What a salvage or rebuilt title actually means for resale value

Two words on a vehicle's title, 'salvage' and 'rebuilt', can kill a deal faster than anything else. When Buyers see those two words, they start mentally calculating how much they need to knock off the asking price. Or, if they are really concerned, they may decide to pass altogether. On the other hand, Sellers believe that they are getting a raw deal for a vehicle that could potentially still operate safely.

Each side has a valid point and knowing exactly what the terms mean and how much they will reduce resale value can help keep you from paying too much or selling too little.

What exactly does "salvage title" mean?

A salvage title is given to a vehicle when an insurance company determines that a vehicle is a complete loss. Most commonly, this occurs when the amount spent on repairing the vehicle exceeds a certain percent of the vehicle's pre-loss market value. The percent is usually around 60% to 100%, but does vary by each state. Here is where many people misunderstand; receiving a salvage title does not necessarily mean that the vehicle experienced a catastrophic accident. There are many types of events that lead to a salvage title including:

Flooding (minor flooding could cause electrical system problems or damage to the interior)

Theft recovery (a vehicle is stolen and then later recovered and insured)

Hail damage (could result in a vehicle totaling simply based upon cosmetic repair costs without any structural or mechanical issues)

Fire damage (the extent of Fire damage ranges from small damage to the engine compartment to more severe damage)

Collisions (this is likely the event that most people would assume)

Following receipt of a salvage title, a vehicle is generally unable to be lawfully operated on public roads or register to be used on public roads. Regardless of its physical condition, the vehicle is essentially viewed as non-operational by regulatory bodies.

What does "rebuilt title" mean?

When an owner purchases a salvage titled vehicle and completes the necessary repairs, so that it passes the mandatory state inspection to ensure that it operates within safety guidelines, it receives a rebuilt title (also referred to as "reconstructed"). There is a crucial difference here. A rebuilt title represents evidence that an individual invested in making the required repairs, and that an authorized state inspector confirmed that the vehicle satisfies minimum safety requirements. While this is important, the level of quality of the repairs greatly varies. A rebuilt title shows us that an inspection took place. It does not inform us of whether the repairer utilized original equipment manufacturer (OEM) replacement parts, properly aligned frames and welded properly, or compromised in order to minimize the repair expenses as much as possible to allow the vehicle to operate on public roads once again.

The actual effects on resale value

Industry data and appraisal guides consistently demonstrate that having a salvage or rebuilt title results in approximately 20% to 40% less resale value than having a comparable vehicle with a clean title. However, there are numerous variables that determine the size of this reduction in resale value.

one variable is the nature of the damages suffered. Vehicles damaged from minor Flood damage (i.e., cosmetic only) or hail will generally retain significantly more of its retail value than vehicles damaged structurally. Buyers (and appraisers) treat these vehicles substantially different although both technically possess the same "salvage" designation.

Another equally important factor is the quality of the rebuild. A rebuilt vehicle, done by professionals and supported with documentation regarding parts used, receipts, and a detailed inspection report, can reasonably expect to generate far greater resale value than a rebuilt vehicle that possesses limited information regarding the repairs made and/or lacks supporting documentation.

There are additional indirect effects to consider regarding financing and insurance availability. For example, many lenders choose not to provide financing for vehicles bearing a rebuilt title at all; while others may require financing at a premium interest rate. Insurance companies also create challenges with comprehensive and Collision coverage. Some insurers limit their coverage options or cap the maximum payout for brands-title vehicles. These limitations severely diminishes your potential buyer pool and limits your ability to achieve a realistic sale price.

Regional demand levels for vehicles with rebuilt titles can also impact how large the discount in resale value is. Vehicles with rebuilt titles tend to retain less of their retail value in markets populated with affluent consumers and fewer options for clean-title vehicles. Conversely, in markets populated by budget-conscience Buyers and/ or mechanics who personally rebuild cars, there tends to be less of a negative perception of vehicles bearing a rebuilt title.

Why Buyers need to look past just pricing

While purchasing a rebuilt-title vehicle simply because it is priced cheaper can make sense as long as you understand what you are getting yourself into.

Prior to purchasing:

Obtain any documentation related to repairs completed on the vehicle and any associated receipts. Any reputable rebuild should provide documentation detailing what components were replaced and by whom.

Conduct an independent examination of the vehicle by a certified mechanic separate from the inspections performed during the process of obtaining a rebuilt-title. A qualified mechanic can identify issues that may be overlooked by the standard inspections.

Verify that VIN numbers are consistent throughout all areas where vins are stamped onto the vehicle. Unfortunately, salvage vehicles are targeted by dishonest individuals attempting to alter VIN numbers.

Understand your financing and insurance options prior to committing to purchase. Since learning after-the-fact that your preferred financier refuses to lend money on rebuilt-title vehicles can prevent you from completing your purchase, you need to find out up-front what options are available.

Determine your initial offer price based on the reduced resale value of rebuilt-title vehicles. If you realize that this particular vehicle will likely sell for 20-40% less than an equivalent model with a clean title down the line, you should take that consideration into account with your offer price.

Why Sellers must be reasonably priced

Sellers of rebuilt-title vehicles should set accurate prices from day one instead of basing prices on comparable clean-title models and then praying that no one discovers that there is branding on the vehicle.

Useful actions include:

Have a professional evaluation conducted that takes into account the title status of the vehicle rather than using generic market-value assessment tools that assume the vehicle has a clear title.

Collect documentation related to repairs completed on the vehicle prior to posting it for sale. Buyers react more positively towards transparent documentation than opaque documentation. Documentation can assist in narrowing the estimated value loss resulting from having a rebuilt-title.

Clearly list that there is branding on the vehicle in your advertisement. Attempting to hide it or downplaying it typically has negative consequences either through scaring off genuine Buyers who feel deceived or by generating low-ball offers from Buyers assuming the worst-case scenario.

In addition to setting accurate prices for rebuilt-title vehicles, Sellers should also consider which group of Buyers they want to appeal to. Rebuilt-title vehicles tend to perform best in markets geared toward budget-Buyers or mechanically-inclined consumers who prioritize functionality over history of ownership.