What is the Value of your Used Construction Equipment Trade-in?
Trade-in evaluation is always a difficult proposition for both the dealer and the end user. Owners and end users have a certain attachment to their equipment and invariably expect more than a dealer can allow in actual cash value. While on the dealer side, they can only offer what the open market will pay which essentially translates to the true value of the machine. So how does a dealer estimate the true value and what can you expect as you go through a trade-in process? Read on below for a full analysis on how Carter Machinery’s used equipment managers evaluate a trade-in.
Step 1: The Trade-in Evaluation Process:
This begins with reviewing pictures of the unit and the inspection which covers key details such as the model, the serial number, the amount of hours the unit’s been used, what the unit is equipped with and the location of the unit. Next we review the average auction value for the unit based on the year model, the hours logged and the equipped features over the next 90 days.
Step 2: Trade-in Comparison:
Here we look at the average auction value against the average advertised value for similar units to get a feel for the price market. In the past, the average auction value was seen more as a wholesale value of the machine but now due to the Internet and the ease of communication between customers and the auction companies, the average auction value can end up as the customer’s expected value of the machine.
Average advertised values are just what they represent; numbers. Rarely do you see any advertised value less than the average auction value. Why you might ask? Because buyers expect to negotiate and therefore dealers allow for this process when listing their pricing. A dealer needs to take into consideration the leverage a buyer might use such as additional repairs expected, freight cost, bundling another trade, etc. There are no secrets in understanding the auction value and advertised value but the ability to review the inspection, understand the market and anticipate the final sale price is the art of the deal.
Step 3: Assignment of the Trade-in Value:
Our last step is the trade-in worksheet. We first insert the average auction value for a unit with similar hours, equipment and year model. Next we deduct repair costs, transportation and any profit margins to cover commissions and incidentals. After final review of the worksheet as well as the information we have gathered in the comparison process, the trade-in value of your unit is assigned.
Trade-in value is simply part of the business. Carter Machinery’s used equipment managers are faced with reviewing and assigning hundreds of values monthly. On top of that, they attend and watch internet auctions, talk and shop the units with peers and review a scoreboard of risks daily to stay in the market intelligence ring. So while there is not an exact science or proven formula on assigning a trade-in value, experience, facts, calculated risks and instinct help to deliver consistent and fair values.
Used Equipment Trade-in Checklist:
If you are thinking of trading in one of your units, we’ve included a brief overview of the areas frequently evaluated below. If you are looking to purchase a used unit, you can view our full list of available and used machines here.
- Appearance: Paint, cosmetics, or field modifications can either enhance or greatly depreciate the value of the unit.
- How is the unit equipped?: Regardless of the machine or application, how the unit is equipped can significantly affect value. Does the machine have a cab or canopy? Does it have air conditioning? What type of transmission? If it’s a track type tractor, is it a standard gauge or wide gauge LGP? Or if it’s a wheel loader, what type of attachments does it use? These configurations needs to be considered when determining resale value as it can vary unit to unit.
- Mechanical/Operational condition: We need the machine to be in work ready condition with all functions in order to assign a value. We check to see if there are any leaks, if the engine operates and sounds correct, if the transmission shifts through all gears and directions, if the overall power appears to be normal, if there are any known problems or defects, etc.
- Age: This determines value based on buyer preference for the year model (newer or updated models vs. the past year model). For example, some buyers may not be exhilarated with the new and improved product or accept a governmental regulated change that creates additional maintenance such as Tier 1 vs. Tier 4 Final Engine configuration. On the other hand they may choose the newer model due to improved hydraulics or horsepower that subsequently transfers to increased production capabilities.
- Hour meter: Helps to determines usage, frame life, component life, etc.
- Tires/Undercarriage condition: Both Tires and undercarriage are wear items. For instance 50% of the repair costs over the life of a track type tractor is spent on undercarriage repairs. Tire replacement costs are expensive as well. Due to these expense considerations, the remaining life of both tires and undercarriage will alter the overall machine value.
- Attachments and attachment condition: The attachment condition can enhance or adversely affect the trade value. The question becomes is the attachment usable? For instance a common attachment for a skid steer or multi terrain Loader is a bucket. The ground engaging wear items such as the teeth, cutting edge, and the bucket floor are areas that determine the bucket condition. Regardless of the attachment, it must be in usable and working order.
- Maintenance practice: Proof of maintenance enhance value regardless of age or hours. Maintenance records, though not always reviewed in detail, provide a warm fuzzy feeling to a buyer.
- Job application: What did the machine do? Rough applications such as the waste industry and mining applications will reduce value vs. easier applications such as construction grading.
- Market value giving consideration to geographical location: Certain types and models of equipment have a higher resale value due to demand or the availability in the area of the country you may be located. For example track loader values are better in the Northeast vs. the Southeast due to demand and tractors equipped with rippers sell better in the Midwest.
- Resale and make ready costs: Here we look at what repair costs are needed to make the machine sale ready. This ranges from the overall appearance and cosmetics of the unit, fenders, glass, paint, decals to tire replacements, operational concerns and the condition of the cab and control (i.e. sloppy steering linkage, missing control knobs, AC/Heat operation).