What does the fair market value of a car mean?

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The fair market value means the price that a person can fetch in an open and fair transaction. Determining the actual fair market value of car can be difficult because it requires a personal assessment of several factors, such as the condition of the car and the current auto market.

Donations

Car buying guides may print price ranges for used cars, but this does not mean that you can assume your car will fetch a value in the upper range. Before donating a car, you should seriously consider the condition of the vehicle before writing it off on a tax return.

Significance

Fair market values are important for selling a car and in insurance policies. Under an insurance policy, the insurer pays only for damage. If the damage exceeds the value of the car, the insurer gives a cash payment equal to the fair market value. When selling, you should know how much to receive for your vehicle in order to set a reasonable price.

Considerations

You may still owe money on a car if a lender repossesses it when the value of the loan exceeds the fair market value of the car. This is called a deficiency.

Prevention

Consumers have a better chance at getting a higher fair market value for their cars if they fix all damage and clean them up before trying to sell them. People can get an appraisal from a dealership, but they should take caution not to fall for pressure tactics to sell it for a low price.

Tip

Lending Tree recommends that sellers allow some negotiating room (around $500) after determining the fair market value for a car.

Source:

Investopedia: Fair Market Value

Internal Revenue Service: IRS Officials Urge Care for Those Making a Car Donation

FairfaxAccidentAttorney.com: What does it mean to say that my car is "totaled?"

More Information:

Lending Tree: Determining car value

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What does the fair market value of a car mean?

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