Understanding Dealer Documentation Fees and What's Negotiable
Dealer documentation fees are an unavoidable cost when purchasing a new car. In some states, the fee is high, while in others, they are low. Here's more.
With the cost of a new car averaging above $40,000, it's wise for prospective buyers to carefully analyze their purchase decisions. Even after negotiating a fair price for a new vehicle, there are other fees and expenses to consider — some that are negotiable and others that aren't.
Dealer documentation fees are an add-on cost assessed when a vehicle is under contract. Some, though, could be regulated by your state or district, with room for compromise if you ask.
Recognizing Dealer Fees
The dealer documentation fees are added after the final cost of a new vehicle is determined. They're not the only extra charges assessed, as consumers must also pay licensing and registration fees, state and local sales tax, and a destination (freight charge) fee. Of these, only the dealer documentation fee may supply some leeway. The others are non-negotiable.
According to the state of California, the dealer documentation fees comprise the "preparation and processing of documents, disclosures, titling, registration, and information security obligations." In other words, all the paperwork and services necessary to ensure that your vehicle is titled, registered, and compliant with your state or district's requirements. You're not only paying for the paperwork and documents produced, but for the time a dealer spends producing and organizing those documents. This includes waiting at the Department of Motor Vehicles (DMV) to process the registration, pay fees, and obtain tags or license plates.
Calculating What You'll Pay
All licensing and motor vehicle regulation is done through the individual states, the District of Columbia, and U.S. territories. Therefore, there are more than 50 different rules in place. Fortunately, you only need to concern yourself with how your state regulates. That information is typically listed on your state's DMV site.
Dealer documentation fees can vary from under $100 to well over $500, depending on where you live. Some state policies strictly regulate the fee; others place limits, while the remainder has few restrictions.
In California, the state with one of the lowest fees, you'll be charged no more than $85 for documentation fees. The amount drops to $70 if the dealer doesn't have a contractual partnership agreement with the state.
Florida residents pay some of the highest documentation fees in the country, averaging $670, but some dealers may charge up to $999. Worse, dealers can legally charge unique rates to different consumers.
Some states supply a middle ground, allowing dealers to charge a certain rate. In Texas, dealers may assess customers with $150 for documentation fees. However, they can charge more by notifying the state in writing. In Michigan, the rate as of 2021 is $230. Under that state's law, the fee may climb $10 every two years.
Other states make no mention of fees charged, but they do require dealers to follow certain notification guidelines. For example, in North Carolina, dealers are required to post a placard about the fee in a conspicuous place, such as the finance department's window. Moreover, dealers must list that fee when advertising and clearly state the cost on the sales contract.
Saving Your Money
Unless the dealer documentation fee charge is set in stone, you can typically negotiate and ask the dealer to reduce that cost. You may have more leverage in states where fee limits are not established. Certainly, if you are purchasing a new vehicle in Florida, awareness of the high cost involved may make it easier for you to have the dealer reduce that expense.
Besides Florida, dealer documentation fees average higher in North Carolina, Colorado, Georgia, and Alabama. New York, Oregon, Arkansas, and Louisiana, join California in charging the lowest fees.
Doing Your Homework
Because fees such as documentation (possibly negotiable) and destination and taxes (not negotiable) are part of the purchase cost, consumers may want to try negotiating for the best price while still anticipating these fees. Avoid a surprise and save money by understanding what you're paying for—including the dealer documentation fees—before signing a binding consumer contract.