What reason for buying a car at less than market value?
May 28, 2013 7:42 PM Subscribe
YANAL/YANML and you are not a clerk working at my DMV. What reason should I put on a bill of sale for buying a car for less than market value?
I am buying a car from a family member. I am paying $3,000 less than the Kelley Blue Book value for this car.
As part of the process of a private vehicle sale in my state, you have to complete a bill of sale. The bill of sale is used to determine the excise tax, among other things. One item on the bill of sale is "the reason the vehicle can be purchased for a price less than fair market value."
I'm not sure how to respond to this item. The price my family member and I have agreed on seems fair to us both, and frankly my family member wants to help me out by cutting me a bit of a deal, but "it seems fair" is probably not the best way to phrase this answer. The bill of sale will determine the excise tax I will pay, so I assume there's a "right" way to answer this question. I want to be honest, but I also want to respond to this item in the way that will minimize questions or problems when I take the bill of sale to the DMV in my state.
To make this more difficult, my family member lives in another state, and it would be complicated to get corrections made to the bill of sale if the DMV in my state has issues with it. So... any idea how I should answer this question?
I am buying a car from a family member. I am paying $3,000 less than the Kelley Blue Book value for this car.
As part of the process of a private vehicle sale in my state, you have to complete a bill of sale. The bill of sale is used to determine the excise tax, among other things. One item on the bill of sale is "the reason the vehicle can be purchased for a price less than fair market value."
I'm not sure how to respond to this item. The price my family member and I have agreed on seems fair to us both, and frankly my family member wants to help me out by cutting me a bit of a deal, but "it seems fair" is probably not the best way to phrase this answer. The bill of sale will determine the excise tax I will pay, so I assume there's a "right" way to answer this question. I want to be honest, but I also want to respond to this item in the way that will minimize questions or problems when I take the bill of sale to the DMV in my state.
To make this more difficult, my family member lives in another state, and it would be complicated to get corrections made to the bill of sale if the DMV in my state has issues with it. So... any idea how I should answer this question?
Just write "family member" there. They can't really argue with that, right?
posted by Slinga at 8:23 PM on May 28, 2013 [2 favorites]
posted by Slinga at 8:23 PM on May 28, 2013 [2 favorites]
My local California DMV was fine with "partial gift" written on the bill of sale.
posted by anadem at 8:40 PM on May 28, 2013 [1 favorite]
posted by anadem at 8:40 PM on May 28, 2013 [1 favorite]
If you write "family member", the DMV will assume that the car is really worth "fair market value" and set the tax based on whatever they believe the FMV should be.
I would start by picking a reasonable FMV - Kelley Blue book private price is one, Edmunds (for US at least) is another.
Then look for why you think it is fair that the price you are paying is slightly less than FMV chosen above - theora55 lists some of the general categories. I would be somewhat specific - e.g.: sun damage to paint, electric problems with locks and windows, excess wear to upholsterly and mats. In other words, be clear that are real reasons - don't be totally generic.
posted by metahawk at 8:48 PM on May 28, 2013 [3 favorites]
I would start by picking a reasonable FMV - Kelley Blue book private price is one, Edmunds (for US at least) is another.
Then look for why you think it is fair that the price you are paying is slightly less than FMV chosen above - theora55 lists some of the general categories. I would be somewhat specific - e.g.: sun damage to paint, electric problems with locks and windows, excess wear to upholsterly and mats. In other words, be clear that are real reasons - don't be totally generic.
posted by metahawk at 8:48 PM on May 28, 2013 [3 favorites]
Blown engine is always a good one ;)
posted by JujuB at 9:29 PM on May 28, 2013 [1 favorite]
posted by JujuB at 9:29 PM on May 28, 2013 [1 favorite]
Best answer: $3,000 less than the Kelley Blue Book value for this car.
As theora55 asked, which KBB price are you using? You may be able to simply cite an alternate price guide, like Edmunds. Edmunds's private party value will be significantly lower than the KBB private party value, and much lower than the KBB dealer retail figure which even KBB admits is inflated ("The value that is representative of dealers' asking prices for a used car. A starting point for negotiation between a consumer and a dealer.").
I had to answer this same question recently in Pennsylvania, when buying a used Subaru from a private party. Without asking about the car's condition, the clerk looked up a price in a NADA book and asked about the discrepancy between what I'd paid and what the book said. NADA doesn't even publish private-party values. The simplest explanation of why I'd paid less than the state's 'market' value would've been that the state's method of establishing market value is stupid.
posted by jon1270 at 3:47 AM on May 29, 2013 [1 favorite]
As theora55 asked, which KBB price are you using? You may be able to simply cite an alternate price guide, like Edmunds. Edmunds's private party value will be significantly lower than the KBB private party value, and much lower than the KBB dealer retail figure which even KBB admits is inflated ("The value that is representative of dealers' asking prices for a used car. A starting point for negotiation between a consumer and a dealer.").
I had to answer this same question recently in Pennsylvania, when buying a used Subaru from a private party. Without asking about the car's condition, the clerk looked up a price in a NADA book and asked about the discrepancy between what I'd paid and what the book said. NADA doesn't even publish private-party values. The simplest explanation of why I'd paid less than the state's 'market' value would've been that the state's method of establishing market value is stupid.
posted by jon1270 at 3:47 AM on May 29, 2013 [1 favorite]
Response by poster: I was using the KBB private sale price to establish the value, which is about $10,000. Edmunds says its private sale value is about $9,200, and NADA lists the "average trade-in" value as $9,950 (I can't find a private sale value on the NADA website). I'm paying $7,000 for the car.
I can reasonably and honestly comment on interior wear and tires needing replacing. Is the fact that the previous owner didn't do the last factory-recommended service relevant? That's going to cost me $1,500.
posted by OrangeDisk at 4:15 AM on May 29, 2013
I can reasonably and honestly comment on interior wear and tires needing replacing. Is the fact that the previous owner didn't do the last factory-recommended service relevant? That's going to cost me $1,500.
posted by OrangeDisk at 4:15 AM on May 29, 2013
Keep in mind that your worst case scenario here is that you have to pay tax on the difference. If your reason is "generosity of seller," and your state considers that a gift and wants to tax you on the higher number, it will only cost you a couple hundred bucks.
it would be complicated to get corrections made to the bill of sale if the DMV in my state has issues with it.
I see no reason to worry about the bill of sale, assuming it reflects the price you actually paid.
posted by jon1270 at 4:51 AM on May 29, 2013
it would be complicated to get corrections made to the bill of sale if the DMV in my state has issues with it.
I see no reason to worry about the bill of sale, assuming it reflects the price you actually paid.
posted by jon1270 at 4:51 AM on May 29, 2013
The BMV isn't going to take the car and have it inspected to make sure it needs the work you claim, so you're free to embellish the issues the car has. Needs new exhaust? Maybe it needs a new timing belt? You get the idea.
People sell their cars for below book all the time. It's completely possible they are unaware of book value. Maybe they just want the car sold and off their hands. Owner needed money fast and was willing to take your first offer? It happens.
posted by Thorzdad at 5:21 AM on May 29, 2013
People sell their cars for below book all the time. It's completely possible they are unaware of book value. Maybe they just want the car sold and off their hands. Owner needed money fast and was willing to take your first offer? It happens.
posted by Thorzdad at 5:21 AM on May 29, 2013
I can reasonably and honestly comment on interior wear and tires needing replacing. Is the fact that the previous owner didn't do the last factory-recommended service relevant? That's going to cost me $1,500.
When asked saying "The interior is is bad shape and it needs tires and a $1500 service" is going to more than cover the differential. Heck tires and the $1500 would be enough.
posted by Mitheral at 2:19 PM on May 29, 2013
When asked saying "The interior is is bad shape and it needs tires and a $1500 service" is going to more than cover the differential. Heck tires and the $1500 would be enough.
posted by Mitheral at 2:19 PM on May 29, 2013
Response by poster: Update: I said that the car had exterior paint scratches, needed new tires, and had interior wear on the driver's side. These things are true. This was no problem -- the clerk at the DMV didn't even bat an eye. Thanks for all the help.
posted by OrangeDisk at 2:02 PM on August 23, 2013
posted by OrangeDisk at 2:02 PM on August 23, 2013
This thread is closed to new comments.
posted by theora55 at 7:49 PM on May 28, 2013