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Car Auctions

The pros and cons of purchasing vehicles at car auctions.

Car Auctions

Car auctions are public sales where vehicles are sold to the highest bidder. Car auctions occur in live settings and online. Some are limited to licensed dealers, but others are open to the public.

Some car auctions sell salvaged cars or used cars in good condition. Others sell only government-owned or seized cars. Those auctioning cars also include non-profit organizations and hospitals.

Buyers, whether they are consumers or licensed dealers, usually attend auctions because they are hoping to purchase cars, which are typically used, at less than fair market value. This does not always occur, however.

Types of Car Auctions

There are five main categories of car auctions:

Online auctions -- Examples of online car auction sites include eBay Motors and Yahoo Auctions. These sites allow people to sell used cars to other people online in a competitive bidding arrangement, with the cars going to whoever posts the highest bids.

Wholesale auto auctions -- These auctions usually involve sales between licensed dealers. Cars returned after leases and rental cars are among those sold at wholesale car auctions. The public usually cannot attend these auctions.

Public car auctions -- These are live, traditional car auctions run by private auction houses and are open to the public. They are held in many states on large lots where the cars are presented for auction.

Police auctions and government auctions -- These auctions involve government-owned vehicles or vehicles repossessed or seized by the government. They sometimes occur online and usually open to the public. Some involve the sale of decommissioned government vehicles that were once part of government fleets.

Insurance auto and salvage auto auctions -- Usually only dealers can attend these auctions because they feature severely damaged vehicles that would not be of interest to the public.

How Live Car Auctions Work

The cars being auctioned are usually parked on a large lot, where buyers can inspect them. Some vehicles sold at auctions are repurchased by manufacturers, according to the Association of International Automobile Manufacturers. Independent companies usually run the car auctions.

Purchasers typically need to register in advance of a car auction. Buyers are sometimes allowed to inspect vehicles days before the auction. Some car auctions issue buyers cards, according to Greater Detroit Auto Auctions.

Purchasers then submit bids for the vehicles they wish to purchase. Successful bidders are often required to submit a deposit, however, and there is usually a minimum opening bid.

Sometimes, auction houses will use a traffic light to indicate differences in car titles or conditions. Red lights can mean there are issues with the title. Yellow lights may mean that the title is in transit or that there is a problematic condition with the car. Green lights usually mean there are no problems with the title or car. However, cars are often sold "as is" at auctions and savvy consumers do their own vehicle condition check. CarBuyingTips.com recommends that all consumers purchasing a car at an auction run a vehicle history check on the car and buy an extended warranty.

Buyers usually have to pay a premium to the auction house on top of the car's purchase price, which is often 5 to 10 percent of the winning bid amount. Proof of insurance may be required to take the car.

If a consumer is the last and highest bidder, that consumer has typically entered into a contract that requires him or her to buy the car. Some car auctions allow consumers to sell cars, not just purchase them.

Online Car Auctions

Online auction sites such as eBay Motors have become very popular with consumers. These car auctions work in a similar fashion to traditional live auctions. The buyers register with the site, and they place competitive bids on the vehicles. However, online car auctions come with special concerns.

States regulate online vehicle sales. Missouri Attorney General Chris Kosters official website recommends that consumers take the following steps to protect themselves at online car auctions:

Don't bid on a vehicle without verifying the identification number and title of the car.
Know the car's market value to avoid paying too much for it.
Ask for time to inspect the car. Take it to a mechanic before purchasing it.
Use a credit card to purchase the car.
Escrow services and buyer protection programs can protect the consumer.

Often, it won't be possible to see the car in person, despite the buyer's best intentions. Consumers sometimes have extra costs, such as shipping fees. Sellers may set up shill bids, which are fake bids placed online to drive up the price. MSNBC cautions purchasers to be on the lookout for scams, such as rebuilt vehicles.

Government Car Auctions

The federal, state and local governments sell some of their fleets or seized vehicles in car auctions that are open to the public. Those wishing to attend register at the auction facility and obtain a bidder's number. Anyone who has a driver's license and is over 18 typically qualifies. Registration is often free. Some of the vehicles are available on the Internet, while others are available at car auctions held in person. The Treasury Department is among the federal agencies that sells cars at auctions.

Many state governments also sell cars at auctions. The auction locations, dates and times are often available on individual state websites. Police agencies are commonly involved in government car auctions and sell their decommissioned cruisers. Consumers should be aware, however, that some government vehicles sit for long periods without maintenance and may require repairs.

Buyer Beware

Although people purchase vehicles at car auctions because they are hoping to get them for less than fair market value, this doesn't always happen. Consumers should be aware that they may compete for vehicles with used car dealers, which drives up the car's price. Government agencies often won't sell fleet vehicles for significantly low prices. However, consumers may be able to get a bargain on a decommissioned police vehicle. As with any used-car purchase, research is important. Consumers should know the car's fair market value and its history.

The Federal Trade Commission (FTC) recommends that consumers avoid responding to ads for car auction guides. These companies charge consumers for guides to car auctions. Most of the information is already available at no cost from governmental agencies, auction houses or online resources.

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