Do you want to start a car auction business? You’ll need a dealership license.
Every state in the US makes it mandatory to obtain an auction license before you can participate in car auctions in any part of the country. Depending on your state requirements, a car auction license will allow you to sell vehicles to the public or dealer-only auctions.
The good news; getting a car auction license isn’t a complicated process. If you meet your state’s requirements, you should have your license in just a few weeks.
But what are the requirements for getting an auction license? And what license type should you apply for? Most importantly, how much does it cost to apply for the license? This guide will answer all these questions and cover more on license renewal.
What is a Car Auction License?
A car auction license is an official document issued by a motor registration authority that allows you to buy or sell motor vehicles at an auction. There are different types of car auction licenses, but the most common include:
Retail Dealer License
A retail dealer license allows the owner to set up a business to sell vehicles to the public.
If you own a retail dealer license, you’ll be able to sell cars directly to buyers. This license can also include selling at wholesale or private car auctions.
Wholesale Dealer License
A wholesale license allows you to sell vehicles to other licensed dealers and buy cars at dealer-only auctions.
What License Is Needed to Buy and Sell Cars at an Auction?
As mentioned, you’ll need either a dealer’s or a wholesale license.
A dealer’s license will have the most requirements of the licenses and offers additional privileges. For instance, it allows you to buy at a wholesale or private auction, own a dealership, and sell vehicles directly to the public.
To participate in a dealer auction, you’ll need a car dealer license that proves you’re a registered and authorized car dealer.
Car Auction License Requirements
While car auction licensing requirements vary by state, most of the requirements are similar. We’d advise you to check with your state’s Department of Motor Vehicles (DMV) to learn more about the specific requirements in your state and the application process.
That said, you can expect the following requirements in virtually all states.
1. Business Registration and Tax ID
To submit your car auction license application, you’ll need to get a business license. In addition to a business license, you’ll also need to apply for sales tax registration. This is usually done at your State’s Department of Revenue.
Finally, you’ll also need to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS).
2. Established Place of Business
A “place of business” refers to a designated location where you run your business, like your car dealership or office.
Location specifications can vary by state.
But if you’re applying for a dealership license, your place of business needs to have a lot of space (display area), office, signage, and correct zoning. Depending on your state, you may need to provide proof of lease or ownership. Some states, like California, require a site visit before an auction license is issued.
3. Criminal Background Check
You’ll need to pass a background check to qualify for a dealership license. For this purpose, you may need to provide electronic fingerprints and a history form. Depending on your state, your driving record may also be inspected for tickets, especially for DUIs.
How Much Does it Cost to Get a Car Auction License?
License fees vary widely between states, but you can expect to pay anywhere between $50 and $900.
For instance, the cost of applying for a basic dealer’s license in Texas is $700. You might also pay additional processing fees depending on the type of license you’re applying for.
It’s also worth noting that the license usually has an expiry period (typically one year), and you’ll need to pay a renewal fee. Again, the renewal fee varies by state but ranges between $50 and $500. However, the price can go up to $1,500 for franchise dealers.
In addition to the license and renewal fee, you must obtain an auto dealer bond of $50,000. The price of this surety bond may vary according to your credit score.
Dealer License vs. Wholesale License: Which is Right For You?
If you’re looking into venturing into the auto business, you will have two options: Either acquire a dealer license or a wholesale license.
Which one is right for you?
It will boil down to the kind of business you want to build.
A retail dealer license allows the owner to set up a business to sell vehicles to the public. If you have a retail or individual motor vehicle dealer license, you’ll be able to buy and sell used cars at the retail or wholesale level. This option is ideal for those starting out or new to selling used cars.
A wholesale license, on the other hand, allows you to sell vehicles to other licensed dealers. Obtaining this license will give you the right to buy, sell, and deal in motor vehicles exclusive wholesale. You’ll be dealing with those with auction access.
The wholesale license option is ideal for dealers who are not new to the automotive business and want to flip cars and sell them for profit. This option has fewer financial commitments, and the requirements for location are also less stringent.
Renewing Your Car Auction License
Most car auction licenses are issued for one year and may have a specific expiration date.
To renew your license, you’ll need to submit a renewal application form. Luckily, this process is easier than the initial application process.
You won’t be starting from scratch, and you will likely have most of what you need to complete the application. If you’ve made changes to your business since the initial application, you’ll need to update that information in your renewal paperwork.
How much does renewal cost?
Well, the cost of license renewal varies by state.
In Oregon, for instance, you can apply for a 3-year license. It will cost you over a thousand dollars but will save you the hassle of renewing it annually. In Texas, the licenses are issued for a 2-year period and require a $400 renewal fee upon expiration.
Some states charge the same amount to renew the license as they charge for the application. Additionally, you should also factor in the cost of changing your surety bond. Car auction license renewal also allows you to shop for a new bond quote to save on costs.