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I was helping a friend to buy a cheap car in good condition in California (less than 100k miles for less than $8000) and we looked into Craigslist for cars, since we thought that Craigslist was cheaper than most other options. Auction wasn't a good option since we needed the car quickly and quality there varies and we don't really know how to deal in auctions.

I was surprised that almost all cars advertised as being in good condition were actually worth much less than that, and almost half of them were suspected to have the odometer rewound. We tried to negotiate the price for some but the sellers were always firm. We ended up buying one in a dealership with warranty within the same price and mileage range. Why are people selling cars on Craigslist for so much above the KBB prices, more than they're worth? Are sellers expecting to be negotiated for a lower price more aggressively?

EDIT: After a bit more experience dealing with Craigslist people it learned that indeed sellers expect hard negotiation. However, when I sell there, I don't negotiate my prices and I also have success, albeit the sale takes a little longer.

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    Demand? Given the increased emissions requirements in CA, it is a bit of a closed economy. – Pete B. Sep 15 '16 at 17:17
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    This isn't a question about personal finance. It's a question about why people do stupid things [on Craigslist]. – HopelessN00b Sep 15 '16 at 17:17
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    I'm confused by the downvotes and close here - this illustrates an incredibly important topic for personal finance. Millions of people use Craigslist or consider it for buying things like cars (which is certainly on topic here), and understanding market pricing, ask vs real sales price, scams, dishonesty, the endowment effect, and the fact that just because you own something doesn't mean you even know what it's worth or that you will behave rationally - all are topics that apply here, and could be very useful to the reader and future readers, and are certainly in the realm of personal finance. – BrianH Sep 15 '16 at 19:39
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    @HopelessN00b This question is about why cars on Craigslist seem to be overpriced, not why people do stupid things. If the answer for the question is because people do stupid things it is another story :-) – Gabriel Diego Sep 15 '16 at 23:31
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    kbb is only an estimation of the average sale price in a given area. many cars will sell for higher, and many for lower. Also, craiglist attracts bargin shoppers, which try to low-ball offers and see what sticks. Knowing this, most sellers on craigslist these days start on the high end and expect to be talked down to their true expected sale price. – SnakeDoc Sep 16 '16 at 0:09
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We tried to negotiate the price for some but the sellers were always firm. We ended buying one in a dealership with warranty within the same price and mileage range. Why people are selling cars in Craigslist for much above the kbb prices cars that are not even worth that?

Apparently they are able to get those prices. If they weren't, they'd compromise eventually. Look for older advertisements where people may be feeling more desperate. If you can't find them, then that means that the car is selling. They're right about the prices; Kelley Blue Book (KBB) is wrong.

It's interesting that the dealership hasn't caught up yet. If the used car market on Craigslist is robust, it should carry over eventually. I would expect dealership prices to be noticeably higher on average. The warranty if nothing else.

Perhaps Craigslist has too good a reputation. People are buying there even though they'd be better off with a dealer. Easy enough to fix. Go to a dealer and offer to sell cars for them (for commission). Advertise on Craigslist. Buyers should prefer warrantied cars over non-warrantied cars at the same price. With cars selling like hot cakes, the dealer will increase prices. KBB will adjust their numbers.

Auction wasn't a good option since we needed the car quickly and quality there varies and we don't really know how to deal in auctions.

I wouldn't recommend buying a car at auction unless you plan to buy a lot of cars. The quality is all over the place. You can get a great deal, but you are just as likely to get a lemon. If you buy a lot of cars, it will even out over time. But if you just need one, you can get royally screwed.

Auctions are designed for buyers who are constantly processing cars. If one is a lemon, they can make it up on the next one. The low prices at auction are a sort of reverse insurance. They charge less because they can't guarantee quality. So let the dealers buy at auction and fix up the cars with a warranty. Because they do it often, it works out in the long run for them. For an individual buying one car, I wouldn't recommend it. Too much risk with too few options for mitigation.

I realize this is just reinforcing what you already thought. I just don't want other people to start diving into auctions without understanding how they work. Yes, cars can be cheaper there. But the reason is that auctions sell anything, including cars that the seller is dumping because they are lemons. In bulk, the risk is manageable. Individually, it isn't. You may get lucky, or you may get a turkey that costs you more than it benefits you.

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    Dealerships are willing to sell at a lower margin than an individual might be, as they're selling higher volume. Same reason Etsy sellers charge more than Walmart. Cars are not perfectly fungible goods (they're somewhat fungible, but they're been shown to be not perfectly fungible) so there is some logic to there being a price discrepancy. – Joe Sep 15 '16 at 18:15
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    But the dealer has higher costs than an individual. In particular, this sale included a warranty. That's why KBB shows three prices for cars: sell to dealer; sell or buy from an individual; buy from dealer. That's from lowest to highest. Cars are nothing like crafts. Walmart sells cheap crafts made in bulk in China or the Philippines. Etsy sells hand made stuff made locally. With cars, they're made in the same factories. Only their history is different. And dealers are far more vulnerable to lemon laws than individuals. – Brythan Sep 15 '16 at 18:23
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    "Apparently they are able to get those prices" - actually, a very common use of Craigslist is for less than ethical sellers to put up fake ads, for use in supporting their own inflated car prices. They can then point to the ad and say, "jee, see, 2 cars similar to this one are being sold online and they cost more, and you don't get a [potentially worthless] warranty!" I have bought at least half a dozen cars on Craigslist over the last few years, and one thing you see very quickly is liars, cheats, and scams absolutely abound. Assume nothing is real or honest, just like in a dealership. – BrianH Sep 15 '16 at 19:34
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    @R.. There is some truth to that, but there is still the risk of getting a total lemon, e.g. a car that needs an engine and transmission replaced. Parts can cost more than the car will be worth. – Brythan Sep 16 '16 at 3:19
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    @BrianDHall This is why I have trust issues! – MonkeyZeus Sep 16 '16 at 12:35
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They're not being sold for those prices, they're being listed for those prices.

Are sellers expecting to be negotiated for a lower price more aggressively?

Yes. (generally)

Additionally, KBB and Edmunds can be a good pricing reference point, but they're not the bible or some sort of price sheet. Depending on the age of the car(s) you're looking at there may be an underlying loan. The seller may set the ask price as the entire amount due on their loan plus some amount to put down on their next car. Previously, I've found Carmax prices to be pretty reliable.

If you're not particularly picky about the car you end up with, start sending out offers and see who responds.

  • Thanks for the answer. She already bought the car in a dealership. The number of scams was staggering high and the savings were not being worth the risk. – Gabriel Diego Sep 15 '16 at 22:38
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Cars, (and stuff in general), are worth whatever someone is willing to pay, not what an authority like KBB says they're worth. Likely, the Craigslist sellers in your area either have a warped sense of the value of the cars they're selling, or they've seen comparable vehicles sell for about that price so they're going for it. If they want to sell quickly, they'll lower the price. Otherwise, they'll hold out for what they feel the car is worth.

Anecdotally: I sold a 4 year old Mac laptop on Craigslist a few years back. I listed it for slightly above what people were selling them for on eBay, which was (in my opinion) already over-priced for what it was. I had 1 guy send me some rather irate and insulting emails about how much I wanted for a 4 year old laptop. I told him to find one listed for cheaper and I'd work with him. Never heard back and I ended up selling the laptop for my asking price.

As Pete B. so astutely pointed out - Demand drives prices.

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    My biggest concern was that cars sold through Craigslist and dealerships were very closely priced, even when Craigslist sellers were more than often cheating. – Gabriel Diego Sep 15 '16 at 22:45
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    @GabrielDiego "even when Craigslist sellers were more than often cheating" How could you possibly know? It seems more likely to me that Craigslist sellers are simply basing their prices on what dealerships charge for the same (type of) vehicle. I doubt there are any reliable statistics on the percentage of dodgy cars sold through such platforms. – Lilienthal Sep 16 '16 at 7:16
  • @Lilienthal I noticed myself just by looking at the cars Carfax, situation of the car and behavior of sellers. Sellers would ask to text the address then they would not send the address and would not answer the phone anymore. They would answer when called using a different line then the same thing would happeb again (they were probably waiting someone sounding elder that would be easy to rip off). Others would give weird excuses for why the car is not in their name. Sometimes the car had 50k miles, but interior had tears and exterior with many small scratches. – Gabriel Diego Sep 18 '16 at 20:55
  • @GabrielDiego Fair, but keep in mind that your personal experience is only anecdotal. And really, when sellers are cheating that likely has little impact on the price they set. You can assume that they'll follow the same reasoning as legitimate sellers with the only difference being in the car they're selling. People are either going to fall for it or they're not. Undercutting price may only draw attention to the fact that the car isn't quite what the seller says it is. – Lilienthal Sep 19 '16 at 8:08
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It's probably not the only reason but one aspect is probably that dealers get trade-ins for next to nothing.

When you go in and start talking with a dealer, one of the first questions they will ask is "Do you have a trade-in" so they can leave a buffer in the negotiated price of the car you are buying.

For instance, say a car has a sticker price of $25,000. It might cost them $21,000 and they might sell it for $20,500 to a great negotiator (Yes, they sell it for under dealer cost--they get significant monetary bonuses each month for the number of cars they sell). Someone walking in off the street unprepared (but stubborn) will probably pay $23,500

If you tell them they have a trade-in, they will try to get an idea of how much you want for it. Let's say you have $3,000 in your head. They may target selling the car to you for $25,000 and give you $3,000 for your car making the actual sales price $22,000. At this point they could negotiate a few hundred more off the price, take your trade-in and sell it to the junkyard for $200 and still make a good profit (Cheaper to junk that car than to do the mechanical touchups and have it take up lot space for months).

If you want to see what a used car is worth to a dealer, negotiate the best price first (This involves picking out the exact car you want, spending a couple weeks emailing a few dozen dealers and multiple contacts with the best few to get them to play off each other) getting to a price around $20,500 in my example above and THEN tell them you have a used car. At this point you are unlikely to get anything at all for it. If you do get anything it will be a fraction of bluebook. You, on the other hand, spent less than you would have with the trade-in and still have a car you can sell on craigslist.

This is how dealers end up getting so many used cars to sell without feeling they have a lot of money invested in them... They have already made their money off the car and reselling the best used cars is just gravy.

Individuals who sell cars on craigslist have money invested in them and want to maximize their profit--if they don't have storage or money problems, the car can just sit there for months until sold.

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I'm surprised it hasn't been mentioned, but there is an additional factor that inflates the prices on Craigslist beyond those advertised in local newspapers, magazines, etc.: It's free to advertise on Craigslist.

Not only does it involve no financial expenditure, the investment of time and effort required is also minimal. (Unlike, say, putting up printed fliers around town--which involves a great deal more effort, and a negligible paper and ink expense.)

As such, people who are not in a hurry to sell (or who may not need to sell at all) can think, "Why not? If someone buys it I've made a bunch of money. If no one buys it I'm no worse off than I am now."

The phenomena of people listing higher prices when they are not in a hurry to sell has been covered quite well in other answers, but I thought it was worth pointing out the low entry barriers to the Craiglist marketplace as a factor.

protected by Chris W. Rea Mar 9 '18 at 12:07

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