Should You Buy a Used Car From a Dealer or Private Seller?
October 23, 2008 by Grant
Example of private auto sellers from an online classifieds
Buying a used car is tricky business. Just the thought alone of dealing with a used car salesman is enough to make most buyers reach for the headache medicine. But for those who hate the idea of even walking onto a dealership lot, there is always the option of private sellers.
In fact, private sellers make up a significant chunk of all used car sales. You can find private sellers just about anywhere – in newspapers, online classifieds and the dubious looking abandoned looking car with the “For Sale” sign in the window.
Many buyers stick to the reliability of buying from a dealer, while bargain hunters often swear to the benefits from private sales. The truth is that there are both benefits and drawbacks of buying from a dealership versus buying from a private seller.
Fact #1 – Private Sellers Are Almost Always Cheaper
A tidbit of information that most people don’t know, is that auto dealerships actually make more money off used car sales than new car sales. Dealers have access to large inventories of used cars, most of which they can buy at wholesale or auction and then sell directly to consumers. Because the dealerships go to the hassle of finding vehicles, accepting trade-ins and maintaining an inventory, they will charge a much higher mark-up than a private seller who has little to no inventory cost.
Dealerships often quote their cars at prices inline with the Kelly Blue Book. Often, they will even quote under KBB to give the impression of value. What your salesman isn’t saying however, is that there is are two versions of the Kelly Blue Book – one for dealerships and one for private sellers. The price of the same car in the same condition for private sellers will always be lower than the price the dealer shows you.
Fact #2 – Dealerships Can’t Knowingly Sell a Broken Car
Thanks to a legal protection called the warranty of merchantability, dealerships cannot knowing sell you a car that doesn’t meet reasonable quality standards. By law, if you buy a car that has a basic operating problem at the time of purchase (broken axle, cracked engine, non-functioning brakes, etc), you are entitled to legal recourse. Unfortunately, if your air conditioner fails a month after purchasing, you would have to prove that the condition existed at the time of sale – not an easy task.
That said, dealerships know about this implied warranty and most know it is not in their interest to pawn off lemons to every customer that comes in. However, if a car is sold “As is”, then you had better keep your guard up, because once you buy that car, it – and any problems it might have – are yours.
For those curious about Washington State lemon laws – they only apply to new vehicles, unfortunately.
Fact #3 – Private Sellers Can Sell You a Broken Car
Dealerships have to legally register with the state, adhere to the warranty of merchantability and also provide a Buyer’s Guide with every used car. Private sellers don’t have to do anything. Stories abound about buyers finding seemingly bargain deals, only to realize later that the car was a salvage, had an existing lien, was stolen or can’t even pass emissions.
We knew one buyer who was on the verge of buying a beautiful but used Mercedes CLK with low miles from a sleek private seller. His fiance convinced him to get a professional inspection, whereas they learned that their luxury dream car was actually spliced together from two separate cars. They’re married now, but they passed (luckily) on the car.
So unless you have a contract in writing, you should consider all private sales “As is”. That means it’s buyer beware – and all the more reason to do your homework.
Fact #4 – Time Spend Researching and Buying a Car is Almost Equal
For some buyers, getting a used car is simply going to a dealership and driving enough cars until they find one they like. Research and cost oriented buyers however, generally do a lot of research before sealing the deal.
If you’re looking for a particular type of car, you’ll probably spend the same amount of time in buying a car, whether you shopped only with dealerships or with private sellers. Individual dealerships have limited inventory compared to the entire pool of private sellers, so you’ll be hopping from one location to another no matter what. Every car you look at will involve a test drive, an rough inspection and if you’re close to buying, a professional inspection.
Fact #5 – There are both Good and Bad Dealers and Private Sellers
Realize that no matter where you go, you will inevitably find someone who doesn’t have your interest at hand. At the same time, there are also many reasonable individuals who just want to do honest business. It’s good to keep your guard up, but it’s also important to realize that the majority of people you deal with aren’t looking to pull a fast one.
Being armed with the right information is the best thing you can do to ensure a good car and solid deal. Good luck!
For additional information, here are some resources that we recommend:
Washington State Attorney General’s Office on Cars
Federal Trade Comission – Used Car Dealer Guide
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