Purchasing a salvage vehicle at a car auction can be a risk if not approached with sufficient information about how to get the vehicle on the road or about the market for sale. Salvage cars may present a risk for the inexperienced and uninformed buyer. However, for those who know what they are doing, buying a salvage car at auction can be a potentially great option.
One of the most important risks to consider is that it is not always a given that a car that has been designated as salvaged will legally be able to be put on the road again. The requirements involved with designating a vehicle as salvage, the process of obtaining a rebuilt title and the disclosures that must be made to the eventual purchaser vary by state.
Therefore, buyers of salvage vehicles must consider the rules in their own state regarding these matters. Some states may offer a favorable place to register a car with a rebuilt title. Some states may be less liberal when allowing a vehicle on the road with a history of severe damage. Therefore, a good investment involves finding the right car for the right place.
Salvage Title Designations
State laws ultimately dictate if a vehicle is given a salvage title designation. For example, some states will designate a vehicle as salvaged based on the extent of damage a vehicle has sustained. For example, in Louisiana, damage to a vehicle must equal or exceed 75 percent of the vehicle’s retail value for it to be designated as a salvaged.
Other states, such as Florida, tie the salvage title designation to whether an insurance company has been declared a total loss. The percentage of the value of the damage required by these states for a total loss classification range from 50 percent to 95 percent of the car’s value.
Further, there are several types of total-loss declarations. Some states use a “junk,” “scrap” or “dismantled” designation that prevents the most heavily damaged cars from being rebuilt and retitled.
Some states provide a more detailed designation whereby the title indicates whether the vehicle is “rebuildable” or “not rebuildable”. Other states “brand” or “notate” the vehicle’s title of the estimate of damages exceeds a certain percentage of the vehicle’s value. Other states have no guidelines for issuing salvage titles.
In addition to the use of the total loss standard, some states will issue flood or hail specific salvage titles. For example, eleven states issue salvage titles to stolen vehicles: Arizona, Florida, Georgia, Illinois, Maryland, Minnesota, New Jersey, New Mexico, New York, Oklahoma and Oregon. Stolen vehicles are often considered a low risk purchase.
Rebuilt Title Designations
The exact conditions under which a rebuilt title may be issued vary by state. For example, some states place strict regulations on cars that may be designated as “rebuilt” while other states require a vehicle to meet certain standards prior to being designated as rebuilt and, therefore, roadworthy. The rebuilt title is usually only given by the state after repairs have been done and the vehicle has been inspected.
In all 50 states, sellers are required to disclose whether a vehicle has sustained serious damage. For reasons related to fairness and consumer safety, states take the position that full disclosure of all past damage is mandatory. Therefore, when reselling a vehicle with a previously issued salvage title, a seller is required to inform the buyer of this fact.
Failing to do so can have disastrous consequences for a seller, given the fact that consumer protections laws can place an errant seller in a bad legal position if a required disclosure is not made. Therefore, a previous salvaged title may hinder the vehicle’s market value, and there is no legal way to remove this label from a vehicle’s history.
The main takeaway here is to consider the legal environment in which you will be registering and selling a vehicle. If possible, choosing to buy, register or sell in a state with laws favorable to vehicles with salvaged titles can reduce some of the risks of buying salvaged vehicles at auction.
Further, understanding the legal environment can help guide you purchasing decisions and allow an investor to make calculated risks on vehicles that in some states may be too severely damaged for registration, but in other states may meet legal requirements.