How to Obtain a Car Auction License in Texas

What Type of License is Required?

In Texas, there is no dedicated auto auction license. Auctioneering is treated the same way as any other form of sales activity from a dealer licensing standpoint.

Independent dealer�s licenses issued in Texas are referred to as GDN licenses. If you plan to auction used vehicles to wholesale dealers, you will need an Independent Wholesaler Dealer�s GDN license. If you will be selling to the public, you will need an Independent Motor Vehicle Dealer�s GDN License.

Is There a Bonding Requirement?

In either case, you will need to purchase a two-year surety bond in the amount of $25,000, but it is not specifically referred to as an auto auction bond.

Auto dealer bonds of any sort provide protection for the state and for consumers against financial loss stemming from the unlawful or unethical actions of a licensed motor vehicle dealer. Surety bonds play an important role in maintaining a fair and orderly motor vehicle marketplace. In purchasing a surety bond, a dealer is pledging to conduct business in accordance with all applicable laws and industry standards.

How Do They Work?

All surety bond agreements are legally binding contracts that involve three parties. In the case of a bond that will enable you to auction motor vehicles in Texas:

• The obligee, the party that requires the bond, is the Texas Department of Transportation.
• The principal, the party that must purchase the bond, is the dealer.
• The surety is the company that underwrites and issues the bond.

If an auto auctioneer violates the terms of the bond�for example, by mishandling customers� funds, misrepresenting a vehicle, or failing to transmit sales tax payments to the state�consumers who suffer a financial loss can file a claim against the bond.

When a claim is filed by an injured party, the surety will first investigate to make sure that the claim is valid. Most often, the surety will pay valid claims in advance, on behalf of the principal, to give the principal a little breathing room to liquidate assets if necessary and gather the necessary funds to cover the claim. The principal must then reimburse the surety, who is indemnified by a clause in the surety bond contract, which makes the principal solely responsible for the cost of claims against the bond.

Understanding How Surety Bonds Work for Auction Licenses in Texas

The Texas Department of Transportation, as the bond�s obligee, has established the required bond amount as $25,000. This covers the principal for the two-year period before the license must be renewed. The premium the principal will pay for the bond, however, is a small percentage of that amount. The surety will set a premium rate for each bond applicant based primarily on the applicant�s personal credit score.

Bond applicants with good credit will usually pay a premium rate that is between 1% and 3% of the bond amount. However, because of the greater risk the surety is assuming, applicants with poor credit may pay a higher premium rate.

Get The Bond You Need

At Single Source Insurance, our experienced surety bond professionals will get you the best possible deal on the bond you need to begin auctioning vehicles in Texas.