How to get a dealer license for car auctions

TLDR: Dealer car auction is a hidden gem for buying quality vehicles at below-market price. However, to participate in a dealer car auction, a dealer license is required. Getting a dealer license can be a complicated process at a first glance. However, this article breaks it down into simple steps you can follow. You first need to decide on the type of dealership you plan to operate, then you can simply follow the defined application process for your dealership, subject to specific state requirements

What are car auctions? 

Car auctions is a medium where cars are traded between participants. There are many different types of car auctions, but all auctions can be categorized into two categories: 

  1. Closed, or private, auctions: exclusively available to a chosen group of buyers and sellers, often through invitation-only access
  2. Open, or public, auctions: accessible to anyone interested in participating in the bid. However, an entrance fee may be charged

What are dealer car auctions? 

Dealer car auction is a specific type of private auction in which car dealers buy, sell or trade new and used vehicles. As an auto dealer, you don’t want to miss car auctions. 

Why participate in dealer car auctions? 

Affordable Price: Price of cars at a dealer car auction tends to be much more competitive than other mediums

Exclusivity: cars sold at dealer car auctions are only available to dealers. Sometimes, you can find great cars at these auctions

How do dealer car auctions work? 

At an in-person auction, prior to the start of the bidding, each vehicle to be auctioned is driven into the auction hall. Then, the auction participants will be given a few hours to inspect the vehicles up close. After the inspection period, the auctioneer presents each car on stage, describing its features to all the bidders. It is crucial to pay close attention to the auctioneer’s presentation because the statement of the presentation is a legally binding statement on the sale of the vehicle.

More often than not, there is more than one bidder for a car. Therefore, you should expect multiple bids on the same vehicle and the price would probably go up. Bidding happens when you raise your hand with a catalog and the process goes on until you are the only bidder with the highest bid. That’s when the hammer will be rang, which indicates that you have won the final bid and the car is yours. Once you won the bid, you are obligated to follow through with the purchase at the final bid price. Not complying with this requirement could lead to possible penalties or legal consequences.

If you are new to car dealer auction, it is a good idea to participate in a dealer car auction as a member of the audience vs bidder. Being an audience and seeing how the auction works really helps you prepare for your career as an auction bidder

Where can I find dealer car auctions

There are many dealer-only car auctions. There are spontaneous live auctions or 24/7 online dealer auctions marketplaces. To find one near you, you can simply Google “auto dealer only auction near me”. Typically, you need to fill out an application online to register for the auctions. Below are some examples of dealer only auto auctions. 

What is a car dealer license? 

Many states require a dealer license to buy, sell or exchange new or used vehicles if you are registering a dealership and doing it professionally. In different states, there are different requirements when you need a dealer license. For example, the state of California requires anyone wanting to sell (or flip) even one car for profit to get a dealer license. On the other hand, individuals can sell up to four vehicles per year without a dealer license if all the vehicles are titled in your name before sell. 

What is the purpose of a car dealer license? 

The dealer license ensures that the individuals licensed to sell, buy, and trade cars professionally understand the rules and regulations of the auto dealer industry in their states and follow these rules when conducting business 

How much does it cost for a car dealer license? 

It varies per state. It generally costs close to $1,000 for a dealer license. For example, it costs $700 for a used car dealer license in Texas. 

The main one-time costs of getting a dealer license includes the following: 

  • Online dealer licensing probably costs up to $100
  • Dealer examination costs another $100
  • Business setup and secretary of state registration costs a few hundred dollars
  • Background check probably costs $50
  • Surety bond costs anywhere from $350 - $1,000 depending on the state you operate in and your credit history
  • Application fee for a license costs anywhere from $200 to $500

The variable cost of getting a car dealer license is mainly the lease of your dealer lot.

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Types of car dealer licenses for car auctions

There are many different types of car dealerships. Some dealership requires a license but some don't. Whether you need a license or not depends on the type of vehicles you intend to sell (used, new, salvage, etc.), the nature of your dealership (wholesale, independent, etc.), and state regulations where your dealership operates

  • ‍Independent Used Vehicle Dealer: non-franchised independent dealers that sell used cars. A used car dealer bond is required in almost all states
  • Franchise Dealer: this type of dealership is established through a franchise agreement with a vehicle manufacturer (i.e. Ford, Honda). Franchise dealers mainly sell new cars the vehicle manufacturer but they can also sell some used cars on the side. Some states, such as California, have one type of license that cover both new cars and used car dealers. Some other states, such as Texas, don't require a license for this type of dealer
  • Wholesale Dealer: this type of dealer sells used cars to other dealers. They don't work with end consumers/car buyers directly. Most states don't have a specific license for wholesalers; they can buy the same "used car dealership bond" as Independent Used Vehicle Dealer. However, some states, such as California, require wholesalers to buy a specific type of "wholesale dealer license".
  • Wholesale Motor Vehicle Auction Dealer: Wholesale auction dealers sell used car at car auctions. Some state, such as Colorado, require a specific license for these dealers
  • Salvage Dealer: these dealers are engaged in the business of buying, selling, repairing, or rebuilding salvage motor vehicles and non-repairable motor vehicles. A few states, such as Georgia, have a specific license for salvage dealers/inspectors, called "Salvage & Assembled Vehicle Inspector Bond"
  • Recreational Vehicle Dealer (RV/Trailer/Motorsports): these dealer sell recreational vehicles such as trailers, motorcycles, RVs, and all-terrain vehicles. A few states require a separate license, such as Florida and New Mexico

How to get your dealer license for car auctions

1. Complete an online dealer education course, depending on the state

  • Typically, this is a fixed hour of training where you will learn the basics about being a dealer in your jurisdiction
  • After you finish the training, you will receive a certificate of completion, which you need for the application process

2. Take and pass a dealer examination

  • Typically, this exam tests you what you learned from the online dealer education course.

3. Decide on your dealer license type

  • Depending on the states, there are multiple license types. Some states have one or two types only, such as California which only has retail dealers and wholesale dealers. Other states, such as Texas, has only one type of license for independent used car dealers

4. Set up your business 

  • Decide on the type of business you want to set up – corporation, llc, partnership or sole proprietorship. Here's a guide
  • Name Your Business 
  • Register your business with the IRS and obtain a FEIN (federal employer identification number)
  • Register your business with your local secretary of state or county. Look up your local instructions (e.g. Texas)

5. May need to pass background check / criminal record check through fingerprint scanning 

6. Lease a business building and lot with sufficient space. You may need to provide a copy of the lease agreement to the licensing department.

7. Some states, such as Florida, may require you to buy a garage liability insurance.  

8. Obtain the dealer license surety bond

  • Different state has different surety bond requirements. California has either a $50k or a 10k surety bond, Florida only has a 25k surety bond, and Texas has a 50k surety bond. You can get your auto dealer surety bond with us here.

9. Apply and pay dealer licensing fee 

Below you will find some additional resources on dealer licensing of the following states: