What Is a Vehicle Consignment Contract?
On a basic level, a vehicle consignment contract is a legal agreement between a consignor, the person or company who owns the vehicle they wish to sell, and a consignee, the person or company who is selling the vehicle. The goals for each party in such a transaction are both specific and straightforward. The consignor wishes to sell their vehicle for a profit without having to go through the hassle of finding a buyer. The consignee, meanwhile, acts as the sales representative for the consignor in return for a portion of the final sale price. As simple as that may sound, the actuality of consigning your car or truck to an auto dealer can be a complicated process. This is primarily because vehicle consignment contracts are more than just a written handshake. They cover a number of responsibilities for both parties which are critical to the success of the consignment sale process. For example, the contract will stipulate that the consignee assumes liability for the vehicle once the consignment process has begun. This means that if the vehicle is damaged or stolen while it is under the consignee’s care, they can be held liable for damages to your vehicle. Likewise, the contract will give both you, as the consignor, and the consignee unique rights and responsibilities regarding the presentation and final sale of the vehicle . While a vehicle consignment contract is not for everyone, it does offer significant benefits to car buyers and sellers of a number of backgrounds. For many, this process provides a solution to dealing with a non-running vehicle or one that is worth less than possible to the owner. For others, it offers an opportunity for the owner to make a profit on a used vehicle while taking the all-important ‘waiting for the right customer’ aspect of a sale off their plate. Meanwhile, the dealer who pays the consignor receives an opportunity to profit off a sale while expanding their selection without having to invest in every vehicle they sell on the floor. There are numerous other pluses outside of the visibility and sale of vehicles. For starters, when a vehicle is sold on consignment, the consignor receives the consignment payout, minus the profits of the vehicle dealer in the deal, immediately. In fact, most vehicle consignment contracts require that the consignee payout the consignor within 48 hours of the sale closing. Since the consignee operates essentially as an unpaid salesperson in this process, the quick payout provides a significant benefit to anyone who is experiencing financial difficulties. Taking all of these benefits and factors into account, it seems clear that a vehicle consignment contract is still a powerful option for vehicle owners looking to sell their car or truck without having to go through the hassle of finding a buyer on their own.
Core Components of a Vehicle Consignment Agreement
For a vehicle consignment contract to be upheld by a court of law, it must contain certain elements. The contract will typically include these clauses:
Pricing and Payment
The consignment contract must detail pricing information and payment details. The owner must specify the commission he/she collects as well as how the vehicle will be priced.
The owner and consignee must agree upon the selling price. Oftentimes, the consignee will hold the reselling rights that the owner may not otherwise possess. The contract should stipulate the cost of repairs or maintenance needed before putting the vehicle up for sale in order to present it in the best light.
Duration of Contract
The contract must indicate how long the property owner will place the vehicle for sale as well as the terms of extension. The owner can revisit the terms of the consignment agreement after its expiration. Oftentimes, it is assumed that the property will not hold the same value after it has been consigned, so both parties must agree on the resale price in the event of an extension.
Fees
A consignment agreement should specify any fees that the consignee may collect. A general commission will often range from 2.5 – 5 percent. However, many consignees charge higher rates to address the uncertainty that the vehicle may not be sold.
Termination Terms
The contract should include termination terms. If the owner decides not to sell the car, he/she should have the right to request that the consignee terminate the consignment or take action to do so.
Advantages of Vehicle Consignment
The most significant benefit of using a consignment contract is the massive amount of exposure it allows the vehicle to have. The simple fact is that nobody is going to search just for a blue 2000 Suburban LT with tan leather interior on their local Craigslist or Auto Trader. The same can be said for the seller themselves, who will likely find the process to sell their vehicle one they would rather avoid if they don’t have to in order to sell it quickly or at all. A seller who pays an agent or a dealer to handle the sale risks price gouging and is left without any true transparency, meaning they could leave thousands of dollars on the table without even knowing it.
Because consigned vehicles are sold by agents working on the behalf of the owner to avoid a purchase, they can all but guarantee that if it’s in their network of agents it will be searched for, whether it’s by specific model, make or year. Instead of just hoping someone in their immediate circle is looking for the specific vehicle, any reputable consignor should have countless connections to other dealers, agents and consumers. This, in conjunction with their unique knowledge of the dealers and agents under contract, allows them to provide the seller with an accurate valuation of their vehicle and a pricing strategy. Agents should even have an idea of what the best offer is to take should you just want to sell fast. Because the pricing strategy and the marketing effort are all done by someone familiar with the market, they will know where to place your vehicle and can remove the burdensome process of having to do so yourself. They will even handle the paperwork of the sale, ensuring that it is done correctly the first time and allowing the seller to get back to their life even faster than if they did it themselves.
Risks and Precautions
As with any sales agreement, there are certainly associated risks with vehicle consignment. Consignees take on the risk of financing a sale that may not happen if the buyer does not purchase the vehicle. The seller may also incur some level of risk. If the seller is not straightforward as to the condition of the vehicle, for instance, the consignee may not be able to obtain the sale price the seller is expecting. Additionally, the relationship may go south if the consignee is not diligent in your vehicle promotion. The seller will then have to spend more time than anticipated finding a buyer, and the seller may be less inclined to go the consignment route if they have to find a buyer on their own anyway.
The bottom line is that both parties should understand the terms of the contract inside and out. Hindsight is 20/20, but you always want to be clear from the beginning that everything is above board. The best way to do this is to study the fine print, ask questions if need be, and perhaps have an attorney present to ensure your understanding.
Creating an Effective Vehicle Consignment Agreement
Ensuring that the vehicle consignment contract is tailored to meet your specific needs is essential for successful consignment terms. Professional assistance for drafting, however, is the key to achieving properly tailored terms. One of the most error-prone aspects of vehicle consignment is the creation of a sales contract. Unless a consignment salesperson uses a very basic generic contract template, all consignment contracts should be treated as custom documents and must be created based upon the unique circumstances involved . It is extremely important for any vehicle owner to consult with a qualified legal professional when drafting or constructing a sales or consignment contract, as errors frequently do occur in the areas of telephone solicitations, dealer margin amounts, sales returns, and many other matters that can affect both the vehicle owner and the consignment salesperson. The drafting of individual vehicle consignment contracts should be conducted with the utmost care, as mistakes can happen very easily and may take considerable time to fix on a long-term level. By consulting with a qualified legal professional, it becomes feasible to create a vehicle consignment contract that best meets the needs of the vehicle owner.
Legal Requirements and Compliance
When a vehicle consignment contract is made between two parties, it is common for the terms to be negotiated to the mutual satisfaction of both parties. Prior to the parties negotiating the terms of the contract, and any agreement possibly being reached between the parties, the seller must obtain the written authority of the buyer before selling or otherwise disposing of the car. The law requires the buyer to provide the seller with the necessary written authority to sell or dispose of the car. The seller must comply with any such instructions received from the buyer.
After the parties have negotiated the terms of the vehicle consignment contract, it is crucial that the seller provides the buyer with the appropriate documentation. Ideally, this documentation, at a minimum, should include: a written vehicle consignment agreement, signed by the parties; a notice to vehicle owner advising that the vehicle will be consigned for sale; a vehicle denting report; and an odometer declaration. Some states may have other required documentation which must be provided. It is important to check with the applicable state’s legislation and regulations for further guidance.
In relation to odometer disclosure, the Federal Odometer Law, 49 U.S.C 32701, et seq., governs odometer disclosure when leasing a vehicle for a period of time greater than four months. Under the law, a motor vehicle lessor must describe the vehicle on the lease and make an odometer disclosure on the document which is signed by the lessee.
If the dealer discloses the odometer details on a federal disclosure statement that has not been completed, then the dealer should indicate that the written disclosure statement is completed in accordance with the disclosure requirements of this section.
If the dealer enters particulars of the vehicle on a federal disclosure statement or other document evidencing transfer of ownership then the dealer should retain a copy for the dealer’s files, and provide the owner with a copy of the document which is signed by the buyer.
Any person who fails to comply with odometer disclosure requirements can be subject to civil penalties up to $10,000.00 and/or a term of imprisonment of up to one year.
There are also certain laws and regulations which govern the activities of licensing vehicle consignment operators. Generally, licensing laws are intended to protect consumers and reduce fraud in the industry. For instance, licensing would reduce the risk of selling an unregistered vehicle, as a licensed dealer must have all applicable taxes and fees due paid before a title could be transferred. As a result, a dealer would not be able to capitalize upon an unsuspecting consumer in such a transaction.
Both the seller and buyer must ensure that the vehicle consignment contract complies with all applicable laws and regulations, and that the necessary documentation is provided by the seller prior to the sale. By way of example, if the seller is a licensed dealer, then he would need to ensure that the sale is in accordance with any state dealer licensing laws. It is best practice for the seller also to provide a letter in connection with the transaction to the buyer, indicating the particulars of the car and confirming the sale of the car to the buyer.
The seller should keep detailed records of all transactions and correspondence in relation to his car consignment business for at least seven years, or as required by applicable law. For instance, under current California law and regulations for vehicle consignment contracts, the seller is required to keep records for three years after the end of a vehicle consignment contract, the end of the calendar year following an assignment, or the completion of the contract for sale of the car, whichever is longest.
Common Pitfalls to Avoid
Every contract has its own set of pitfalls and so does your vehicle consignment contract. It is essential to be on the lookout for common mistakes that can turn into costly problems in the future. The important thing to remember is clear communication between both parties. Never be afraid to ask questions and seek clarity before signing a contract.
One common mistake is a misrepresentation of the vehicle’s history. For example, if you claim that a vehicle has never been in an accident and it turns out that it has, you can be liable to the consigner. To prevent this situation, make sure you do a thorough inspection of the vehicle including pulling a Carfax or requesting proof from the consigner. Additionally, if you are expecting certain parts to be included in the vehicle sale, make sure you state which parts will be included in the contract and that you understand what is and is not included in the vehicle sale. If you fail to do that, the consigner could decide not to include those parts and deny any claim to them. Never assume anything.
Another common mistake is a vague consignment agreement. This can lead to lots of confusion down the road and disputes that could have been easily avoided if a detailed commercial vehicle consignment contract was reviewed before signing. It is essential that the contract clearly states the terms of the agreement including the vehicle identification number (VIN), year, make, and model. As well as the terms of your relationship, expectations for the relationship, if there will be any fees and which party is responsible for the filing of paperwork involved in the transaction. Take the time to really review the vehicle consignment contract before signing and make sure you agree with all the terms.
It is also important that you are upfront with the consigner. For example, if you do not want to sell the vehicle personally and would like it taken to auction, make sure that is discussed beforehand. Or if you can only preview the vehicle after a certain time, make sure it is understood by the consigner that you need to preview the vehicle after a certain date.
The last common mistake is a failing to honor the consignment contract. Even if you feel that you should or should not be bound by the contract due to conditions being unmet or some other reason, you have committed to it and must honor the consignment contract. This could involve penalties for you and you could lose future business. Issues may arise due to conflicting information, or the condition may change, but you should try to get a new vehicle consignment contract created.
Vehicle Consignment Agreements FAQ
We have received many questions when it comes to the consignment contracts and the general consignment process. Here is a list of the most frequently asked questions as it pertains to vehicle consignment contracts.
Can I print my own consignment contract?
Yes. You can print your own consignment contract online. However, as with any legally binding contract, we cannot give you any advice as to the drafting of it. Make sure you are complying with the laws of the state in which you are going to be selling your vehicle.
Am I required to have a notary witness the signatures on the consignment contract?
No, as long as you are using an AAG contract, the signature of the client on the contract is sufficient.
Do I need to have the title before signing the consignment contract?
No, you can sign the consignment contract and send it in using a separate form for H-Vehicle and L-Vehicle with instructions to correctly complete the title after you receive it .
Can a client cancel the consignment contract?
No, once a client has signed the consignment contract, they cannot cancel.
Will my client be able to contact AAG about the sale of the vehicle?
Yes, however, we will be directing them to contact you to examine any concerns as the dealer.
How do you know the car is really mine?
We follow strict procedures for the auctioning of vehicles. If there is any discrepancy we can usually sort it out quickly once we are contacted and a resolution is in the client file.
What if I’m not selling my vehicle right away?
If you have signed a contract to sell your vehicle but you don’t want to sell now, simply click the "place my account on hold" button and you won’t be charged until you are ready to begin the auction process.
Should I leave my keys?
Yes, you will get your key back after the vehicle sells.