Fair Market Value Vs. Trade in

By: William Pirraglia | Reviewed by: Ryan Cockerham, CISI Capital Markets and Corporate Finance | Updated February 05, 2019

Fair market value and trade-in value seldom match because of different perspectives.

Jupiterimages/liquidlibrary/Getty Images

Fair market value is the price a reasonably informed buyer is willing to pay for a car, house or another item. Trade-in value definition, usually important when buying a vehicle, may or may not have a real correlation to FMV. Auto dealers often manipulate trade-in values as part of the overall price of their vehicles to generate more sales. True trade-in value meaning says that the value can be lower or higher than FMVs, depending on the auto dealer and current promotions.

Tip

Fair market value refers to the current price you can get for an item, whereas trade-in value a buyer is willing to give you in exchange for purchasing an item.

Fair Market Value

Should you offer to sell your current home or vehicle on the public market, you'll learn the fair market value of your asset. Buyers determine the fair market value of things. Willing buyers will offer amounts that are real fair market values, since they are spending their money.

Auto dealers typically recondition traded vehicles so they can sell them for retail fair market value, which is often higher than private sale value. Real estate agents present offers that reflect current fair market value.

Trade-In Value

Trade-in value definition is the value you'll get when you sell an asset in exchange for another. Unless you own a mobile home, there is no traditional trade-in value for real estate. You'll define trade-in value when referring to car sales, generally.

Absent of special promotions, auto dealers set trade-in values dependent on the repairs and cleanup necessary to bring the vehicle up to fair market value. For example, if the vehicle you trade in needs $500 in repairs -- at dealer cost -- the dealer may offer retail book value minus repair costs and projected dealer profit.

Understanding Time Costs

Advertising your home or auto for sale may bring a willing buyer in a day or two. It may not. While homes historically appreciate, not depreciate, the longer the time factor can still cost you money. The interest clock on your mortgage ticks 24/7/365, costing you money every day you don't sell your home.

Autos for sale can cost you more, as they depreciate as the calendar moves. Fair market value can decline the longer it takes you to sell vehicles. When you evaluate the actual trade-in value definition, though, you may decide that taking a loss by accepting a lower price is worth it due to the time it saves you.

The Market Decides

The buying market always determines fair market values and often influences trade-in values. While willing buyers determine fair market values, sales volume can define trade-in values, depending on the desirability of the vehicle you want to trade. When vehicle sales need a "boost," dealers typically offer more for your auto trade.

Trade-in value meaning includes decreasing the price of vehicles for sale, offering higher trade-in prices make dealers' vehicles more attractive to buyers. Once again, the market rules.

Evaluating Informed Buyers

The more informed buyers become, the closer to fair market values homes and autos are sold. Comparing recent home sales helps house buyers offer fair prices for real estate.

Sources for fair market and trade-in values for vehicles, such as Kelley Blue Book reports, are available for car buyers to become informed before they shop. When you are able to easily define trade-in value before visiting a dealership, you'll have leverage during the negotiating process.

Video of the Day

Photo Credits

  • Jupiterimages/liquidlibrary/Getty Images

Zacks Investment Research

is an A+ Rated BBB

Accredited Business.