What is a Car Auction, and How Does It Work? A Beginner’s Guide with SCA

For someone who’s never purchased a car or has purchased a vehicle only through dealers or private sellers, there can be a lot of questions about how car auctions work. The truth is that the process isn’t that complicated. However, understanding car auction basics before placing a bid is the smart way to go.

Read on as we highlight these fundamentals and answer, “How does a car auction work?” We’ll also look at the different types of car auctions and offer clever auction tips that a first-time bidder should know.

A car auction is an event (online or in person) where a vehicle is sold to the highest bidder. An auction company, a dealership, an individual, a government agency, or another entity may hold an auction. 

These events might be open to the public or restricted to select bidders (like wholesale vehicle auctions accessible only to licensed car dealers). Available auction vehicles range from high-end used cars to salvage title automobiles (cars totaled in an accident). Some auctions sell a variety of vehicle types, while others specialize in particular offerings. It’s rare to find new vehicles at most auctions.

Let’s break down the auction process into a few steps.

1. Consignment: This is the stage where cars are presented for sale to the auction. In most cases, the auction company doesn’t own the vehicles it’s selling. Instead, the auction contracts with third parties to be the seller of these vehicles. The consignors can include private individuals, car dealers, insurance companies, rental car agencies, and other businesses seeking to off-load unwanted cars. 

The consignor provides basic information about the vehicle (make, model, mileage, and condition), which the auction company confirms before bidding begins. The seller, usually in consultation with the auction, will often set a reserve price (the minimum bid amount required to win the auction) and the starting bid amount. While individual bidders don’t get involved with consignments, knowing how the cars come to auction is helpful.

2. Registration: Most auctions require bidders to register before placing a bid. This may seem a hassle, but it ensures participants are legitimate and prevents false bidding from raising the price of an auction car. 

The registration process usually involves presenting a government-issued ID and placing a refundable security deposit. The deposit typically starts at $1,000 but may increase if a bidder wants more spending ability (often called buying power). If the bidder decides not to bid or doesn’t win an auction, at most auctions they can request for their deposit to be refunded. 

Some auction companies may offer bidder memberships with different levels of benefits (like a higher buying power and free vehicle history reports). It’s important to know that just because you register for an auction doesn’t mean you have to bid. Novice auction bidders can take advantage of this to get a feel for the auction process before jumping in.

3. Inspection: The inspection of auction cars can take different paths depending on the format (online or in person) and the auction company. At a minimum, most auctions provide photos and a basic car description. Each prospective bidder should thoroughly review this information. Depending on the auction, you may have access to inspect a vehicle in-person before bidding. Take advantage of all available auction features since you won’t be able to speak with the previous owner. 

This is also an excellent time to review a vehicle’s history report, which the auction company may offer (for free or with a charge).

4. Auction: Online live auctions are conducted through a software platform, while in-person ones are hosted by a live auctioneer. Local auctions (in-person) may also have an onsite “ring man” to move things along and help bidders.

Regardless of the method, the bidding starts low and increases with each successive bid until only one bidder remains. If that bid on the car hits at least the reserve price (if applicable), then that bidder wins and is responsible for paying.

Should bidding fail to meet the reserve price, in these situations, some auction companies may facilitate a negotiation between the high bidder and the consignor to arrange a deal. 

5. Payment and Pickup: Once an auction vehicle is sold, the winning bidder (the one with the maximum bid) must pay for the car and any applicable fees. These additional charges can involve a buyer’s premium (a percentage of the sale price or flat amount), auction fees, documentation fees, and taxes. Payment forms vary by auction company and can include wire or ACH transfers, certified funds, cash, or credit cards. 

Once payment is finalized, buyers must arrange to pick up or transport their purchased cars. Some auctions require that only a licensed and insured auto transport firm can collect the vehicle. 

Importantly, auctions have deadlines for when payment is due and when the car needs to be picked up. Failure to observe these requirements can result in additional charges, forfeiture of the deposit, and suspension from future auctions.

As mentioned, there are several different types of car auctions. Here are some common auction types you’ll want to decide on.

The best advice for a first-time auction participant is to sit back and observe. Registering will give you full access to the auction, so you can learn from watching others. 

Once you get a feel for things and are ready to bid, take it slow. Getting caught up in the action is easy, but this can lead to paying too much. Having a bidding range in mind and a maximum budget limit will prevent overbidding. Review the “Tips & Tricks” section below for more on this.

It’s also OK to ask questions, whether you’re bidding online or in person. It’s better to know what you’re doing BEFORE bidding.

Congratulations! You’ve won a car auction. Now what? Well, there are two things you need to pay attention to in this situation: payment and pickup.

The auction will provide the total amount due. You’ll want to pay this as soon as possible so you can pick up the vehicle right away. Also, paying quickly avoids issues with the auction company, as most impose late payment penalties two days after the auction closes. 

Once payment is complete, you’ll need to make vehicle pickup or transportation arrangements. If you’re not local, many auctions can make shipping arrangements for you or coordinate with your designated transportation company. 

There’s also a time window to pick up the car. Be aware of this deadline to avoid storage fees. 

A car auction can be exciting and a chance to save money. But keep these key points in mind before placing that first bid.

Set Limits: Before bidding, calculate all the costs, fees, and charges for the auction car you’re considering. Then determine the most you’re willing to spend, and don’t exceed this amount. Setting an absolute number makes it easy to know when to call it quits with bidding. 

Avoid Ego: By nature, auctions are competitive. So it’s not unusual to get caught in a bidding war with ever-rising prices. Don’t worry about pride; instead, focus on your comfort level. If bidding exceeds what you want to spend, don’t hesitate to stop bidding and walk away.

Understand Terms and Conditions: Before you even register with an auction, spend time understanding all the terms, conditions, and fees that apply to bidders. You’ll want to review all the charges, deadlines, and policies that could impact you as both a bidder and a winning bidder.

Recognize Legal Obligations: Placing a bid at a car auction is a legal obligation. Failing to keep this commitment can have serious consequences. Keep this in mind with each and every bid.

Here are some favorite auction hacks often used by experienced bidders.

First-time auction bidders can hit the ground running by knowing key things beforehand. Not only is understanding the auction process important, but recognizing the types of auctions and how to bid (or not bid) is equally vital.