Selling and buying property at auction is an increasingly popular way of disposing of or acquiring property. Auctions usually result in a speedy transaction avoiding the lengthy conventional buying process. At the fall of the hammer, contracts are exchanged and the parties are bound to complete the sale and purchase, usually 28 days after the auction.
Types of property that go under the hammer include:
• unusual or run down properties
• properties on which a lender may not lend, e.g. freehold flats or leasehold houses
• properties with tricky titles, e.g. lack of essential easements such as access
• land for development
• tenanted properties
Before considering selling or buying property at auction, you should understand what you are getting into and the potential hazards.
Tips for Selling at Auction
1. The Auctioneer
A. Talk to a local auctioneer to discuss whether your property is suitable for auction.
B. Arrange a couple of valuations by selling agents and agree the reserve price with the auctioneer. The reserve is the lowest amount that the bidding must reach before the auctioneer can sell although the auctioneer usually has some discretion if the bidding comes close to meeting the reserve.
C. Discuss the marketing of your property, the procedure if the property does not reach its reserve price and how the auctioneer will deal with unsold properties.
2. Your Lawyer
A. Engage a lawyer as soon as you decide to sell a property by auction. Your lawyer will provide a fee estimate, obtain and review the title and resolve issues such as redundant notices or restrictions which might deter a prospective purchaser.
B. If the property is tenanted, your lawyer will contact you or your managing agent to obtain a copy of the tenancy agreement and rent and service charge payment schedules.
C. Your lawyer will prepare the legal pack for submission to the auctioneer prior to the auction. It will contain the title, Special Conditions of Sale, any planning permissions and searches (usually only a local authority search). A clause can be included in the Special Conditions allowing you to recover the cost of the searches and a contribution towards your legal costs.
D. A potential buyer may contact your lawyer and raise further queries on the legal pack and with your help (if needed) your lawyer will reply to any written pre-auction enquiries.
E. If you are an investor selling some or all of your portfolio, you should take tax advice in relation to capital gains and other taxes before considering any sale.
F. If the property sells at the auction your lawyer will deal with completing the sale, redeeming any mortgages or charges and sending you the sale proceeds.
3. The Auction and Beyond
A. You do not need to attend the auction. Once the gavel is struck, this signifies a binding contract. The auctioneer will sign and exchange the memorandum of sale (the auction contract) and take the 10% deposit from the buyer.
B. Let your lawyer know that you have sold the property so that they can deal with the legal formalities to transfer the property to the successful bidder.
C. Completion usually takes place 28 days after the auction date.
Tips for Buying at Auction
4. Before the Auction
A. Obtain a copy of the auction catalogue or view it online. The auctioneer’s official website will contain the most accurate and up to date information.
B. Before you decide to bid on a property, do your research. The maxim for any property transaction is “Buyer beware!” There is no protection under the Consumer Contracts Regulations, and you will not get a refund if you are not happy with the property once you have bought it.
C. It is up to you to satisfy yourself that the property is right for you, so a visual inspection is very important. Auction properties usually have open viewings and you should attend one of these.
D. Seek professional advice from a surveyor to confirm that the building/property is sound or to highlight any adverse issues that may change your mind about bidding.
E. Engage a lawyer to review and report to you on the title and the legal pack so that you are fully aware of any missing rights, third party rights, covenants or other issues that may deter you from bidding or a lender from lending.
F. Occasionally properties sold by auction are not mortgagable. If you need finance, it is imperative to establish before bidding on a property whether or not you can get a mortgage. Speak with your lender or a mortgage broker as early as possible. If you are successful at the auction, without funding you may not be able to complete on the agreed completion date, causing you to lose both your deposit and the property.
G. The catalogue will list a “guide price”. This is not the sale price, it is what the auction house hopes to achieve and the reserve price will be within the range of the guide price. Often, popular properties sell at well over the guide price.
5. Preparing for the Auction
A. If you are not able to attend the auction but wish to bid, speak with the auctioneer about:
• proxy, internet or telephone bidding
• signing the memorandum of sale on your behalf
• payment of the 10% deposit if you are successful
• providing proof of your identity to the auctioneer
B. Work out the maximum you are prepared to pay for the property and stick to it. It is easy to get carried away in the auction room.
C. Check with the auctioneer the methods of payment they will accept for payment of the deposit and ensure that you have enough funds in your account.
D. Check that the property on which you wish to bid has not been sold or withdrawn prior to the auction. Also check whether the guide price or any other information has changed. Guide prices may increase if there is a lot of interest in a particular property.
A. On the day of the auction, arrive early to allow time to register as a bidder. The auction house will want proof of identity from you and proof that you are able to pay the 10% deposit, such as a bank statement.
B. Listen carefully to announcements made at the auction – there may be last minute changes to the Special Conditions, the title details or other information which dissuade you from bidding.
C. If your bid is successful, the clerks at the auction will ask you for the name of the buyer. If you are buying with someone else, it is vital that both names are given or, if you are buying on behalf of a company, that the correct company name is given. The property will be transferred to the person(s) or the company written on the memorandum. The Special Conditions usually state that the Seller will only sell to the Buyer named on the memorandum and that the contract may not be transferred to anyone else.
D. You will be required to sign the memorandum, pay the 10% deposit and any fees the auction house charges buyers.
E. You should provide the name of the law firm and the lawyer who will be acting for you.
F. The property is at your risk unless the Special Conditions state otherwise so you must insure the property in your name from the auction date.
G. Contact your lawyer to let them know you have been successful so that they can complete the legal formalities and mortgage formalities (if any) within the 28 day time frame.
The information on this site about legal matters is provided as a general guide only. Although we try to ensure that all of the information on this site is accurate and up to date, this cannot be guaranteed. The information on this site should not be relied upon or construed as constituting legal advice and Howes Percival LLP disclaims liability in relation to its use. You should seek appropriate legal advice before taking or refraining from taking any action.