re looking for used cars. Do you mind if we do an appraisal?”
Some salespeople might shy away from making that statement because they feel it adds yet another layer to negotiations, but they shouldn’t. Here are four steps to help you craft a comprehensive appraisal strategy and trade-in mindset that will yield positive results at your dealership.
Step 1: Create the Process
Make it part of your dealership’s culture to ask every sales and service customer whether you can appraise their vehicle. And make sure to record those interactions in your CRM. Additionally, make sure your customers accompany your appraisers as they inspect their vehicles. Here’s why:
- Customers are super honest about their cars and will tell your appraiser things that can help him or her make informed decisions about a vehicle’s value. For instance, a vehicle history report may show an “accident.” Was is a fender-bender or a major collision? Let your customer give you those details.
- Appraising a vehicle represents a great time to explain the process and factors that affect a vehicle’s value, such as accidents, mileage, the condition, the existence of a transferrable service contract, or even a missing set of keys.
- While you’re at it, share how you calculate appraisal values and whether you use guidebooks such as Kelley Blue Book or NADA Guides. Explain that you take into account the dealership’s transaction history with vehicles of a similar make, model, and condition. Also mention that you can solicit bids from your dealership network or wholesalers.
Step 2: Determine the Value
The first question your appraisers need to answer is whether the vehicle they’re evaluating is a retail or wholesale piece. If it’s wholesale, get the car’s book value — Manheim Market Report, Black Book, or Kelly Blue Book — and add or subtract from that value based on the vehicle’s history, condition, and other things that affect its price.
If it’s a retail piece, the following to-do list can help calculate its appraisal value:
- Gather transaction data to determine how much similar cars sold for at your dealership, in your group, and in your market over the prior 90 days. Inventory+, DealerSocket’s inventory management tool, can help by serving up actual vehicle transaction prices — even by vehicle trim level — and profit margins. The advantage of using Inventory+ is that it uses predictive algorithms based on real transaction data, not online prices.
- Check out the prices of similar cars listed for sale in your market area, which is typically within 100 miles of your dealership. Again, DealerSocket can help. Inventory+’s TrueTarget tool aggregates listing data from third-party websites like Cars.com, et cetera. Then DealerSocket’s TrueScore system, another feature within Inventory+, assigns individual vehicles a score based on that vehicle make’s sales performance at your dealership or in your market.
- Use book values, but make sure you’re on the same page as your customer. Chances are, your customer has already consulted KBB.com or NADA.com to figure out what the trade is worth. Make sure they tell you which source they used, so your appraisal is neither too low nor too high from the values they viewed. In other words, idiot-proof yourself.
- Combine all of the above, and you should have enough information to determine the car’s appraisal price.
Step 3: Justify Your Price
You’ve settled on an amount. Now you have to convince your customer it’s a reasonable price. Here’s what you need to show your customer:
- List items (tires, accidents, smoke odor, et cetera) that need to be replaced, repaired, serviced, or addressed — along with the dollar value of each item — to make the vehicle retail-ready.
- Print out the book value and listings of similar vehicles from the internet.
- Having backed out reconditioning costs, make out a check to the customer in the amount of the appraised price.
There’s no guarantee your customers will agree with your appraisal, but they may be more understanding if you say something like: “We love your car, but we are in the business to make a little bit of money, and this is the best we can do on your car.” That statement may even get them to say, “Yeah, I do need tires; I see where you’re coming from.” The key is to justify your appraisal.
Step 4: Check the Metrics
So you’ve improved your appraisal numbers, but are you winning enough appraisals? And what should your appraisal closing ratio be? Here are a couple of stats most dealerships monitor to get those answers:
- The number of appraisals you do should equal 150% of your new- and used-car sales. In other words, for every 100 new and used cars you sell, you should do 150 appraisals. If you’re way below that, you’re not conducting enough appraisals.
- A solid appraisal closing ratio is in the low 40% range.
During Times Like Today
With car sales expected to plunge during the COVID-19 pandemic, dealers undoubtedly can use all the help they can get. One major advantage of using Inventory+ to assist with appraisals is that its vehicle price data are based on real transaction data, not internet listings.
Remember, it’s dangerous to base your prices on just what the market listings are saying. That’s because some dealers could panic, drop their online price, and then send that car to auction. And you won’t know whether the price you see online represents a car sold at retail or one sent to auction. Following internet prices can be misleading and cause other dealers to panic as well, so don’t be part of the problem.
Frank Scott has been in the automotive industry for over 17 years and currently serves as a Senior Customer Success Manager at DealerSocket.