No, that's not quite correct... Current replacement cost is simply used as a benchmark for establishing the fair market value of a used tandem. In other words, to figure out the fair market value of a 1998 brand x, mid-level tandem with mid-level components, you'd have to go and see what that brand x is now charging for the current incarnation of that tandem. This usually works pretty well for established brands that haven't screwed around with their business models and tandem pricing. For example, folks who purchased high-end KHS or Cannondale tandems -- and to a certain extent even some Burley owners -- really took it the neck when those companies changed their marketing strategies / profit expectations and lowered MSRPs on nearly equal models in subsequent years. Speaking of Burley, pricing a used Burley also represents a situation where a buyer must now find and equivalent brand/model to compare their Burley to given that Burley has gotten out of the tandem biz (at least for the time being).
Originally Posted by Rahzel
Anyway, most of these things are discussed in the narrative that accompanies my used tandem pricing tool: http://www.thetandemlink.com/usedhome.html
Replacement Cost is addressed right up front and here's an extract:
1. USING THE TOOL:
A. INPUT REPLACEMENT COST: All calculations in the spreadsheet are based on the value placed in the "Replacement Cost" cell.
a). REPLACEMENT COST: Use the current replacement value of the equivalent brand and model for all tandems, including the replacement cost of any accessories that are being included with the tandem. Replacement cost is used since it more accurately reflects the current state of the economy and the new product a tandem buyer would most likely be weighing the value of the used tandem against. It also eliminates issues associated with what a seller actually paid for a tandem since that is not relevant to fair market value.
b). PRICING ANOMALIES: In some cases a tandem up for re-sale may have originally been purchased as a demo, as part of a special promotion, as a previous model year close out or as a second hand tandem from the original owner. Therefore, it is reasonable to assume the asking price for a used tandem that was purchased for less than its original retail cost could be made significantly lower than for an identical tandem purchased at full or near full retail price being offered for re-sale by another seller. Under these circumstances the seller must decide if they want to base the asking price on the current replacement value of the tandem and potentially realize a higher return against their original expense, or to lower the current replacement value to calculate a "discounted" fair market value. If they elect to pass along their good fortune to the market it creates a pricing anomaly; something every buyer strives to find when shopping the tandem classified ads. As far as tandems which appear to be overvalued, every seller has a right to establish what they believe is a reasonable amount of return on their original investment. Moreover, the seller may have reason to believe there are certain features or intangibles that warrant the higher asking price. Ultimately, it all comes down to the premise that a tandem is actually worth what someone is willing to sell it for, or what someone else is willing to pay.