How do car dealerships figure out trade-in value?

That is the current retail value, in other words what they could sell it for. You will be offered alot less

good question.

Likely less, much less.

You can expect to be offered somewhere around 20% to 50% less than KBB appraisal estimates.

Dealers don't use KBB

Maybe less, or could be more that all depends on the trade in money built into the price of the car your wanting to buy.

Dealers haven't used KBB values to put a number on trades in years (decades, really). They use Manheim Auction values.

Use KBB as a "guide," but nothing more. Values vary from county to county, and one car might be worth WAY more in one city than it is 250 miles away. If you want to see their actual number, ask for the "ACV" (Actual Cash Value) number, which is usually the auction number.

Since it's so easy to research prices online, most of the negotiation is on your trade. First, don't tell them you are trading. Get the best price you can for the new vehicle. Then tell them you want to trade. I usually say "I have a figure for my trade in mind, and if you match that figure, we have a deal". Sometimes they nail it, sometimes they don't. Just don't be afraid to walk. Car salesmen do what they do every day. They aren't your friend, and they may be quite unscrupulous.

Many dealers offer even less, charging you for cleanup and minor fixes. If you go to a dealer, take the KBB printout of the value of your car. They will doubtless argue that you have classified it as in average shape and they think it is in poor shape. If they will just send it to the dealer auction, then they will only get the KBB trade-in at the auction so they want to make a couple of hundred bucks on it.

The dealership plays games with your mind so that you buy the new car, the finance package, the extended warranty, the undercoating, the deluxe power ash-tray and the down-payment on the dealership-owner's yacht all as one package, with what looks like a good chunk being taken off the price for the value of your trade-in. You are supposed to feel that you are getting a Super Deal, and that the salesbeast is your good friend.

You are not expected to delve into the actual numbers, such as computing the value of the warranty or the amount you could get for your old machine if you sold it yourself.

Some dealerships have been known to have "trouble" getting the promised financing through, and after you have the new car and NO LONGER HAVE YOUR OLD ONE they explain how the finance charges are much worse than originally promised. You might scream that you want your old car back, but it's too late. CRUNCH! Gone.

Some of the smarter folks here on YA go and buy good used cars for cash. They pay their trusted independent mechanic to inspect before purchase, perhaps even when buying a new car.

What you might consider a 'minor scratch', they might call 'major damage'. If they have several models just like yours sitting on the lot, they may just not want another one.