How Do Car Auctions Work?

How Do Car Auctions Work?
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Watchers in black shirts peer over the crowd, yelling, “YUP!!” The fast-talking auctioneer calls out the bids and, when it’s all done, he slams a gavel down and yells, “SOLD!” That’s how televised auto auctions like Mecum and Barrett-Jackson work anyway. You may not know this, but there are local auto auctions running nationwide and they look quite different. But that begs the question—how do car auctions work in the real world?

Whether you’re shopping for a bargain or a specialty or classic car, buying cars at auction can be a fantastic venue. These are the ins and outs of the auction world.

How do auto auctions work?

Figuring out how to buy cars at specific auctions can be complex, but the idea is simple: to be the final bidder on a car when the hammer drops at a price that you’re willing to pay. You’re surrounded by other auction attendees and there’s no way to know who’s interested in the same cars as you. When you enter the auction, you need to know which lot numbers you want to bid on and how much you’re willing to pay. It’s high-energy, exciting and can be a great way to buy a vehicle.

To check out the cars at an auction, there are often limited windows to preview the vehicles for in-person events. You may have only a couple of hours before the event or perhaps the day before to inspect your potential purchase. For online auctions, pictures can be posted days or even weeks in advance for viewing. If you live near the auction, you may be able to arrange an in-person viewing as well. That’s just the start, though.

To place a bid, first you have to register as a bidder. That generally involves the auction putting a hold on your credit card to make sure you’re making bids you’re serious about. Some auctions require that you hold up your bidder number, while at others you can simply put up your hand, wave or otherwise get the auctioneer’s attention. Then you wait to find out if your bid holds and if you’re outbid, you decide whether to raise your bid or bow out gracefully.

An exchange is made after you win an auction that requires you to pay for your purchase in full before you pick it up. In most cases, you’ll need to arrange a car carrier, tow truck or transport to take your vehicle home.

Types of car auctions

No two auctions are alike. Not only are the cars going across the auction block different every time, but the clientele and vehicle sources are always changing. There are seven common types of auto auctions out there.

Public auctions

A broad, sweeping term that covers pretty much everything, a public auction is one that anyone can attend. This could be an estate auction sale that includes a few cars to an auction house hosting a vehicle-only sale. Because they aren’t vehicles-only and there’s often no reserve price, it’s impossible to know who’s attending for the cars in the listings. But because there might be very few people interested in the cars, you could drive away with a sweet deal.

Dealer-only auctions

Many car auctions are limited to just those who buy and sell cars and have a dealer permit. That’s primarily the clientele for Adesa and Manheim auctions that operate across North America, although they occasionally run public and government auctions, too. The benefit from these types of auctions is that the caliber of vehicle is usually higher and typically has an inspection performed. However, you can also expect to pay higher prices as a result. And under no circumstances will you be permitted to purchase a car at a dealer-only auction if you don’t hold a dealer license.

Ex-government auctions

Eventually, government vehicles are retired and sold at auction to recoup some of the investment costs. Ex-government auctions run in various locations across the nation and online, and could range from cars and trucks to helicopters and ATVs. Anyone can register and buy them, but prices can often run high since there’s such a broad audience. And since these are vehicles that have reached the end of their lifecycle for the government, you can expect there might be something wrong with almost all of them.

Repo auctions

When someone doesn’t make their car payments, the bank has the vehicle repossessed and re-sells it at auction. Some sites like Copart sell both online and in person, and sometimes offer “Buy It Now” pricing, too. Many of these cars are newer, but you never know how well the owner took care of the vehicle. Dealers often attend repo auctions because it can be an excellent opportunity to buy vehicles for inventory at slashed prices, and that means it can be as good for the average buyer, too.

Consignment auctions

Operating very much like public auto auctions, a consignment auction allows people to try selling their own vehicle quickly and easily. In consignments, there’s usually a reserve price set and, if the reserve isn’t met, the seller has the option to allow the highest bidder to take it or to hang on to their car and try again. Sellers often think their car has more value than it actually does, and prices tend to drift to the high side. It’s a great option for sellers, though.

Online car auctions

Online auctions have become a popular option, much like everything else e-commerce. Almost all auctions have online vehicle listings you can peruse before the sale, whether it’s in-person or online-only. Like live auctions, you’ll register as a bidder, then use your keyboard to place bids. The tough part is that you’re buying cars at auction without ever putting your hands on them first—it feels a little riskier. But because you can bid on cars anywhere nationwide, it opens up potential vehicles not available locally.

Insurance/salvage auctions

If you’re willing to rebuild a car with a salvage title or you’re just looking for a parts car, then salvage or insurance auctions could be right for you. Generally open to the public, these can be anything from accident cars to vehicles with hail damage to stolen-and-recovered vehicles or fire- or flood-damaged cars. They sell for a fraction of the price of a similarly undamaged vehicle, but they’re a gamble. You don’t know what repairs are required, the certification process can be rigorous, and they may never be roadworthy again. Some run online, some in person and some are both.

Tips for buying a car at auction

Attracted to a great deal? You aren’t alone. Auctions can be the ticket to saving thousands of dollars on a car. They aren’t for the faint of heart (if you aren’t up for the potential risks but still want to save money, you could always check out a car marketplace), but some preparation may help you stay out of the many pitfalls that can befall auction shoppers.

Don’t auction alone

With auctions, you take on much of the liability if you place a bid. If something isn’t right with the car and you don’t see it before you win the auction, you could be stuck with it. Unless you’re an auction veteran, it’s best to bring someone along who knows vehicles and is comfortable with the auction process.

Be an early bird

The viewing time often isn’t long and, especially if you are considering multiple cars at the same auction, you’ll need as much time as you can get. Be there when the doors open for viewing so you can make the most informed bids possible.

Understand the buyer’s premium

For most auctions, the price when the auctioneer pounds his gavel isn’t the whole price you pay. There’s an additional percentage added to the winning bid known as the “buyer’s premium.” It commonly ranges from 10% to 20%, some higher or lower, but it can be a major influence on whether a vehicle is a good deal or not. Factor the buyer’s premium into your bids.

Have your finances in order

If you win a bid, you’re obligated to buy the vehicle. For some auctions, you have to pay in full by the end of the day, while others give you two days to pay in full. If you don’t pay on time, you could have your account suspended, lose a security deposit, pay a late fee and even pay for daily storage charges. It’s best to have financing pre-arranged before attending an auction.

Consider the reconditioning costs

Vehicles sold at auction are pre-owned and have wear and tear. There may be known and unknown issues that need to be repaired before you can insure and drive the car. Place your bids with the understanding that there will be some type of expense for reconditioning the car.

Mark down your potential purchases

Before attending the auction in person or online, determine which vehicles you are interested in bidding on. Keep your focus narrow or it’s easy to get carried away bidding on a vehicle you don’t actually want or need.

Inspect your possibilities

If you’re able to inspect potential vehicles in person, do it. That will help you bid confidently when it comes down the lane. If it’s an online car auction, review the inspection checklist if there’s one available. Otherwise, bid cautiously.

Get the vehicle history

For the cars you’re ready to bid on, get a vehicle history report (VHR) to identify any major accidents or title issues that may exist. Some auctions will have the VHR available to bidders. If one isn’t available, purchase one before the bidding starts.

Set a limit

In the heat of the moment, it’s easy to overpay for a car in an auction. Set a hard and fast limit for each potential vehicle so you don’t blow your budget or regret the purchase later. If need be, tell your auction buddy to take away your bidder number when you hit your limit.

Listen to the auctioneer carefully

With every vehicle, the auctioneer will call out known problems and, since they’re disclosed, they can’t be arbitrated after the sale. If you miss the details, you’re on the hook.

Bid confidently

When you’re bidding, don’t be shy. Put your hand or bidder number up confidently. Give the appearance you know what you’re doing to discourage other bidders from going up against you.

Frequently asked car auction questions

If you haven’t participated in an auto auction before, you might still have more questions. Before you get into the energetic and noisy auction surroundings, it might be helpful to have a few more answers.

If you have the winning bid on a car, you’ve entered into a binding agreement to go through with the sale terms. As mentioned, there are financial penalties for late payment or non-payment, and your auction privileges could be suspended or cancelled.

What does it mean if it says “Title Pending”?

An auction listing could be designated as “Title Pending.” For these cars, the title hasn’t come through from the seller yet. That’s not necessarily a problem, though, if you’re willing to wait a little. The seller has promised to have the title sent within 30 days.

How does the light system work?

For car auctions, there are red, yellow, green and blue lights associated with each vehicle sold.

  • A red light means the car is being sold in “as is” condition and can’t be arbitrated.
  • A yellow light means there are announcements you should make yourself aware of for that vehicle.
  • A green light indicates it’s a car in good condition.
  • A blue light means there isn’t a title for the car yet, but the seller is going to provide one within 30 days of the sale.

How do car auctions work for out-of-state buyers?

It’s no problem for out-of-state buyers to win at an auction. Keep in mind that you may have to pay local taxes when bringing the car across state lines and you should have an idea of how you’ll transport your purchase home. It works for both online and in-person auctions.

What condition can I expect an auction car to be in?

It depends on the auction and the vehicle specifically. Public auctions, repo auctions and salvage auctions often don’t have any guarantee on condition and may not have been inspected at all. For high-profile and dealer auctions, cars can be in various conditions but will typically have an inspection completed. Cars can be anywhere from nearly new to old and unserviceable.

How much will I save buying cars at auction?

Your savings at auction have more to do with how high you’re willing to bid compared to attendees. If you’re diligent and have a wide range of possible purchases, you could possibly save a few thousand dollars on certain cars. Your best bet is to check the market value to find out roughly what you should cap your spending at. Anything under trade-in value can be considered savings.

How’s the auctioneer paid?

Auctioneers are paid in a variety of ways. Some are paid a flat fee per auction while others take a salary. Prolific auctions with top-notch auctioneers pay commission on the total sales in the auction. It can be lucrative!


About Bumper

At Bumper, we are on a mission to bring vehicle history reports and ownership up to speed with modern times. A vehicle is one of the most expensive purchases you'll likely make, and you deserve to have access to the same tools and information the pros use to make the right decisions.

Disclaimer: The above is solely intended for informational purposes and in no way constitutes legal advice or specific recommendations.