Auctions are an increasingly popular way of buying and selling property. There are many advantages, but it is not without risk. All parties must be well prepared and have carried out the necessary research prior to listing or bidding on a property.
Advantages of Buying at Auction
- You might find a great deal – there is usually a wide range of properties on offer at auction, from residential properties to commercial and industrial development sites and investment properties.
- Certainty and speed – unlike the traditional buying process, properties bought at an auction can be completed much quicker. Ultimately, if you are the highest bidder when the hammer falls, you have exchanged contracts and have legally purchased the property. The sale's completion date is normally four weeks after the date of the auction or sooner if the parties agree.
Disadvantages of Buying at Auction
- Less time for surveyors and solicitors - there is a relatively short window to arrange surveys and check the legal pack of the properties you are interested in. Since the completion date is set on the day of the auction, you need to be sure that you have your finances in place and that you are ready to proceed within the agreed timetable.
- You may be outbid - if someone bids higher than your budget, you will lose the money you have already invested in the property to get any surveys carried out or the cost of solicitor's fees for due diligence.
Advantages of Selling at Auction
- Speed - the entire process can be relatively quick and should be completed within a set timetable.
- Competitive bidding - if more than one person is interested in the property, the initial reserve price can far exceed your expectations – a 'bidding war' can push up the price substantially.
Disadvantages of Selling at Auction
- The risk of not selling - although you will have a fixed date for when your property will be 'sold' at auction, there is no guarantee you will find a buyer on that date. You should ensure that the auctioneer has properly advised the property in advance of the auction date.
- What the sale price is - while you can set the minimum price that you will accept as your reserve at an auction, you can never be sure how much over the reserve price your property will fetch.
Buying a Property at Auction
Before the auction, make sure you visit the property and thoroughly inspect it and its surrounding area. A survey should identify any physical defects in the property and may warn of potential issues. Once you have exchanged contracts, you will not be entitled to any compensation from the seller if you have to put right any defects. Consider taking along a surveyor or a builder for advice and seeking a local estate agent's advice to determine the property's value on the open market. A surveyor can also advise on the property's rental value and what the property can be used for. If the property is being sold with the benefit of tenant's in occupation, an inspection will reveal if the tenants are genuine and are actually in occupation.
You should request from the auctioneers the legal pack for the property. This pack contains the special conditions of sale, title documents, leases (if applicable) and any other pertinent documents relating to the property. We would recommend you instruct a solicitor to review the legal pack and alert you to any title deficiencies, such as financial charges on the property and undocumented occupiers. The legal pack will also reveal if the property is being sold by a mortgage that has taken possession of the property and appointed an insolvency practitioner (who will have little or no knowledge of the property) to sell the property as soon as possible to recover any outstanding debt. All these things could affect the resale of and ability to finance the property in the future.
When the auction day comes around, you will need to ensure that you have registered with the auctioneer and have your identification documents ready. If you require a mortgage to complete the purchase, then it is important that you have a mortgage offer in principle before you bid. If you wait until after the auction date to secure a mortgage offer, not only will you have a limited amount of time to get this arranged before the completion date, but there are any number of issues that may come to the fore and make it difficult (or even impossible) to get a mortgage on the property.
If you are successful in your bid for the property, you are contractually obliged to honour the purchase. At this point, you will pay the deposit (usually 10%) and the auctioneer's administration fees, with the remainder of the cost due when the purchase is completed. You may also be required to reimburse the cost of the property searches and the seller's legal fees on completion.
Selling a Property at Auction
If you are selling a property at auction, the most important part of the process is preparing your legal pack. The more comprehensive the legal pack, the more likely it is that the property will receive interest at auction. A lack of information will often put off a buyer altogether or complicate the completion process.
We would recommend you instruct a solicitor well in advance of the auction date to examine the legal title and deal with any anomalies that may deter a potential buyer. For example, there may be a restriction, notice or charge secured against the property title that needs to be satisfied or removed before any disposition or an error or defect on the legal title or plan that needs to be rectified. The solicitor will also prepare the legal pack, including carrying out a set of conveyancing searches in relation to the property and providing answers to enquiries raised by a buyer's solicitor.
After the auction, the auctioneers will send the signed memorandum of sale to the seller's solicitor, who should contact the buyer's solicitor and confirm the completion date. If the auctioneers hold a deposit, the auctioneers will contact the seller's solicitor to release the deposit to them. Most auctioneers will deduct their fees from the deposit before sending the balance.
Here to Help
If you have any more questions regarding buying or selling at auction or if you would like further information on how we can help, you can contact our Commercial Property Team on 0161 941 4000 or email The Commercial Property Team.