Okay, it’s March, but we all know that spring is the real start of the car collecting year. And every new year marks the time for self-improvement resolutions. Here are the top seven for the car collector. I won’t buy a car online without seeing it myself Hands down, the most common complaint I get from clients and readers is that they bought a car long distance and, when it arrived, it didn’t turn out to be anything like what they were expecting. The common scenario is that the car looked great in all the low-resolution photos on the web site, […]
Okay, it’s March, but we all know that spring is the real start of the car collecting year. And every new year marks the time for self-improvement resolutions. Here are the top seven for the car collector.
I won’t buy a car online without seeing it myself
Hands down, the most common complaint I get from clients and readers is that they bought a car long distance and, when it arrived, it didn’t turn out to be anything like what they were expecting. The common scenario is that the car looked great in all the low-resolution photos on the web site, the seller’s description was carefully written to make the car appear to be perfect without actually saying so, and the deal was consummated with an “as-is” provision somewhere in the paperwork. And, to add insult to injury, the buyer’s complaints to the seller are typically met with, “Well, you should have come and looked at it.”
Yes, I know that last month’s “Legal Files” (February 2013, p. 32) was about how to protect yourself in these deals, but read it again and you will see that I was clearly just putting a Band-Aid on a gunshot wound. Don’t buy a car you haven’t seen in the flesh. If you don’t have the time and you lose “the deal,” don’t worry, as another one just as good is just around the corner.
I won’t over-represent my car, no matter how stupid the buyer seems to be
As amazing as it may seem, there are many buyers today who will send serious money to you to buy your car — sight unseen — and when it doesn’t meet their exaggerated expectations, they sue you. Once this happens, you are going to lose, even if you win the lawsuit. (Consider the attorney fees.)
When this happens, telling the buyer to stick it usually doesn’t work. It’s just too easy for them to get legal representation these days. And, to be honest, the seller has often over-represented the car — at least a little bit. Most often, it’s a sin of omission, not an absolute falsehood. But when we dissect the seller’s description, word by word, it often becomes clear where the buyer was encouraged to jump to the wrong conclusion.
This is a really tough one for the seller. In one case, the buyer complained that the seller was too honest. By being so specific about the car’s warts, the seller created a false sense of security that there were no unmentioned problems. In another case, the seller’s “no rust” statement was challenged as false due to rust that was discoverable only when the car was disassembled.
I will be more careful about originality
Today’s increased collector car values, better technology and smarter crooks have created a sharp increase in the number of fraudulently altered cars. Recently, a client purchased a “numbers-matching” car after verification by a well-regarded collector car appraiser, who later admitted to having been fooled. When the buyer complained that the engine was a very-well-executed restamp, the seller responded, “What’s the problem? The numbers all look the same to me. I never said the factory put them there.”
It’s become too easy and commonplace to falsify cars. If you’re going to pay extra for authenticity, hire an expert to inspect the car and make sure you get it.
I won’t bid just because someone bids against me
The red mist at auctions is a dangerous thing. When you see a car you want to own, it’s hard to walk away when someone is trying to beat you out of it. That’s why we often say that high auction prices require at least two bidders who really want the car.
It’s easy to believe the car is worth the money when another fool is bidding against you. But you never know how many trips he’s taken to the bidder bar, whether he’s just trying to impress his “niece” sitting next to him, or if he’s just bidding because you are.
Before you start to bid, know when you are going to stop bidding.
I won’t hire a restoration shop on a time and materials basis if I care how much it will cost
It is admittedly very difficult for a restoration shop to do this work on any other financial basis. Until you get into the work, you often can’t tell how much work it’s going to be. But that doesn’t mean it’s impossible.
I’ve had a number of cases in which the owner has paid substantial progress billings but the car never seems to get done. I’ve had cases in which parts are paid for but never find their way into the car. I’ve heard about well-known shops whose employees are required to bill every hour they are paid for, so they just spread their hours over every car in the shop even if they never touched some of them that day.
The common denominator seems to be the owner and the shop separated by a long distance. If you only see the car once every year or less, it’s pretty hard to keep tabs on what is going on. There’s a lot to be said for buying local, but if you have to send your car to a distant shop, be sure to budget for periodic trips to check in on the progress. Photographs just don’t work.
You can keep some semblance of logic to the finances by breaking up the project into components. The shop should be able to give you a reliable estimate based upon there not being any big surprises. It’s critical to have a well-crafted contract that identifies what is expected to be done — and what complications are to be considered par for the course. When surprises come up, as they inevitably will, treat each as a new contract, with a new estimate of cost before the work begins.
Same with all the “while we’re at it” changes, as these are often where all the cost overruns arise. Most of these are predictable — for example, who would ever remove the engine of an E-type (20 hours) and not replace the clutch? Or rebuild the transmission? Think all that through before you start. Later, when more “bright ideas” come up, start by asking why they weren’t decided upon at the beginning. That will help keep your “high-condition driver” restoration from growing into a “national concours standard” project with the attendant tripling of the cost.
I will be smart about tax planning
We just made it through the fiscal cliff, and we think we may have some certainty about tax policy. But we still haven’t solved our country’s budget problems, and raising more revenue (tax increases) will continue to be on the political table.
We presently have some wonderful opportunities to save money on taxes in connection with our cars — 1031 exchanges when we sell them, a favorable (15% or 20%) capital gains rate, a $5.25 million gift, estate and generation-skipping tax exemption, family limited partnerships, sales to grantor trusts, GRATs, and a host of other planning techniques that can produce tremendous income and estate tax savings. It is absolutely critical to get professional assistance from tax and estate planning professionals who understand collector cars.
You also need a succession plan for your collection — these cars are very valuable, and you have to have a plan for them after your death. As an example, “Legal Files” reported several times about the dramatic dislocations that arose after the untimely death of noted car collector John O’Quinn, culminating with messy litigation and the sub-optimal liquidation of his extensive collection.
I am going to review my insurance coverage
Most collectors use collector car policies to insure their collector cars because it’s the most economical way to go, and claims are handled more fairly. These policies are usually “agreed value” policies. That is generally a good thing, but it can bite you badly if you don’t keep the value current.
Under these policies, the agreed value is conclusively deemed to be the value of your car if a loss occurs. If the car is a total loss, or if the damage approaches or exceeds the agreed value, the insurance company writes you a check for the agreed value and they own the car. If you still have a $100,000 agreed value on your 1955 Porsche Speedster and it gets into moderate damage, the insurance company can pay you $100,000, spend another $85,000 repairing it, and then sell it for $250,000 and keep the change, and there’s nothing you can do about it. ?
JOHN DRANEAS is an attorney in Oregon. His comments are general in nature and are not intended to substitute for consultation with an attorney.