In this blog we discuss the advantages and disadvantages of selling your property at auction.
Buying at Auction
Because of their speed, simplicity and advantages to both purchaser and vendor, auctions are fast becoming a popular way in which to buy and sell residential property.
The fall of the auctioneer's hammer (or gavel) is equivalent to exchange of contracts in the standard sale by private treaty, so the purchaser cannot be gazumped, while the vendor need not fear last-minute price renegotiations. There is no potential for delays or uncertainties, and neither side has any opportunity for changes of heart.
You can find information in the local and national press, or online.
**The auction process
A sale by auction differs fundamentally from a sale by private treaty. At the instant the property is ‘knocked down' to a bidder, contracts are exchanged. Before the auction, therefore, prospective purchasers should take all the steps that are normally taken between having an offer accepted and exchange of contracts, such as making preliminary legal enquiries, commissioning a survey, and arranging funding.
Particulars of sale are usually distributed several weeks before the auction. They consist of a brochure containing full details of the property, including:
• photographs facts about tenure, possession, fixtures and fittings, rateable value, etc the conditions of sale a Memorandum of Agreement (the equivalent of a contract for sale by private treaty - except that there is no scope for negotiating its terms) a guide price
• details of viewing arrangements
The particulars of sale may include the proviso ‘unless previously sold'. In this case, the vendor's agent is willing to negotiate a sale by private treaty before the auction. To tempt the vendor, an offer would probably have to be generous. You might, in addition, have a very short time in which to make legal enquiries and organise your finances. Nevertheless, it may be wise to move quickly if your heart is set on the property; you could lose out by waiting until auction day.
Once you have found a property that interests you, here's what you'll need to do.
Before the auction
Study the property particulars minutely; there may be unacceptable conditions or disclaimers. Look for references to planning restrictions or refusals, and ensure these would not prejudice any alterations or improvements you would want to make.
View the property.
Research the neighbourhood, if you don't already know it. Talk to neighbours and estate agents if you can.
Send the property details to your solicitor or licensed conveyancer, and arrange for him to carry out the necessary enquiries and searches.
Arrange a survey and a valuation.
Set your budget, and arrange the necessary finance. You'll need to be able to produce a deposit of 10 per cent (or the amount stipulated in the conditions of sale) on auction day, and the remaining 90 per cent within 28 days thereafter. A lender will insist on inspecting and valuing the property in the usual way before agreeing a mortgage, so allow time for this.
If you would want to make improvements to the property, obtain estimates at this stage, so that you can include the costs in your calculations.
- Attend an auction if you haven't done so before, to familiarise yourself with the procedures.
You are now ready to bid ...
**During the auction
Have with you two forms of identification, your chequebook and your bank details.
Don't exceed your price limit. It's easy to get carried away in the excitement of bidding, so if you doubt your willpower, appoint a proxy to act on your behalf - your solicitor or licensed conveyancer, for instance.
Bid clearly, by nodding (or shaking) your head, or raising your hand. Barely discernible movements are likely to go unnoticed - whatever the movies, where millions of pounds are inadvertently pledged by someone with a nervous twitch, would have us believe.
As bidding continues, the auctioneer will indicate what further increments he will accept. He may refuse a bid, and is not obliged to explain why. In any dispute, his decision is final.
In the majority of cases, the property will be sold subject to a reserve price. This figure is not usually disclosed, but the guide price should give an indication. If the bidding does not reach the reserve, the auctioneer will withdraw the property.
**After the auction
If you are outbid, you lose not only the property but also the money you have spent on the survey, legal fees, and so on, just as you do when exchange of contracts fails to take place in a transaction by private treaty.
If the property for which you were bidding is withdrawn, it is worth informing the agent of the figure at which you are prepared to buy; the vendor may be willing to consider your offer.
If your bid is successful, you must pay the deposit to the auctioneer there and then. As confirmation of the sale and acknowledgement of receipt of the deposit, the vendor's agent will countersign the Memorandum of Agreement.
The remainder of the transaction follows the same pattern as a sale by private treaty. Completion generally takes place 28 days after the auction, with the balance of the purchase price being paid at that point. Penalties for failure to complete are severe.
**Bear in mind
Always seek professional advice before deciding to bid at auction, and remember that, once the gavel falls, you are legally obliged to go through with the purchase, at the price you have agreed.
With thanks to BuyAssociation.