How do Car Auctions Work in 2022 (Ultimate Guide)

by Timothy Ronaldson

Updated

If you’ve ever searched for a used car to buy, you may have considered buying one at auction. 

Car auctions have been featured on television programs, so you might be wondering how do car auctions work.

Knowing how auto auctions work is essential if you are thinking about buying a car at one for either yourself, or to fix and flip for a profit. 

Below, we’ve presented a definitive guide on how car auctions work in 2022.

Are car auctions open to the public?

There are a few different types of auto auctions. Some of these auctions are not open to the public. Some auctions are referred to as “closed” or “private dealer.” 

In these cases, you will need a specific dealer license if you want to attend.

There are, however, some car auctions that are indeed open to the public. 

Tactic for Success

Going to a public car auction can be a lot of fun, and pretty rewarding, too. If you’re going to a public auction to buy a vehicle, make sure that you get there early. This will give you time to fully browse all the vehicles you’re considering so you don’t make a wrong decision.

These public auctions are open to anyone who wants to go and potentially buy a vehicle. Some of the vehicles offered are new, but most are used.

.

They may need some work, so be sure to save money on car work if needed.

The public auctions are used for a variety of different reasons, and by a variety of different groups, businesses and people. 

These reasons include:

  • Auto Dealers – Some auto dealers may sell cars at auction to get rid of old inventory to make way for new inventory on their lot.
  • Law Enforcement – Sometimes, law enforcement agencies will sell old vehicles at auction that they won’t be using in their fleet anymore.
  • Private Sellers – Private sellers might wonder how do online car auctions work or try in-person public auctions to get top dollar for their car, usually for a rare or high-end car.
  • Auction Companies – Auction companies will sometimes acquire vehicles from places such as insurance companies that they then sell.

public-auctions-pros-and-cons

Trend on the Rise

There once was a time when two major auction companies dominated the auto market. That’s changed a lot recently, though, with many online auction sites offering fees that are more competitive. This is a potential big benefit to buyers, who could get better deals and more cars to choose from.

How do I get a license to buy cars at auction?

If you want to go to car auctions as a business instead of a hobby, or if you want to attend more auctions than just public ones, you’ll need to get a specific license to be able to do so. 

Unfortunately, there is no one clear-cut way that you can get a dealer license to go to those auctions. Fortunately, this information is readily available. 

Each different state will have its own rules and regulations, and in most cases, all that information is available with the state’s Department of Motor Vehicles.

Follow the directions for what you have to do so that you can apply to get your dealer license. 

If you are interested in owning a business based around cars, starting a car wash franchise or selling used car parts are other options to consider.

What You Need to Do to Get a License

steps-to-get-your-dealer-license

To get a license to purchase cars at auction, you might need to:

  • Pay a Fee – Some states will have an application fee if you want a dealer license.
  • Provide a Plan – Some states will require you to create and submit a written business plan for why you want a dealer license.
  • Form Your Business – Some states require you to have an official business, with an Employer Identification Number (EIN), to get this license.
  • Provide Proof – Most states will require you to provide proof of all the above to get a license. 
  • Answer Questions – Some states will also ask questions that will clarify your intent for attending these auctions.

Tactic for Success

If you want to get a license to purchase cars at dealer auctions, make sure to set aside some money to do so. The license itself may range between $50 to $500, but you’ll have other expenses, too. This could include some of the above-referenced things, such as forming your business or writing a formal plan.

Are cars really cheaper at auction?

Cars that are purchased at auction are almost always cheaper than they would be offered at a dealership. 

If they weren’t, there really would be no benefit at all to buying cars at auction.

On average, cars will be purchased for 20% less at an auction than if you purchased a car either through a used auto dealer or through a private seller. 

That’s a pretty significant amount of savings that’s available to you, which is why car auctions are so popular.

Trend on the Rise

If you want to buy a car at auction, you used to need to have cash on hand. That’s not so anymore, as many different auctions will accept approved loans that are secured by a bank. In addition, many car auctions today will accept credit cards, but check first to see what their accepted payment methods are.

There are some downsides to purchasing a car at auction. One of the main reasons is that they are sold “as-is.” 

In other words, the car isn’t going to be fully inspected when it’s sold to you, nor will you be provided any type of warranty with it.

This doesn’t mean that only “junkers” are sold at auction, but there still may come a time when you need to know how to sell your car to a junkyard.

However, you do need to be aware that inspecting the car, making sure it works properly and paying for repairs and maintenance will be completely on you once you buy it.

Because of this, car auctions aren’t for everyone. They are a good fit for some people, but maybe not those who don’t know much about fixing cars.

Why are cars so cheap at auction?

car-auction-onine

There are many reasons why cars are so cheap at auction. One reason could be that dealerships are simply looking to offload old inventory on a bulk basis.

If a dealer has a lot of last year’s models left over and just can’t sell them, for example, they might turn to an auction to do it for them. 

They will take significantly less for these cars, simply because they need to clear the space on their lot to bring in the newest models.

Another reason some cars are cheap at auction is that they could be labeled as “unsellable” otherwise. 

For instance, some insurance companies will sell cars at auction after they’ve been in big accidents.

They can’t sell these cars privately, since they’d have to junk them because of their condition or sell them to a recycling business.

People who work on cars often and know what they’re doing can purchase these cars for cheap, and then either use them just for parts or fix them up to make them safe and drivable.

Another reason they are so cheap is that the owners just want to get rid of them. They may not have been able to sell them another way, so they cut the price.

Is buying a car from auction a good idea?

Buying a car from auction could be a good idea, but it’s certainly not for everyone. 

The main positive is that you could end up getting a car for significantly cheaper at auction than you could if you were to buy it through a private seller or through a used auto dealership.

If you know what you’re doing with cars, you could easily fix up some junkers and then end up selling them on a private marketplace to make a nice profit. 

Or, if you see a diamond in the rough, you could fix the car up and drive it for yourself.

One thing a car auction doesn’t provide, though, is a lot of security for the buyer. 

Once the purchase has been made at auction, it’s yours completely — with no guarantees such as a warranty. 

And because you won’t have a lot of time to do an inspection on the vehicle to see what’s needed, you better know what you’re looking for and be able to identify it quickly.

That being said, car auctions can be really great to find an outstanding deal on a used car.

Wrapping Up

Buying a car at auction can be a great idea if you know what you’re doing. 

Because the amount of savings is so high, car auctions can be a great thing, but there are many things you need to be aware of, too, before buying a car at auction. 

The Ultimate Side Hustle Toolkit

Get FREE access to our toolkit - 79 clever ways to make extra money and helpful tips to get started!

About the Author

Photo of author
Tim is a classically-trained journalist who loves to share knowledge and information with others. In the past, he has worked in TV, online and print media, and currently works with companies to help design, create and strategize their messaging.