By James Mitchell

SOLICITOR

 

Property auctions are not just a means of selling properties that are derelict or difficult to sell by private treaty. In fact, certain types of property are commonly bought and sold at auction.

There are many reasons for this, including:

• Speed

There is a relatively short period (usually 3 or 4 weeks) between the publication of the auction catalogue and legal pack by the auctioneer and the auction itself. If a property is sold at auction, the completion date is set on the fall of the auctioneer’s hammer, making auction sales quicker than most sales by private treaty.

• Certainty

A successful bid cannot be gazumped and neither party can withdraw without penalty, so there is certainty for both buyer and seller as soon as the hammer falls. This also means that a successful bidder who later regrets their actions cannot back out…

• Transparency

Bidding at auction is a completely transparent process – each bidder knows how many other people are interested in a property and how much they are offering.

• Simplicity

Anyone armed with their ID, the means to make the payments required if they are successful and their solicitor’s details can bid at an auction.

• Variety

Auctions attract a wide variety of different types of property. It is also possible to bid in a variety of different ways.

However, there are potential pitfalls to buying property at auction. Preparation is key to minimising the risks.

Due diligence

Prospective bidders have a limited amount of time in which to carry out their due diligence.

The target property should be inspected (and, if appropriate, surveyed by a qualified surveyor) as soon as possible to check for structural defects, and a solicitor should be instructed to report on the legal pack prepared by the seller’s solicitor.

The legal pack should contain the same information as the seller would have to provide if selling by private treaty as well as the searches that a buyer would usually undertake. The solicitor will identify any title defects or missing information and, if appropriate, raise enquiries with the seller’s solicitor.

A prospective bidder may be reluctant to incur the speculative costs of instructing a surveyor and a solicitor. However, we would always advise taking professional advice as there can be hidden issues with any property.

Valuation and tactics

A prospective bidder should decide the maximum amount they are willing and able to bid for a lot and stick to that budget. Auction rooms can be emotional environments, and bidders can be carried away with the excitement of the event or feel the need to compete.

Remember that the guide price stated in the auction catalogue is an indication of the seller’s lowest expectation, not an estimate of the sale price.

Costs and funding

A buyer will always have to pay a deposit (usually 10% of the purchase price), the auctioneer’s fee (which will be stated in the auction catalogue), the balance of the purchase price (on the completion date) and their own solicitor’s and surveyor’s fees. The deposit and the auctioneer’s fee will need to be paid before the buyer leaves the auction room.

A prospective bidder should know how they are going to fund the purchase before bidding. If this is to be with the aid of a mortgage, the mortgage offer and documentation ideally need to have been received before the auction.

In addition, the buyer will usually be required to pay the cost of any searches included in the legal pack and the seller’s solicitor’s fees.

Selling property at auction

There are fewer potential pitfalls for people selling property at auction, the biggest of which are the wasted expense and inconvenience if the property does not sell and the risk of a claim for misrepresentation being made against the seller. These risks can be mitigated by the seller disclosing all of the information they have relating to the property in the legal pack. Once again, preparation is key.

The seller will have to pay a further auctioneer’s fee and, if the property fails to sell, their own solicitor’s fees and the cost of any searches included in the legal pack.

If you are considering selling or buying property at auction and need advice about the preparation or contents of a legal pack, please contact Chub