Recently, SCMer Bruce Cochran wrote me with an interesting suggestion:
“I thought this particular listing for a Ferrari F12 might be of possible interest for a future dissertation. Without knowing anything about ‘salvage titles,’ my first instinct has always been to run in the other direction. My assumption has always been that these cars have suffered significant harm and there were bound to be issues that you could never fully unravel to make a purchase worthwhile. This particular listing caught my eye with a story that seems credible, and yet even if the car in question is solid, I assume it will always have a cloud hanging over it just by nature of the title status. I assume there is no way to properly and legally cleanse the ‘salvage’ designation from a vehicle title if the damage in question has been addressed?”
The backstory
Cochran provided a link to an online auction where the ask on our subject 2014 Ferrari F12 was $165,900 and carried this explanation from the seller:
“I’ve owned this car since 2015, when I purchased it with under 2k miles. The car was involved in a minor accident that should never have resulted in the car being salvaged. However, the first owner was an attorney and was able to convince the insurance company to salvage the car and pay it off in full. The damage was all superficial, with no frame, suspension or critical-components damage. Only the front bumper, splitter, undertray, wheel, support for the fender and the functional brake-duct motor were damaged. All were repaired/replaced to new. The car has been flawless since I’ve owned it. It now has 6,800 miles on it and has never had an issue.”
It might have been the seller’s suggestion that lawyers have some sort of superhuman powers over insurance companies that piqued my interest. So, “Legal Files” asks, would you buy this car? At what price?
What’s behind branding?
The legal requirement that titles be “branded,” or shown as salvaged, is a consumer protection policy — and a good one at that. Absent such a requirement, the unscrupulous could easily buy heavily damaged cars that were declared totaled by the insurance company, slap them back together with shoddy or incomplete repairs, and then sell them without disclosure to the unwary at values comparable to undamaged cars. Serious safety and reliability issues are possible, and it makes sense for the public to be protected. While a salvage title is appropriate for a flood-damaged car, for example, does it really apply to a lightly hit Ferrari?
When the question involves how insurance works, my best source is McKeel Hagerty, CEO of the classic-car insurance provider that bears his name. As with many aspects of auto insurance, the answer is often controlled by state law.
Hagerty explains, “We will look to total a vehicle when the damages are 75%–80% of the guaranteed value. It varies by state auto-salvage branding laws. For example, Florida requires 80%, and California, 75%. Most states put the burden of compliance on an insurer paying the loss. We are required to handle the title processing and show the damages relative to value.”
Whether the insurance company has much leeway “depends on the state and age of the vehicle,” says Hagerty. “If the vehicle fits the state guidelines for a salvage title, we, as the insurer, are required to send the title to the state and complete the paperwork for the branded title. However, many older vehicles do not meet the state requirements for salvage branding.
“For example,” Hagerty continues, “Michigan only requires branded titles for vehicles that are current model year, plus five. Any vehicle older requires no title branding. Florida, on the other hand, requires all vehicles with 80% damage to value to be branded and puts the burden on the insurer. Michigan is the least restrictive at six years and Florida the most restrictive. Many require no branding at all for vehicles 15 years or older.”
Unnecessary roughness
According to the seller, this Ferrari certainly didn’t have damage approaching any of those percentages. How did it end up getting totaled?
Whether the insurer will total the car is a complicated question. Hagerty explains that many factors play a role in the decision. In some cases, the customer wants them to total the car. If the damage is not all that extensive and the car has a high salvage value, the insurer may accommodate the customer.
But here’s the rub: The insurance company is not required to brand the title every time they buy the car. When the damage is below the legal branding requirements, the insurance company can repair the car and sell it without branding the title. Given that, if the seller’s story about the F12 is true, why did the insurer brand the title? These guys usually aren’t dumb about this stuff.
Is insurance ensured?
So let’s say you take the plunge and buy this F12. Will you be able to insure it? Hagerty says they are open to insuring the car, but that all the facts and circumstances have to be carefully considered to determine what value they will agree to place on it.
SCMers know that buying cars is the easy part; selling them is tougher. How are you going to fare when you try to sell a car with a salvage title?
First off, you’re going to have to discount the sales price of the car to sell it. How much is typical? Dave Kinney, an independent auto appraiser and publisher of the Hagerty Price Guide, says, “Many like to say 30%, but that’s not really accurate. I’ve seen 50%. It really depends upon the extent of damage, whether or not it was structural, and the reasons for the salvage title. If it was a flood, then forget about it. If it was just a bumper cover, then that’s different.”
That aligns with what we know about diminished value, which is always present with a salvage-title car. But, Kinney adds, “A salvage title is the ultimate in diminished value. It totally eliminates some buyers, who won’t touch the car with a 10-foot pole.”
States retitle differently
Kinney speaks professionally, but also from experience. He once bought a salvaged car and had a difficult time getting it titled. His home state, Virginia, is one which just refuses to title salvaged cars. Some will title the car if it passes an inspection, while others require a clean condition report. Various states will issue a title while maintaining the salvage brand.
There is no consistency, and it’s a 50-state patchwork. The key is to check with your state DMV, preferably before you buy the car.
What about the F12?
So, is this F12 worth buying? Kinney says the high end of the market for a 2014 Ferrari F12 is probably about $215,000. A $165,900 ask is a 23% discount, so we are at least on the right track.
The seller stresses that he bought the car in 2015 when it had under 2,000 miles. It now has 6,800 trouble-free miles. That is smart to point out, as diminished value tends to shrink with time and miles, as the uncertainties surrounding the repair evaporate. If you are going to keep a car for a long time, a car with “stories” can be a good bargain.
In the end, it all boils down to the actual reasons for the salvage title. The seller shows photos of the damage, which seems to be minor at the car’s lower front end. But that just makes you wonder more about why it was branded as salvage to begin with.
If you are trying to sell your salvage-titled car, you want to be able to prove, not just explain, why the car has that salvage title to begin with. That requires documentation. Photos are good, but you should also have repair estimates and invoices, a letter from the insurance company explaining why the car was declared a total loss, and anything else that may be helpful. Photos alone won’t cut it, as cars are capable of being wrecked more than once.
So, do we buy the F12? Thinking about all these questions clearly illustrates why the discount has to be substantial enough to get the buyer to overlook the issues.
Personally, I don’t think the $165,900 ask is low enough to make me forget the problems, though it may be a good place from which to start your negotiations. ♦
John Draneas is an attorney in Oregon and has been SCM’s “Legal Files” columnist since 2003. He can be reached through www.draneaslaw.com. His comments are general in nature and are not intended to substitute for consultation with an attorney.