If you aren’t familiar with car brokers, they are third parties [mostly individuals but some companies] who act as an intermediary between you and the car dealer, supposedly to get you a better price than you would be able to obtain by yourself.
Most dealerships, including mine, deal with brokers. Virtually all brokers are paid a fee by the dealer and some also charge the customer…a “double dip” you might say. The fee the brokers charge range all over the map. I don’t remember paying a broker less than $500 and have paid up to $5,000. The charges to the customers range from $250 to $750. If the broker is charging you a fee, you can be almost certain he is also charging the dealer at least as large a fee.
Another way brokers do business is to actually buy the car and then sell it again to you. To do this they must have a dealer license; otherwise they would have to pay sales tax on the transaction. Buying the car allows them to mark the car up to you as their compensation. They may charge you a fee too.
As you can see, the price of going through a broker raises the price of the car that you buy. The only question is does it raise the price above what you could buy the car directly? The answer to this question depends entirely on your buying skills. If you are of average intelligence and follow the advice that I’ve given in these columns, you should be able to buy most cars at as low a price as a broker can. This means you will save anywhere from $500 to $5,500 in fees that you don’t have to pay. I don’t care what a broker may tell you, a dealer will always sell you the car at just as low a price as he charges a broker…if you are a skilled buyer and do your homework.
Of course there are reasons other than price that car buyers seek out brokers. As I’ve often said, buying a car can be a very unpleasant experience. One of my columns is entitled, “Should I Buy a Car or Have a Colonoscopy?” If you go about buying a car the right way, you minimize the unpleasantness. Don’t ever go into a dealership without doing your homework about the exact year, make, and model you want, accessorized exactly as you wish. Always get at least three competitive prices. If at all possible do your shopping in the comfort of your home on the Internet. If you’re not cyber savvy, ask for help from a friend, son or daughter, or grandchild who is. You will get your best price on the Internet without ever having to leave the comfort of your home. Two excellent Web sites you can consult are www.kbb.com and www.edmunds.com. They have vast amounts of free information on dealer cost, quality ratings, trade in values, etc.
A lot of people rely on their credit unions for advice on which dealer they should buy a car from. It sounds like a good idea because your credit union handles thousands of these transactions and has experience with lots of car dealers. I must warn you that there are employees in credit unions who are paid by the car dealers for referrals…not any different than a broker’s fee. Also many credit unions sell extended warranties on cars that they finance and they may refer you to dealers who agree not to offer to sell you their extended warranty. This is a potential conflict of interest. I advise you to get at least three competitive prices from three dealers, including the one that your credit union referred you too.
If you are accustomed to going through a broker to buy your cars, I suggest that on your next purchase that you also get prices directly from two other dealers. Compare those prices with your broker’s price and be sure you don’t pay him his fee unless you buy the car through him.