Dealerships rely on high-quality pre-owned vehicles to attract customers and drive revenue. The price you pay for those vehicles determines how profitable your used vehicle sales actually are. If you overpay for your inventory, your bottom line will suffer.
That's why having a consistent, reliable car appraisal process at your dealership is essential. Learn how to improve your dealership's appraisal process to acquire inventory at the most competitive prices.
How Do Car Appraisals Work?
In an appraisal, a trained used car appraiser examines the vehicle and assesses all the relevant details to determine its fair market price. Different dealerships and appraisers may use different processes, but generally, the process follows these steps¹:
- Examine the vehicle's title and registration.
- Review the vehicle's maintenance history for any major repairs, accidents, or other maintenance concerns that may bring down the vehicle's value.
- Examine the vehicle's exterior condition for dents and scratches and note any damage that did not show up in the maintenance history.
- Check the vehicle's interior condition for any damage to the seats, electronics, windows, and doors.
- Determine whether the vehicle has any extra features or modifications.
- Evaluate basic information, like the mileage, vehicle age, and number of previous owners.
- Assess the engine’s condition by listening to it and using OBDII readings
Appraisers will also look at market data, such as recent retail transactions, available supply, and current demand in the used car market. They’ll also assess the potential cost of reconditioning the vehicle. Sometimes, appraisers also take the vehicle for a test drive as part of their process². Using all this information, they then estimate how much the car is worth.
What Is Appraisal Variability?
Appraisal variability is a common concern for dealerships when purchasing inventory. It's when different appraisers reach different values when evaluating the same vehicle. Your dealership’s top appraiser most likely isn’t available for every single job, so you’ll have more than one person handling this work.
For example, say you're interested in purchasing a used 2018 Toyota Corolla for your dealership inventory, but you need to know what a fair price would be. No matter which appraiser you ask to evaluate the Corolla, they could return with different numbers. For the sake of comparison, the range could be between $13,000 and $18,000. There's considerable variability in these appraisals—and listening to an outlying opinion could mean vastly overpaying for the car.
Ideally, you want to minimize appraisal variability at your dealership. You should be able to trust that no matter which appraiser you send to evaluate a vehicle, they will determine an accurate market value.
Sources of Appraisal Variability
There are several reasons why appraisers might reach different prices for the same vehicle. The appraisers may have different skill levels, for instance. An appraiser with deep automotive knowledge and a good eye will likely determine a more accurate market value for a vehicle than someone who doesn't know precisely what they're looking for.
Differences in the appraisal process can also lead to variability in the results. A more thorough appraisal process may uncover details that affect the final price estimate positively or negatively. If another appraiser uses a less thorough process, they may miss these details and arrive at a different estimated vehicle value.
Other factors affecting the final appraisal figure include:
- The appraiser's level of experience
- The time available to complete the appraisal
- The individual vehicle's circumstances and intended use³
- The dealership's or manager's oversight of the appraisal process
It isn't possible to eliminate all the potential sources of appraisal variability, but you can mitigate the likelihood of reaching disparate appraisal values. For example, your appraisers will never have the same exact skill levels and years of experience — that's just not realistic. Despite this, you can reduce the odds of these appraisers reaching different values by having all your staff use the same thorough car appraisal process.
Tips for Developing a Consistent Car Appraisal Process
If you're worried about appraisal variability affecting your dealership's profitability, it's time to rework your appraisal process. Apply these tips to make your process more consistent and reliable.
1. Get on the Same Page
Your appraisers may each have their own steps for examining vehicles and determining how much they're worth. The more these steps differ from one appraiser to the next, the further apart the final appraisals will be. Eliminate some appraisal variability by having each of your appraisers follow the same steps to evaluate vehicles.
For instance, have each team member start by examining the exterior of any vehicle they evaluate. Lay out clear steps for how they should appraise vehicles and regularly check in to ensure they follow these steps each time. Work with your appraisers to create these steps so they can all offer some insights before transitioning to the new process.
2. Implement Appraisal Tools
Across industries, business leaders are recognizing the importance of data in decision-making. In one survey from S&P Global, 70% of professionals report that most or nearly all the strategic decisions in their organizations are currently data-driven⁴. Dealership owners can also utilize data to great effect, especially in appraisals.
Appraisal tools can leverage real-time data to help your appraisers determine the most accurate market value of each vehicle. They often have built-in appraisal calculators, too. All the appraiser has to do is enter a few key details about the vehicle, and the tool will generate an accurate appraisal based on data about current market conditions and the vehicle itself.
3. Offer Training and Continued Education
Some dealership employees would make great appraisers if they had the necessary training and skills. Help your team get on the same page by offering initial appraisal training and ongoing education on the topic.
With the proper training, your appraisers can all operate with the same background knowledge and understanding of your expectations. Cover any new developments affecting used car values in further training down the line.
Supercharge Your Dealership’s Car Appraisals With ACV MAX
Getting your appraisal process right is essential to your dealership's financial health. Inconsistency and appraisal variability can be costly, so upgrade your appraisals with ACV MAX.
ACV MAX includes appraisal tools powered by AI and informed by your own sales history. Sign up for a demo today to see how ACV MAX can help your dealership.
Sources
- Hawley, D. (24 May 2023). How To Have Your Car Appraised. J.D. Power. Retrieved July 9, 2024, from https://www.jdpower.com/cars/shopping-guides/how-to-have-your-car-appraised
- A Guide to Car Appraisals. Chase Bank. Retrieved July 9, 2024, from https://www.chase.com/personal/auto/education/selling/car-appraisal
- Dratch, D. (12 January 2024). A guide to car appraisal. Credit Karma. Retrieved July 9, 2024, from https://www.creditkarma.com/auto/i/car-appraisal
- Patience, N. (10 June 2022). Firms Realize the Value of Data Driven Decision Making. S&P Global. Retrieved July 9, 2024, from https://www.spglobal.com/marketintelligence/en/news-insights/blog/firms-realize-the-value-of-data-driven-decision-making
