How do car auctions work?

Car auctions operate similarly to other auctions, such as real estate auctions, with a similar process to follow if you want to buy.  

You’ll first need to register your details with the auctioneer before the auction begins. To register as a bidder, you’ll need to provide a photo ID such as a driver’s licence, passport or similar. The auctioneer will then give you an identifying marker, which is usually a numbered card or a paddle, which you can use to make bids.

You may want to do some research before the auction and prepare a shortlist of cars you want to bid on, as well as deciding in advance the top bid you’re willing to make.

The seller will set a reserve price before the auction, which is the minimum amount the seller will accept – any bid after this could win. The auctioneer will usually announce when bids have reached the reserve price, which means the car is set to sell.

Depending on the competition for the car, you may be able to get it for the reserve price or just above, or there may be multiple bidders willing to push the price much higher. This is where setting a maximum bid you’re willing to make in advance will help you avoid getting carried away in the heat of the auction.

If no bids reach the reserve price, the seller may choose to negotiate with the highest bidder to try and reach a reasonable sale price. Alternatively, they may withdraw the car from sale.

If you have the highest bid, you can complete the sale. This involves making a down payment on the day; usually about 10% of the purchase price. Depending on the terms, you may be able to drive the car home and finalise the rest of the payment later. 

If you’ve never been to a car auction before, it may be worth attending a few car auctions as an observer before going with the intention to buy, just to familiarise yourself with the process.

Purchasing a car through a car auction means you may not have some of the pre-purchase options available to you that you’d have when purchasing privately or via a dealership.

Some of the factors you should consider when buying cars at an auction include: 

Research and inspections

As all auction sales are final, it’s best you do your research before attending a car auction. Most car auctions will list the cars being put up for auction on their website, including make, model, vehicle identification number (VIN) and a condition report. 

You should thoroughly read through all the details available online and research how much similar cars have recently sold for second-hand.

You can also get a vehicle history check done and check the Personal Properties Securities Register (PPSR) to tell you if the car has been stolen or written off, or if it still has finance owing. The auction house typically guarantees the vehicles aren’t under finance, but it’s often still worth checking independently. Vehicle history checks may come with a fee, but it’s often worth the peace of mind.

Car auctions may have several ex-Government cars and corporate fleet vehicles that often look alike, so It's best to make a note of the car number displayed on the windscreen to make sure you have the right vehicle in mind when the time comes to bid.

You may not be able to view the car before auction day, depending on the auction house. However, several auction houses let you bring your mechanic for non-invasive physical inspection on the day. You should also note that you won’t be able to test drive the car but should be able to at least turn it over or start it up to check the engine.

Registration

If you end up being the winning bidder for a car, after the auction you’ll need to finalise the sale, often with a deposit on the day and a promise of further finance later. You can then sign the registration papers at the auction house to help the process of transferring the registration. These signed papers will then be submitted to the local vehicle registration authority to finalise the transfer. 

Insurance

It’s hard to have a car insurance policy in place on auction day since you may not know which car you may purchase or even if you’ll be successful. There will typically already be a Compulsory Third-Party (CTP) policy on the car as this is a requirement for registration. You can then organise any further car insurance as soon as possible after you take possession of the car, to protect you if you have an accident or damage the car soon after you drive it away. 

Some auction houses may have partnerships with specific insurers that you can sign up with on the day for immediate coverage.  However, these may not be the best deals or policies for you and your needs. You may want to shop around and compare car insurance policies before the auction and then settle on the right policy after finalising the sale. 

Finance

One option is to pay upfront on the day of the auction once you’ve made your winning bid. However, not everyone has the cash to do this, so you may need to consider some alternative car finance options.

A car loan is a specific loan type of secured personal loan where the car being purchased is used as collateral for the loan. If you default on your payments, the lender can repossess the car and sell it to recoup costs.

If you don’t want to risk losing your car, you could consider a secured personal loan that uses another asset as collateral, such as equity in a property. Alternatively, you could apply for an unsecured personal loan, though these may have higher interest rates as the lender is taking a larger risk that you’ll repay the loan. If you fail to do so, they’ll come after you directly to recoup their costs, including using debt collectors. 

The auction house can often organise car finance for you, which may be underwritten by a large financial institution. However, you can compare car loans or personal loans to see if there are more competitive offers available. You can then have loan pre-approval organised for auction day, and you just need to advise both the auction house and your lender of the details.

Car auctions can help you buy a used car for a reasonable price, but you may wonder if it’s safe to buy cars from auctions. Getting a better understanding of the potential risks involved may help to reassure you.

You may be concerned that you’ll lose your money and not get a car. To reduce the potential risk make sure you go through a reputable auction house or online auction site. You can check the details of the auction house or site before engaging in the auction to ensure it’s safe. 

You may also be wondering if the cars sold at auction are worth it or if there’s an increased chance of buying a lemon. With auctions, you’re unable to test drive the car, the condition of the vehicle isn’t guaranteed, and it depends on the auction house whether you can get a mechanic to do any checks. This could expose you to the risk of buying a car with mechanical issues, and it’s up to you whether the potential savings may be worth this risk.

It’s possible to get a good price at a car auction, but you may need to keep the following in mind:

• You’re bidding against other buyers instead of negotiating directly with the seller.
• It may not be easy to get a refund.
• Auction cars do not come with any statutory warranty, unlike used cars purchased through a dealership.
• Government and fleet cars that are commonly sold at auctions can be a mixed bag in terms of maintenance. Many are mostly well maintained, but that’s not guaranteed.

Whatever you decide, it’s important to do your research before the auction and thoroughly check the vehicle’s condition and service history before purchasing.