How It works: The Inside Story About Buying a Salvaged Car
Buying a car that has been rebuilt usually from an accident is a salvaged car. The title issued to the owner indicates this as either, salvaged, rebuilt or repaired. There some states that do not indicated this on the new title. Some states, after the car is rebuilt or repaired and inspected simply reissue a new "clean" title. It is a clean title that insures a buyer that the car has not been in a serious collision.
Salvaged cars occur when 60-75% of the repair costs make the car impracticable to repair and resell at normal value. The insurance company settles with the owner and takes title to the car. It then tries to recoup some of its losses by reselling it in its damaged format at auto auctions. People or auto repair businesses can by them and then repair them to like new. These cars usually sell for between $10-13,000. A salvaged car loses 40-50% of its normal value.
So, for example, a 2006 Subaru Outback (65,000 miles) with side panel damage, headlight damage, some front end bumper damage will sell at an auction for around $3000. The same car sold with clean title might sell for $16,500. A person might then spend another $2000+ for parts to repair it, repaint those parts. Now the salvaged car looks near new and runs just fine. The same car will now be sold with the salvaged title for usually not less than $10,000, but not more than $13,500. So the profit is maybe $4-6,000, depending on actual repair costs.
There a lot of variables but the general idea is provided. If buying a salvaged car, just inspect it carefully for any frame, wheel damage. Drive the car. There are many great buys and cars in this condition. A wreck does not always mean the car was totalled beyond repair. Those cars would never pass inspection.
I owned a Fiero that was salvaged, it had been in a wreck, looked rather nasty, but it was all body. The engine and frame were fine. Once rebuilt, no one would ever know until you went to sell it.
That is the downside. Selling a salvaged titled car is a like selling a body with the plague. It is a deterrent no matter how well it looks or runs. So, using the example above, the 2006 salvaged Subie on resell after a few more years went by, would be less than the same car with a clean title by at least 25%. Of course, if you do not plan to resell it, the car may be just fine.
Of course, even selling a salvaged car that is in very good condition would limit monetary loss. Also, the cars that sell for $30,000 new, suffer the same loss ratio as soon as the title reads salvaged. A subaru Tribeca would sell for $14,000-15,000 in this state, depending on the year.