What is a car dealer license?
Common dealer licenses
Why do I need a dealer license?
What about the lot requirement?
Can I Get a Dealer License at my Home?
Should I Partner With a Rental Lot?
Can I Get by Without a Dealer License?
Conclusion
TLDR: There are nine states where a lot is not required: Alaska, Arkansas, Georgia, Kansas, Mississippi, New Hampshire, North Carolina, Vermont, and Washington. You're set if you're in those states! Otherwise, you have three options:
(1) Get a wholesale dealer license without a lot, but you won’t be able to sell cars to the general public.
(2) Purchase or rent a display lot to satisfy the lot requirement. We have the lot requirements for each state below. This may be cheaper than you think. In most states you can satisfy the requirement for about $800-$2,000 per month
(3) Partner with a rental lot and use their space to sell/display cars. You won't have your own space, but at least it'll be cheap.
Assumption: you’re familiar with the general steps of getting a dealer license. If you’re not, checkout our general guide dealer license guide.
Let’s discuss one of the most asked questions when it comes to dealer licensing: is it possible to get licensed without a display lot?
To professionally buy, sell, or exchange new or used vehicles and register a dealership, obtaining a dealer license is mandatory in many states. The requirements for obtaining a dealer license vary state to state. For example, in California, even those who plan to sell a single car for profit (or "flip" it) must acquire a dealer license. However, some states, such as Texas and Washington, allow individuals to sell up to four vehicles per year without a dealer license, provided that they have titled all the vehicles in the name of the sellers prior to the sale.
Car dealerships come in various types, some of which require a license while others do not. The necessity of obtaining a license depends on several factors, such as the type of vehicles being sold (new, used, salvage, etc.), the nature of the dealership (wholesale, independent, etc.), and the specific regulations of the state where the dealership operates.
A dealer license enables you to do two things:
In some states, there exist subcategories of licenses, such as motorcycle dealer licenses or franchise dealer licenses. The license categories may vary by vehicle type and type of dealership, but the general idea is still applicable: a dealer license allows you to buy and sell cars/vehicles and they exist as either retail or wholesale.
To get a dealer’s license without a lot, you can apply for a wholesale license. Obtaining a wholesale license does not require a lot. However, a wholesale license only allows you to sell, buy, and trade cars among wholesale dealers and you can’t sell cars to car end users.
On the other hand, getting a retail dealer license in most states will require proof of ownership of a display lot. The size requirements of the lot vary from state to state and is measured by the number of cars that can be parked in that lot.
A lot of folks think that to start a dealership, you need a large parking lot with a giant squiggly man inflatable balloon (see below). However, that is simply not true. The truth is that a plot of land that can fit 5-10 cars is usually sufficient, and some states don’t even require a display lot at all!
Here are the lot size requirements for all 50 states for retail used car dealer licenses.
The requirements vary state by state, but as you can see, lots are not required in 9/50 states.
Unfortunately, some states have harder requirements to meet (Michigan & Indiana), but for most of the other states that require lots that fit 5 or less cars, we’ve seen clients secure retail lots that fit their DMV requirements costing from $800/month to $2000/month, depending on the state and location. I even know of someone in Texas that converted one half of their two acre personal property into a commercial zone and used that to get their license approved.
For dealer licensing, most states will require you to provide an office address or place of business. One of the questions we get the most is "Can I use my home address as my dealer office?".
The answer to this question is that it depends. It's possible to register for a dealer license at your home address and property. But in order to do so, the property must be a building that (1) meets zoning requirements, (2) meets DMV requirements, and (3) is not the dealer's primary residence.
Most state DMVs require that the property have an office, desk, two chairs, internet access, and a phone number listed in the dealer's name to be considered a "place of business". The DMV requirement is easily satisfied. You just need to contact your cable provider and visit the furniture store. The zoning and primary residence requirements are trickier. First off, your home may not meet local zoning requirements. Depending on the zoning requirement, you may need to renovate your home to satisfy it. Secondly, the building cannot be your residence, meaning that the building that is your office must be separate from your home. In plain terms, this means that the building you use to register your dealer license be a property that is not your home, or your property must be multi-unit. Again, this may be difficult to satisfy without renovations or buying a second property.
If using your home as a dealer office is not an option, you can rent a property in your area for $800-$900 in most states that should satisfy this requirement.
Alternatively, if you don't mind sharing a display lot with another business, you can partner with a rental dealership and use their space to satisfy the lot requirement. This can often be a win-win situation for both parties. The rental lot gets cash to help pay down their rent, and you get a cheap space to satisfy your license requirements and display your cars. However, there are downsides to this strategy. The biggest one being that it's a shared space that can create potential conflict between you and the rental dealership. For example, what happens if one of your car gets damaged in their lot. It's important to have these details hashed out and written down via contract with the rental dealership that you're partnering with before putting their space down as your display lot.
"Seems like a lot of work to get a dealer license, having to deal with lots and all. Can't I just sell cars on Facebook marketplace?" Well, the answer depends on how many cars you want to sell! In most states, you're allowed a personal limit in terms of the number of cars you can sell before you need a license. For example, in the state of Washington you can sell up to 4 cars in a year before requiring a license.
If you're selling more than the personal limit a year, we highly recommend that you get a dealers license, as the fines are hefty and you may possibly face jail time. For example, in Arizona, selling more than 4 cars in a year without a license is considered a class 1 misdemeanor, which carries a maximum possible sentence of 6 months in jail and up to a $2,500 fine.
There's lots to learn when it comes to being a successful auto dealer. I hope this was helpful in demystifying one of the more common questions we've heard when it comes to dealer licensing.
We've helped many new auto dealers through the licensing process, taking care of everything from general licensing questions to their auto dealer bonds. Give us a call if you have any questions. Or use our live chat feature if you're on a computer.
