All you need to know about buying a used car on auction

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All you need to know about buying a used car on auction

Post by kingr » Mon Dec 03, 2018 12:29 am

Most likely you have a mate, or the friend of a friend, who pulled off an amazing bargain at a recent used car auction? Very much like casinos, it’s the success stories we tend to hear, and it’s easy to feel like you’re missing out and maybe even being dumb, paying retail prices for your cars, when you hear some of the good luck stories coming from used car auctions.

Console yourself with the fact that, firstly, used car auctions have been around for a long time, and the dealerships and banks are all over them. Market dynamics are already entrenched, so no one is throwing away used cars at an auction house near you every day. Drop the FOMO (fear of missing out) as it’s a killer for first-time auction buyers.

Secondly, with that said, you can expect to pay less for any given car on auction - an average of 15 - 20 percent less - but be warned: auctions are strictly for those with a high risk appetite. If reassurance or comeback is important to you, don’t buy a used car on auction. Although voetstoots is dead in South Africa, it’s hybrid offspring persists at auctions. Here, you have a chance to look and feel, but not drive a car, and then take it or leave it when it comes under the hammer.

Auction sales involve a lot more faith and trust to one’s own judgement, although there’s a limit as to how much you can inspect a used car before having to bid on it. Even dealerships and other auto types have their expertise tested when buying a used car on auction. It’s true that the auction house’s own inspectors will typically list all known faults in a sheet on the used car’s windshield, and you should look at this when inspecting the vehicle. It’s as true to say, however, that a solid knowing of all faults and, more importantly, what they imply further down the road, is severely limited when buying a used car on auction.

Why do used car auctions happen?
Almost all public auctions are regulated and above board. Auctions hold to the same standards of business as anywhere else - you pay some money and can expect what you’ve chosen in return. Also, used cars on auction are often from deceased estates, where the owner has died and the goods that constitute their estate are being sold to resolve it. Many repossessed used cars also end up on auction, as it’s a regular doorway through which banks avoid having to re-advertise a repossessed car extensively, and merely sell it off to recoup whatever they can from the sale, now in default.

It’s true to say that the bank will then hold that previous owner liable for any shortfall after the auction, but don’t think that implies that they’re going to let the used car go on auction without a reserve price (see below). Unfortunately, financiers will chase top dollar from everyone in a sale, so there’s no real concession due to the defaulting owner “only owing a little” on a used car on auction. Banks research current trade-in and retail values too!

The main reason why auctions have a reputation as spooky for first-time buyers, is because many funnel lemons through auctions as the used cars in question would never stand up to close scrutiny and fetch a decent price on the open market. Because you can’t whisk an auction car off for a multipoint check, used cars that aren’t in good shape, but merely patched to running condition, are often stock in trade for auction houses.

This is perpetuated by the limited testing auction houses are obliged to allow before a sale. At worst, a used car might not only be in nothing other than in a running condition, but might also not be legal for a host of reasons. It’s this dubious aspect of auctions that you’ll have to negotiate, quite apart from simply buying a dud, when buying a used car on auction in South Africa.

How does a used car auction work?
Established auctioneers will have a steady flow of repossessed or other used cars that they can offer for sale via auction. Indeed, many houses like Burchmores and Imperial Auto Auctions have made used car auctions their mainstay. You and any other interested party can peruse upcoming “lots” (what auction houses call items either singly or grouped together, upon which you’ll bid) and attend the upcoming auction on the day to bid on a used car that you fancy.

How exactly that works, is that you have to register with around R5,000 deposit on the day, before the lot comes up,. If you want to bid on a particular car that day, you’ll need to deposit the registering amount in order to establish eligibility as a buyer. And you’ll need to make very sure that you’re creditworthy if you plan to buy and finance a used car. If you successfully bid on and buy a used car on auction, your deposit is used to offset the total price. If you don’t bid successfully, your deposit is returned when you leave the auction.

More on this later, but a prime source of heartbreak at auctions is that if you successfully bid on a car and are then denied finance for it by the bank, the auction house keeps your deposit. Yep, just like that. So make very sure that your road is clear before rushing ahead into the purchase of a used car on auction.

If you have the funds to settle the car there and then, great. But if you’re going to need finance, the bank is also going to want a multipoint check and other general inspection to satisfy itself that a used car justifies finance. If that dismays the bank and they then decline finance, your deposit still goes West. Yes, auctions are the deep end of the pond, and are not so molly-coddling of consumers as the CPA-regulated broader market is. You accept the auction house’s conditions when you register with your deposit, end of story. Buying a used car on auction is a lot more final than other routes, and hence the risk factor looms so much larger.

Used car auction pricing and other issues
  • The pricing at auctions are typically less than prevailing open market prices, as some offset for the risks involved. Used cars on auction also almost always carry a reserve price. This “reserve” is based on current market values, and not on what’s outstanding in the case of repossessed vehicles, so a lot of the glamour of scooping a real bargain is lost to the reserve price. Based on industry trends over the last few years, auction prices are typically around 10 to 20 percent lower than open market prices. Auction car reserve prices also factor in the mileage and overall condition of a used car. You’ll have to decide if that’s enough of a temptation for you, offset against the far higher risks involved in paying out for a used car on auction.
  • The repossessed or otherwise available used cars on auction remain an untested bunch, and you’re obliged to make a decision without much of the information we'd consider essential when buying a used car. Get a valuation from our Vehicle Value Tool as a starting point, and if you’re narrowing down a shortlist, get a vehicle history check on all of them too. On auction, you need as much information as you can, as what you’re going to get from a test drive (you’re not allowed one with used cars on auction) or standing around chatting with the owner (that doesn’t happen either) is absent.
  • You’re not permitted to test drive an auction car. You can, however, come in the day before the auction and inspect the used car coming up for sale, and you can start the engine and confirm that it’s running at least. There will also be a list of known issues on the windshield - a third-party summary you’re going to have to trust. The ideal used car on auction is one that comes from a private seller who is simply in a pinch for fast cash. Their car might even be a grudge sale, but is often free of major faults and it’s only there because someone needs to get out.
  • You, however, have no way of knowing whether the stories accompanying any used car on auction are true, so separating out genuine bargains from lemons is almost impossible on this basis. Until some time has past, and you’ve developed a bit of knowledge on how to recognise trouble when you see it, auctions are high-risk arenas. Even then, the prospect of buying someone else’s junk remains, and even dealerships get burned at times. There is no initial multipoint check possible on a used car on auction - your decision rests very much on a visual appraisal of the vehicle.
Registering to buy a used car on auction
You’ll need to register as a bidder when attending an auction looking to buy a used car. You’ll need your ID and FICA documentation. This includes your proof of residence, confirmed by a utility bill for that address, in your name, not older than 90 days. Upon registering, you’ll be required to lodge a deposit with the auctioneers. This eliminates the wannabes who are merely window shopping, and qualifies you as a legitimate buyer.

If you don’t have the deposit available, auctions aren’t for you, as there’s no way around this. A deposit is usually around R5,000, but can be more or less, depending on the auction house involved.

The majority of auction houses also ask for some kind of proof that you’re able to get finance should you successfully bid on a used car, and be looking for finance it to make the deal go through. Be warned! Your creditworthiness in this situation is wholly your own. In other words, if the bank misinformed you or introduces a higher deposit required when it comes to making good on the deal, your auction deposit is likely toast. If the deal falls through because of your financing issues, that’s for your account, and the auction house will keep your deposit as an offset for having to reauction the vehicle in question.

You’ll need to be at the auction house an hour before time, fill out the necessary paperwork and establish your hona fides to bid. Assuming a used car on auction is in a good condition, the most popular models will carry reserve prices closest to the current trade-in value of that model. There are “closed tender” auctions, much like eBay and other sites, where sometimes you can only bid by invite, the process takes a few days, and the winning bid is announced to the group only.

More normally - and the kind of used car auction depicted in this article - “open auctions” trade the vast majority of used cars, and once registered, anyone can attend and bid or even send a representative to bid on their behalf. Wholly online or telephonic auctions do happen, but the mainstay of the South African used car auction remains attending an auction house in person and collecting a car if you’re successful in your bid.

Hot tip: Don’t go in for a once-off! In other words, don’t allow the thought that buying your next car on auction is a good idea invade your consciousness! You can, but that’s the highest risk possible - deciding that your next car is coming off auction - without you ever having attended an auction before. You’ll need a lot more familiarity and experience to narrow the odds that you won’t buy rubbish on auction, than simply jumping in on a whim.

How to inspect a used car on auction
It’s investment terminology, but possibly even more applicable to eyeing used cars on auction: do your own homework (DYOH)! Know what you want to buy and why and be sure to get a car valuation so that you have the baseline straight. You want this kind of car, at around this much, and, yes, it’s doable, looking at the valuation. Have your maximum price pegged and don’t exceed it.

If resale value is important to you, you’ll also want to do more extensive research with the vehicle value tool, looking at resale values of older models of the same brand, or resale values of similar cars. Take some time to generate a more seasoned and savvy approach to buying a used car on auction, and make sure your homework includes:
  • Making your peace with the fact that public used car auctions carry higher risks. Risks are always going to be higher, and if “beating the system” and escaping without losing doesn’t seem like a sensible approach to car buying to you, don’t do it!
  • If you can stomach the arena that does without much of the service and caring for your rights that you’ve come to expect from more usual used car shopping, then walk around the car you’re eyeing when allowed to inspect it the day before. Walk all the way around it and make like Tiger on the 18th green - drop low and look for misalignment between the body and chassis - and look for skew panels and any other misshapen aspect. Give yourself enough time to get a feel for the car in your own mind. NB: Wheel Index has a case history of a LandRover on auction with no functional shock absorbers and a severely degraded suspension! The car was elevated and “propped up” with pieces of pine wood wedged between the wheels and body, something you won’t notice unless you look for it.
  • Open the bonnet, boot, all doors and all windows to make sure that basic functionality still exists all round.
  • Switch the car on and listen carefully to the engine noise. Is it sweet and constant or spluttering and choking, especially at high revs? Any engine that “sounds” like it’s struggling, probably is. This can be a minor fiddle or something far more serious and - if you encounter this - it’s highly likely that someone is “flogging the car off” to avoid repair costs. Barely running cars should be avoided.
  • When the hood is up, pull out the oil dipstick and look at any transmission fluid displays too. Fluids should be sufficient and also relatively clear, indicating that this used car has likely been properly maintained. If the oil dipstick shows a murky greyness, it’s likely the car has been submerged at some point, and that those very-difficult-to-pinpoint water damage issues are likely to spoil your future happiness.
  • Either inside the driver’s door or at the bottom of the car’s windshield, you should see the VIN number. Immediately do a VIN number check to determine that the car is free of criminal issues. Also, if the VIN number is elusive or absent, or contradicts itself between places it’s listed (inside doors or stamped on the engine block), it’s almost certain that the car has been or remains listed as stolen. Drop it at once and walk away. Auction houses are juuuust covered by doing their own due diligence, so that they cannot be accused of knowingly selling stolen goods. But, make no mistake, that diligence doesn’t extend to covering you, and stolen cars go through auctions every day in this country. Be warned! Find that VIN number and use the Wheel Index VIN number check tool to eliminate that kind of serious trouble.
  • Very importantly, look underneath the car for indications that the chassis has been “unbuckled” in a jig, after it was perhaps bent in an accident. Look especially around the middle of the chassis for signs of welding too, something that might indicate that two cars have basically been stitched together to present one dubious auction lot. Extensive welding can also indicate the workings of a chop shop, and the car you’re eyeing might only barely make the legal definition of a used sale car on auction, but in fact be highly illegal for your intents and purposes.
  • If you’re nervous that your car knowledge will be insufficient, take a genuine petrolhead buddy to help evaluate things. And when they say “See that? That’s illegal!” or “Mmmmm looks like water got in the engine,” believe them.
  • With the prospect of serious and final loss, you can see why we recommend avoiding anything other than real-time auctions, if bid on auction you must. Bidding online, over the phone, or engaging in a live-streamed auction might sound high tech and sexy, but it emasculates you as a buyer, and is the highest risk route to finding a good used car. You might find trustworthy fraternities where you can indulge these routes, but only after some time, and with some experience in the nature of the used car auction trade. Anything else, and you’re just the fall guy walking in and getting ready to be suckered. Remote auctions might be brisk and efficient, but they lack any real-world inspections and almost all comeback, so the risk of a live auction is sufficient for first time visitors!
Why would you buy a used car on auction?
  • The world has become populated with a generation of bargain hunters! This is a direct result of the last few years of inflation and overall stretching of the consumer dollar by global business. Everyone wants top dollar, so every consumer wants to avoid paying it. And in all fairness, auctions do present bargain prospects like few other avenues can.
  • It’s exciting! Bidding against everyone including industry players like dealerships can allow you to feel like you’re really getting in at the coalface. You’re bound to pay less where dealerships are shopping too, right? And it’s true - auctions can often produce a score, where you’ll end up paying substantially less than you would have for a given car from a dealership or private seller.
  • There is typically a great representative sample on the auction house’s shop floor. Most regular car auction houses see a large number of used cars come through their doors, so rather than cherry-pick cars from private sellers, many buyers like the congregation of lots of used cars in one place. This might sound the same as a dealership, but the range and volume on auction is usually far greater than anything you can experience down the road at your local secondhand car dealership.
Why most people avoid car auctions
Don’t forget that if you’re aiming at buying cheap and selling on a used car on auction, car dealers are looking at the same car. In a nutshell? Unless you’re planning on pursuing a high-volume-slim-margin car trading business, don’t waste your time “dabbling” in buying and selling as a starting strategy. You’ll need years of accrued savvy to be able to make a consistent profit from that trade.

The top three problems motorists have with auctions are usually one of the following:
  • The car being auctioned is simply in really poor condition, and wouldn’t get very far in a private or dealership sale. Herein lies the biggest issue prospective buyers face. The price might be slightly reduced, but you’ll need to make a decision on a used car without much that we’d consider standard practice before taking such a decision. If there are huge mechanical issues looming or other problems guaranteed to manifest in the the near future, you can’t know this from watching an idling car that “seems” ok.
  • The car might very well be a wreck. In other words, someone “totaled” the car, with insurance then writing it off as unrepairable, and paid out their client accordingly. This same wreck has now been spruced up just enough to run and present with its panels in place. It remains a patched wreck, however, and you are going to find huge and smaller persistent issues to address before you can actually feel like you own the car that you paid for. In short, you’re buying someone’s junk, something you hadn’t planned on doing at the outset, and certainly not at market-related prices.
    Water damage is insidious and often very hard to determine. A car might only start displaying serious issues after submersion, months down the line. It’s also pretty easy to have a car that was at the bottom of the Orange River valeted and presented as a wow bargain! Much like cellphones, dropping your car in water almost always has repercussions, no matter that it “seems to work fine” immediately afterwards.
  • Unfortunately, auction cars can also simply be outright illegal. A used car on auction might be the product of illegally welding bits together in a chop shop, or simply be otherwise illegally repaired and corruptly registered. Auction houses have a positively distant liability in comparison to dealerships, so the prospect of encountering used cars on auction that will fail dangerously or be taken from your possession by the police, is heightened on auction.
Common complaints about buying a used car on auction

#1 - Deposit Issues
Lost deposits with nothing to show for it top the list of complaints. Remember, if you somehow get knotted up in the finance of a bought used car and it all fails, you’ve agreed that the auction house gets to keep your deposit. Consumers who are forced to forfeit their deposits are often the most vocal. Most often, however, you’ll find that the auction house has tied that person up in their own protocols without the consumer being fully aware of the implications.

Again, make no mistake, the rules are the rules, and if you successfully bid on a sale you can’t complete, your deposit is toast. If you “didn’t understand” the terms or hoped to pull a quick move to escape the prospect of losing your deposit, forget it. Auction houses are polished machines with known protocols. No one is going to care if you fall foul of agreements you’ve signed consent to. Even where it’s blatantly obvious that they showed you junk, suckered you in and then sold you junk, the onus was and remains on you, and you have no comeback.

#2 - False vehicle description
Outright lies abound! Remember the Landy propped up with pieces of wood mentioned above? Well, the bad news is that, assuming you even asked for access to view the vehicle, if you didn’t pick up on something like that - tough cheese! Misrepresentation is stock in trade for auction houses, so many people bleat loudly after buying a lemon on auction, only to find that they have zero recourse. You accepted the terms. You “saw” the car. There’s no comeback

#3 - Government-owned cars
Many, many government cars end up at auction houses. If you know that the used car you’re eyeing has been a government vehicle, chances are good that it’s just a car waiting to die. Some of the worst, most abused secondhand cars come from government, so treat those with huge concern, and rather eliminate them from your shortlist. Consumers are often indignant that a “government car” funded by their tax money should be such a piece of junk. No one cares. Looking at government behaviour in this country overall, avoid government cars for the same reasons.

#4 - Surcharges
The price you close your successful bid on still holds some surprises. If you just bought a used 2014 Volkswagen Polo for R80,000, let’s say, there’s still a host of additional expenses to come. The auction house’s commission percentage comes on top - between two and 10 percent usually - plus VAT at 15 percent. Then, there are the usual on the road costs involved in any car sale, something also for your account, and likely to add around R3,000 to the final cost. It’s completely possible that an R80,000 Polo ends up costing you a more accurate R100,000 when all is said and done. Oftentimes, consumer complaints call foul around deposits, but if you fluff the protocols in any way, you can forget seeing your deposit again.

#5 - Poor or missing information
More of a grey area, consumers also complain that known faults weren’t listed on the car when inspected. Here you’re wading into murky waters, as if an auction house inspector said “sticky gears” on the snag list, but the entire gearbox disintegrated a week later, it’s probably another moment when you’ll pucker up and kiss a toad. Proving that an auctioneer didn’t “accurately list” the gearbox issues is a minefield in which you’re guaranteed to die. He listed the gearbox, see? Somehow. More or less. He did. And that’s typically where liability ends on auction. If you expect to debate nuances and expose obvious trickery, forget it. Remember, these are polished entities who know just how to keep their noses clean. You’re a severely curtailed consumer on auction, with almost no margin for error on your part, at least not without serious financial repercussions.

So, should you buy a used car on auction?
For many, the fact that you can at times score a bargain on a used car on auction makes everything else tolerable. If this is your prime consideration, car auctions might be very attractive to you. Use whatever inspection window the auction house grants, and crawl around under any car you fancy until they throw you out - there’s no such thing as too much inspection when it comes to buying a used car on auction.

Get our car history checkt report that now also details accident damage, and avail yourself of any and all current and relevant detail about the used car you’re looking at. If you’re not in overalls covered in grease in the driveway most weekends, take a mate who is, and yield to their knowledge when doing so. They should know what something means when they see it, and you can ask them to go into detail and decide if issues on a used car are serious or not, based on your desires and budget.

If the lure of the auction is too great, when you first go, go with the intention of learning only. Almost no one pops in and out of an auction off the bat and scores a bargain that gives them years of hassle-free motoring. That’s the dream, but the reality depends in large part on your appetite for risk and the kind of diligent inspection and overall homework you do on any used car on auction. It will typically take weeks or months or regular attendance to develop a feel for how things go on auctions. And even with the limited inspections allowed on auction cars, the risk never really goes away. Only you can decide if the enjoyment and possible bargain benefits make that all worthwhile.
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