Katrina Rosales
There are two types of car auctions: public auctions, which are open to anyone, and private auctions, which require a license. Most public auctions require attendees to register in advance, either as a guest, a business buyer or seller, or a public buyer. A dealer's license is required for private auctions, and some sections of public auctions. Obtaining a dealer's license can be a lengthy process, requiring proof of employment at a licensed car dealership, insurance, and a clean background check. Before attending an auction, it is important to research the vehicles on offer and set a budget. On the day of the auction, it is crucial to inspect the vehicles in person, if possible, and be ready to bid quickly. Successful bidding requires doing your due diligence ahead of time and staying strategic.
Buying Cars at Auction:
| Characteristics | Values |
|---|---|
| Types of Auction | Public, Dealer/Private |
| Auction Access | Public auctions are open to all, dealer auctions require a dealer's license |
| Dealer's License | Issued by the state, can be a lengthy process to obtain |
| Auction Registration | Required for most auctions, may include a fee or deposit |
| Research | Important to do research beforehand, including on the auction house and specific vehicles |
| Budgeting | Set a budget and stick to it, factor in additional costs like auction fees and transportation |
| Bidding | Bid on vehicles you have researched and inspected, stay within your budget |
| Payment | Payment methods vary, often expected within 24 hours of the auction |
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What You'll Learn
Types of car auctions: public, dealer, and license-only
Car auctions are broadly classified into two types: public auctions and license-only auctions. However, dealer auctions are also a type of auction that can be classified under the license-only category.
Public Auctions
Public auctions are accessible to anyone. As long as attendees have the money, they can bid on and purchase as many vehicles as they need. A public auction offers a wide range of older, high-mileage vehicles of similar quality to the average used car. Some public auctions are managed by government entities and police departments selling retired fleet vehicles or seized property. Others specialize in salvage titles, allowing experienced car buyers to find low-cost project vehicles, provided they are ready to repair or restore the cars themselves. Many public car auctions also offer online bidding, allowing individuals to purchase vehicles without being physically present on the auction site.
Dealer Auctions
Dealer auctions, also known as dealer-only auctions, are exclusive to licensed car dealers. They feature many vehicles sourced from trade-ins, lease returns, bank repossessions, and fleet liquidations. These auctions offer detailed condition reports, various vehicles, and extensive auction networks. To place bids at a dealer auction, bidders must have a dealer license. This is also true of particular sections within many public auctions, which reserve some vehicles for dealers only. Obtaining a dealer's license can be a lengthy process, requiring proof that the applicant is an employee or owner of a licensed car dealership and that they meet all the necessary requirements, such as insurance for their business and a clean background check.
License-Only Auctions
Some car auctions are accessible only to individuals with a specific license. They generally sell newer, lower-mileage vehicles from select sources. The permit needed to attend a license-only auction is a vehicle dealer's license, which allows individuals to buy and sell new and used vehicles as a profession. While most people do not need this license to buy and sell vehicles for their collections, those who make a living off trading vehicles or wish to attend a license-only auction must obtain one.
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How to get a dealer's license
The process of obtaining a dealer's license varies depending on the state. Here is a general overview of the steps required to obtain a dealer's license, using Illinois, Michigan, Florida, and California as examples.
Illinois
Illinois offers different types of dealer licenses, including new vehicle dealer, used vehicle dealer, wholesale vehicle dealer, and vehicle auction dealer. To obtain a dealer's license in Illinois, you must first complete a pre-licensing education course provided by the Illinois Secretary of State's office. This eight-hour course demonstrates your understanding of the industry and your commitment to legal and ethical boundaries.
Next, you must provide proof of a permanent business location, including lease or ownership documents. Your business location must comply with Illinois regulations, including having a designated office space, display area, and the necessary facilities for storing and maintaining vehicles.
Additionally, Illinois requires all dealers to obtain a surety bond and liability insurance. The bond amount varies depending on the type of license and the number of vehicles sold annually. The minimum insurance coverage requirements are $100,000 for bodily injury, $300,000 for each accident, and $50,000 for property damage.
Finally, you must submit your application, required documents, and fees to the Illinois Vehicle Service Department. A criminal background check will be conducted for you and any key personnel associated with the dealership.
Michigan
In Michigan, there are multiple types of car dealer licenses available, including Class C (Used Vehicle Parts Dealer), Class D (Broker), and Class W (Wholesale License). To obtain a Michigan dealer license, you must complete the Dealer Application Forms available online through the Michigan Secretary of State. This process requires information about your business and personal identification, as well as zoning and municipal approval.
If you are applying for a license without a car lot, such as a Wholesale License, you will need to establish a place of business as per state law. This includes having a permanently enclosed building or structure with heat and electricity and meeting the minimum size requirements.
Florida
In Florida, a dealer license is required if you buy, sell, or deal in three or more motor vehicles in a 12-month period. Florida has different dealer license categories based on the type of vehicles you plan to sell:
- VI – Independent Dealer License: For businesses selling used motor vehicles only.
- VF – Franchised Dealer License: For businesses selling new motor vehicles under a franchise agreement.
- VW – Wholesale Dealer License: For dealers who sell vehicles only to other licensed dealers.
To obtain a Florida dealer license, you must register and apply through the Florida Department of Highway Safety and Motor Vehicles (FLHSMV). While the specific requirements may vary depending on your location within Florida, you will generally need to identify the appropriate license category for your business and complete the necessary application forms.
California
In California, you need a Vehicle Dealer License to sell new or used vehicles. The specific requirements and application forms depend on whether you are dealing with new or used vehicles. For new vehicles, you must complete all the forms in the New Dealer Applications Forms Packet (OL 248N). For used vehicles, you will need to fill out the Used Dealer Applications Forms Packet (OL 248U).
Additionally, there are specific display area requirements for your principal place of business. The display area must be of sufficient size to accommodate the vehicles you plan to sell and must be exclusively for display purposes.
Obtaining a dealer's license typically involves completing the necessary education or training requirements, establishing a suitable business location, and submitting the required applications and fees to the appropriate state department. Be sure to check the specific regulations and requirements for your state, as they may differ from the examples provided.
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How to research and inspect cars before bidding
When it comes to buying cars at auction, thorough research and inspections are key to making a smart purchase. Here are some detailed steps to guide you through the process:
Researching the Auction House:
- Check the auction house's reputation: Look for reviews and ratings to ensure they are trustworthy and fair. A reputable auction house will likely provide a better buying experience.
- Understand the auction's terms: Learn about any registration requirements, additional costs, and rules regarding vehicle inspections and bidding. Knowing these details will make your auction experience smoother.
- Research market trends: Familiarize yourself with the average prices of the cars you're interested in. This helps you set a realistic budget and avoid overpaying.
- Keep an eye on local auctions: Local auctions might offer better deals as they may not attract as many bidders. They also help you understand the market and the types of cars typically sold.
Inspecting the Cars:
- Create a detailed inspection list: Before attending the auction, make a list of specific things to check for each car you're interested in.
- Check pre-inspection times: Visit the auction during specified inspection periods. These are times set by the auction house when potential buyers can inspect the vehicles.
- Conduct a visual inspection: Look for any signs of damage, wear and tear, or other visible issues, both inside and outside the car.
- Perform a basic mechanical inspection: Check fluid levels, battery condition, tire tread depth, and other accessible mechanical aspects.
- Review auction house reports: If provided, review any inspection reports from the auction house. These reports can offer insights into the vehicle's condition and known issues.
- Get a full history report and VIN check: A vehicle history check is crucial to uncover any hidden issues or previous problems.
- Set a budget: Based on your inspections and the vehicle history report, set a realistic budget for your bidding, including potential repair costs.
- Develop a bidding strategy: Stick to your budget and avoid impulsive bidding. Have a clear plan and specific vehicles in mind to ensure you don't overspend or end up with a car that doesn't fit your needs.
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How to bid at a car auction
There are two types of car auctions: public auctions, which are open to anyone, and private auctions, which require a license. Some public auctions are run by government entities or police departments selling retired fleet vehicles or seized property. Others focus on salvage titles, offering low-cost project vehicles that require repairs or restoration.
If you want to attend a private auction, you will need a vehicle dealer's license. This is not specific to car auctions but allows individuals to buy and sell new and used vehicles as a profession. To obtain a license, you will need to meet certain requirements, which vary by state. These may include posting surety bond premiums, undergoing a credit check, and providing proof of business history.
If you plan to attend a public auction, you can register as a guest, business buyer, or public buyer. Registration may require a fee or deposit, and you may need to provide a photo ID and fill out forms. As a business buyer, you will also need to provide proof of your registration with an automotive business.
Before attending an auction, it is important to do your research. Check the auction house's website for a catalog of the vehicles on offer and any associated guarantees. Determine your budget, factoring in the cost of repairs, transportation, and auction fees. Set a maximum bid that you can stick to, and be prepared to purchase the vehicle if you win the bid.
On the day of the auction, inspect the vehicles you are interested in. Look for any signs of damage, such as rust spots, dents, scratches, or cracks in the windshield. Check the tires and the interior as well. If you are at a public auction, you may be able to hear the engine running and ask the seller questions.
Once the inspections are complete, the auctioneer will introduce each vehicle and announce its starting price. Raise your paddle at every interval you are willing to pay. Remember to keep your budget in mind and do not be tempted to bid on a car outside of it. If you win the bid, submit your payment and transport the vehicle off the lot.
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What to do after winning a bid
So, you've won a bid at a car auction—congratulations! But what now? Here are some crucial steps to ensure a smooth post-auction process and protect your purchase.
First, it's essential to act quickly. Provide the auction house with the necessary documentation, including your ID, address, and proof of your ability to pay for the car. You will also need to share your contact details so that the auction house can send you written confirmation and details of the next steps. This letter will include important dates, such as the sale completion date and when you can pick up your new car.
Be prepared to pay a deposit, usually around 10% of the car's cost, as well as any related fees or taxes. The auction house will also require you to sign a contract, officially confirming your purchase. To ensure a hassle-free process, it's recommended to have your finances in order before attending the auction, so you are ready to pay promptly when your bid is accepted.
It's also a good idea to arrange for your mechanic to inspect the car as soon as possible. They can confirm the vehicle's condition and check for any potential issues or hidden defects, giving you peace of mind about your purchase.
Remember, once your bid is accepted, you are legally committed to the purchase. Backing out could result in losing your deposit or facing additional charges or legal consequences. So, make sure you understand the auction rules and your legal and financial obligations before placing that winning bid!
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Frequently asked questions
There are two main types of car auctions: public auctions and dealer auctions. Public auctions are open to anyone, while dealer auctions require a dealer license. Some public auctions are further restricted to business buyers only.
You can apply for a dealer license through your state or equivalent agency. The process can be lengthy and requires providing proof that you are an employee or owner of a licensed car dealership, meeting insurance requirements, and passing a background check.
Research the auction house and the specific vehicles being offered. Set a budget and determine your maximum bid. Inspect the vehicles you're interested in, either in person or through detailed pictures. Familiarize yourself with the auction process and rules, and register for the auction in advance if required.
Be prepared to submit payment promptly, typically within 24 hours of the auction. Complete any necessary paperwork and arrange for transportation or towing of your new vehicle. Expect to incur additional costs for auction fees, transportation, and potential repairs.
