Appraise Your Appraiser to Improve Reconditioning Estimates

The availability of inventory is constrained, but you already know that. 2020 has put us all in a unique situation, with the shutdown and then gradual reopening of our economy and the sales boom that followed. With strong competition and no great deals to be had at auction, you need to be able to spend the money that makes the most sense for you.

Look at your success rates at auctions — how many cars are you bidding on and not getting? If you’re missing cars, it means that somebody else is paying the money because they see value. Remember, you can’t sell something you don’t have. So, if your competition is buying cars at a higher price, it usually means the market has adjusted and is willing to pay that price.

The market controls the retail price, and your appraiser has to know both how to price the market in retail and how to factor in reconditioning estimates to get that car front-line ready and establish the true wholesale value to your store — AKA what your store can afford to pay. So true wholesale value is store-dependent in a sense. A more efficient dealership in both expense and time can afford and establish a higher wholesale price and still meet or exceed profit expectations. Think about that.

There is a quick and simple way to find out whether your appraisers are finding the right cars and not letting opportunities slip by. Appraise your appraisers.

The size of your store or number of appraisers you have does not matter. There should be very little variance in their final valuations and the reconditioning estimates they use to come up with such valuations.

Here are simple ways to determine whether your appraisers are up to standard:

1. Have your appraisers evaluate the same set of vehicles individually. This will allow you to identify patterns and differences in their techniques. Do they have a process they follow, and if so, how different is it from the others?
2. If Appraiser A says that the final expected reconditioning cost will be $500 and Appraiser B says $1,000, who was right? Review the final reconditioning costs of the vehicles they appraised and won. After the vehicles are front-line ready, determine who estimated correctly and where the misses occurred. Maybe Appraiser A needs help with paint estimation?
3. Test their knowledge on the cost of doing business. Every appraiser should know what it costs in both time and money to recondition a vehicle on your lot and the individual tasks associated with this.
4. Review their look-to-book averages. An even split in appraisal volume doesn’t tell you much, and the store’s average can be very misleading. I’d want to see their individual look-to-book and where they are missing or losing. Look at how well they are individually estimating the work to be done on the cars during the time of appraisal. Are there lots of notes and pictures, or very few? Both tell a story.
5. Identify any areas of improvement for your appraisers and supply the education to get them estimating correctly, as a team. They are either appraising to justify the amount they give or appraising the vehicle for what it’s truly worth to your store or group. You will uncover a lot about how you do or don’t do business, or maybe how you should.

Every month, data becomes more accessible and easier to digest. This means we can continually evolve and change the definitions of success when it comes to appraisals, reconditioning estimates and look-to-book averages. Don’t let antiquated or incorrect appraisal methods affect the profitability of your dealership or the stocking of it.