The collector car market has been very strong the past few years, and many cars are trading at prices that were unheard of not long ago. An unfortunate consequence of today’s market is that mistakes can cost a lot more than they did before. There also is a perception that good cars sell super quickly, so you have to move fast to get the car. In this situation, trouble can come very quickly indeed.
Savvy collectors need to balance their enthusiasm with care and intelligence. This month, we’ll look at ways that a buyer can protect himself. In a future column, we’ll look at strategies for the seller.
Go see the car
We are in an Internet world where distance has been eliminated. It’s tempting to rely upon the photos and the seller’s descriptions, but don’t. There is no substitute for seeing the car yourself. Take the time, use up your frequent-flier miles, do whatever you have to do. You are the one who is going to live with this car. Go see it for yourself and make sure you like it.
The two main problems are that sellers sometimes lie, and no two people see the same thing and describe it the same way. When the car shows up at your door, and it doesn’t match the seller’s descriptions, your legal recourse is an expensive lawsuit in the seller’s home state. Even if you are lucky enough to unwind the deal and get your money back, the unrecoverable legal expenses will make it a loss.
Inspections a must
The wise buyer will never buy a collector car without an appropriate pre-purchase inspection — or several. There are simply too many ways that expensive problems can remain hidden after careful observation and even a spirited test drive.
Select an appropriate and neutral marque-specialist shop for a complete mechanical inspection. That gives you a fighting chance to identify where repairs are now or soon will be needed, where non-authentic parts have been used, where prior repairs have not been up to standard, and so on. But don’t expect this to be a panacea. The shop is only charging you a few hundred dollars for this service, so be realistic about what they are really capable of finding in the short time spent. A bigger budget can allow for more intensive inspections, of course, but owners will never allow an inspector to disassemble the engine or perform any other major surgery.
It’s also a good idea to have an experienced restoration shop inspect the car to determine how original it really is. You want to know how much of the sheet metal is original to the car, as well as the originality of the paint and the interior. For an example, consider a friend who was having some paint issues with his all-original-paint Porsche 911 that he had owned for 20 years. He didn’t want to lose the originality by repainting the whole car, so he took it to a very capable restoration shop, hoping for a miracle.
The shop owner quickly put him at ease: “Don’t worry so much about that. This car has already seen new paint in three places!”
If authenticity and provenance are important, you need to have an expert examine the car and its history. Don’t just believe what the owner is telling you about the history of the car.
Keep in mind that most of these cars were just worn-out, used cars once. People weren’t all that careful about keeping track of provenance stuff, and lots of mistakes have happened.
For example, consider this lawsuit between a collector and an auction company that is just warming up:
The auction company sold a car as “one of only two built and the only one in existence.” The owner of the second and very-well-known existing car didn’t take too kindly to that and sued the auction company. The auction company’s expected defense — they haven’t gotten that far yet as they are still fighting over where the lawsuit is going to be heard — will likely be that the plaintiff’s car is just a “bitsa” and doesn’t count.
This case is going to be expensive.
It may seem like proper inspections might take longer than a seller will wait, but that is not necessarily the case. The seller can be comforted by a signed contract that is conditional only upon the inspections and with a substantial deposit placed in escrow. If multiple inspections are going to be made, they can sometimes all be done simultaneously.
Use a good contract
The more you spend on a car, the more important it is to have a good written contract. From the buyer’s standpoint, the key elements of a good contract are:
Identify the car properly. Make, model, chassis number and so on.
Identify specifically what comes with the car: spares, wheels, books, records and other items.
State clearly that the purchase is subject to your satisfaction with the results of your inspections, and that the seller will cooperate with you in getting them done.
Set forth all representations the seller is making about the car. This should include whatever was claimed in the sales listings or later said to you about the condition of the car, its features, its authenticity and history.
Establish a clear procedure for the exchange of the money for the car — more on that below.
It seems like you will need to hire an attorney to do this for you. Yes, that is probably true. Just remember that it is money well spent.
Follow the money
It’s usually not a good idea for the seller to have the money and the car at the same time. There is always the chance you will never see either of them again.
Use an escrow — much like a real estate deal. It doesn’t have to be overly complicated.
I’ve had good luck using the seller’s attorney as the escrow agent. The funds are wired to the attorney’s trust account, with instructions that they can be released to the seller only when the buyer or his transport company has confirmed that they have picked up the car.
The seller’s attorney can also be given the signed certificate of title or bill of sale, in pre-approved form, with instructions to release that to the buyer when the funds are released to the seller.
That approach doesn’t complicate the transaction very much, and sellers are almost always comfortable with their personal attorney holding the funds. The buyer is protected because the attorney can be trusted to handle the funds properly on pain of disbarment and full legal liability.
I have nothing against brokers, but there are a couple of things that the buyer should keep in mind: First, they don’t get paid if the car doesn’t sell. Second, all of their information about the car has come from the seller.
The latter point is the primary one. Under the law, the broker is generally not liable for repeating what the seller said about the car. When things turn out to be wrong, your legal recourse is probably going to be against the seller only.
Here’s something that will surprise some readers — buying a car at an auction is not like buying a shirt at Macy’s.
“Wow, that car crossing the block looks really nice; I think it would be fun to own and drive; it’s not going for too much money; I think I’ll buy it,” is a recipe for disaster.
Auction companies are essentially brokers acting for the seller. As explained regarding brokers, their information comes from the seller, and they are generally not liable for repeating it to you.
While most auction houses do their best to vet the cars they auction, that is a tough job, and they typically disclaim liability for the results.
If you are going to buy a car at an auction, you have to verify that the car is what you want to buy before the auction even starts.
First off, do your shopping on the auction company’s website or in their catalog ahead of time. If you see a car you may want to buy, call the auction company and talk to them about it. Believe it or not, you can actually make arrangements for pre-auction inspections, and you can also arrange test drives during the pre-auction exhibitions.
You should know whether you want to buy the car well before it crosses the block.
Similarly, you should also know the maximum amount you will bid for the car. The only suspense when the auction starts is whether you are going to get lucky and buy the car for less than you were willing to pay, or if some other bidder is going to outbid you and pay too much.
If you aren’t willing to go through all that effort ahead of time — and it can be a lot of effort when you start thinking about multiple auctions in Scottsdale or Monterey — then stick to buying cars in private transactions, where time passes more slowly. ♦
John Draneas is an attorney in Oregon. His comments are general in nature and are not intended to substitute for consultation with an attorney. He can be reached through www.draneaslaw.com.