Flipping Cars: Is It Legal? & What To Know
Source: Pixabay
If you’re interested in automobiles, you might be curious about flipping cars. TV shows highlight the excitement of “the flip” and the resulting profits. It seems like a no-brainer way to make money. But, there’s a dark side to flipping cars that never gets shown on TV. It’s a murky world that straddles the line between legitimate and rip-off.
While you may not care about selling vehicles for a profit, knowing about car flipping is crucial if you buy a used vehicle outside the dealership process.
That said, we’ll look at what’s involved with flipping cars and what a consumer should be aware of.
Flipping Cars: What Is It?
Car flipping is the process of buying a used car at a low price and rapidly reselling it for a profit. These transactions are done privately and may involve roadside “for sale” signs or online ads like on Craigslist. Keep in mind that this type of sale may be above board and trouble-free, or it could be a scam waiting to happen. It can be challenging to distinguish between a genuine private seller and a car flipper trying to look like one. Sometimes, there’s really no way to know other than being cautious during all stages of the process.
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Is Flipping Cars Legal?
Yes, in most states, flipping cars is legal up to a certain number of times per year (read on for details).
Why Does a Car Flipper Not Sell as a Dealer?
It’s all about the money. Setting up even a small dealership requires a large investment. Most states require dealers to have a physical location, post a bond to guarantee compliance with regulations, and carry insurance. A flipper would see little or no profit if they had to operate as a dealer.
Is It Bad to Buy a Flipped Car?
It can be. A car flipper is focused on making money, not your satisfaction. So, problems may not be disclosed or fixed. For example, in most states, a dealer can’t sell a car that doesn’t pass that state’s safety inspection unless it’s disclosed upfront. However, a private seller (or a car flipper) has no such limitations. Before buying, always get a vehicle history report (such as from CARFAX or AutoCheck) and have a mechanic inspect the car.
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How Do I Spot A Flipped Car?
Sometimes, you can’t. Be here are some telltale signs.
- A person with more than one vehicle to sell.
- A vehicle history report showing that the car is in the owner’s possession for a short period (months, perhaps weeks).
- An irregular title (see below on how a flipper can bypass state dealer regulations)
- An online ad without photos
- A seller that won’t provide the vehicle identification number (VIN)
State Laws on Low-Volume Vehicles Sales
Most states limit the number of cars a single person can sell in a year. This protects consumers from sellers that really should have a dealer’s license but don’t want to or can’t meet state regulations.
Knowing the restrictions in your state can help you spot unscrupulous sellers. For example, an individual Colorado seller simultaneously advertising more than two vehicles violates state law (which limits private sellers to no more than two vehicle sales a year). These situations are red flags that the seller is more interested in flipping cars than the ethical sale of a roadworthy vehicle.
Here are the state-specific limits for annual single-person vehicle sales.
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Source: abetterbmw.com
Can Private Sellers Avoid State Dealer Laws When Flipping Cars?
Yes, individual sellers use several techniques to skirt dealer regulations.
Ignore the Law: Just as it says, a seller can choose to ignore the law or plead ignorance when caught. This isn’t a frequent occurrence as motor vehicle registration systems usually do a good job of catching violators.
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Straw Seller: A seller may title a car in someone else’s name (such as a spouse or relative) until that person has reached the annual state limit for private vehicle sales. If the name on the title doesn’t match the seller’s driver’s license, then walk away from the sale.
Old Title: With this technique, a seller won’t register the vehicle in their name. Instead, they’ll sell the car with the previous owner’s name on the title. Like with a straw seller, walk away from a deal when the names on the title and identification aren’t the same.
Out of State Title: Some states permit non-residents to register a vehicle. This sets up the perfect opportunity to bypass one state’s seller limitation laws. There could be a legitimate reason for this situation (like if the seller just moved), but thoroughly review the vehicle history report for any suspect activity.
Dealer Transaction: You won’t encounter this situation too often, but a private seller may pay a licensed dealer to handle the paperwork (funds transfer, registration, and titling). This isn’t a bad way to go if the car checks out and the dealer is reputable. But first, check the state licensing agency for any problems with the dealer. Buying a car this way gives you some protection (the dealer has to follow state law) versus almost no safeguards when buying from a private seller.
Get a Curated List of the Best Used Cars Near You
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