To Auction or not to Auction?
There are many advantages to selling or buying at auction, though you must equally be aware of the pitfalls. Auction guide prices can be misleading as these are set to entice the bidder. However, you need to bear in mind the actual reserve will generally be 10% above the auction guide price.
Clearly when bidding at auction you need to have come prepared knowing how far your finances will stretch thus setting a budget is pivotal to having a successful auction bid, do not be tempted to over- bid. Often eager bidders will jump in early-on in the bidding process, which actually means they are increasing the price often against themselves. Tactically, it is much better to wait until you feel all bids, in the room and on the internet/phone, have been put in before making a last minute bid – but only if the price is right for you, this tactic does not guarantee you will be successful but stands a much better chance of getting the property within your budget.
There are two main types of auctions:-
These are the most common type of auction, once you have placed a bid, and the gavel has gone down, you have exchanged contracts making the 10% deposit payable and fixing the completion date, usually 28 days from the date of the auction. If for any reason you later decide not proceed to completion, you will be in breach of contract, and will lose the deposit and potentially open yourself up to being sued for any of the seller’s directly attributable losses. There can be many reasons for withdrawing, it could be you do not have sufficient funds in place in time for completion or perhaps you have not taken early legal advice prior to the auction and have missed vital characteristics about the property which impact its value. We would always advise it is sensible to instruct a reputable solicitor experienced in dealing with auctions to check the auction legal pack and that you should get your finances in-line prior to going to the auction.
Modern Auctions/Online Auctions
These auctions are becoming more common as they are convenient and there is less risk of out bidding yourself or failing to get vital legal advice. The Property is advertised for sale with a legal pack containing all of the important legal paperwork, you bid usually online for the Property, and if successful you would pay a non refundable reservation fee. These fees can be substantial and are usually around 1% of the purchase price. This type of auction gives the buyer more time to complete as following the auction you will have 28 days to exchange contracts (when the sale becomes legally binding), and
usually a further 28 days until completion. If following the auction you decide to withdraw before the contracts are exchanged, you will lose your reservation fee but will not be held liable for a breach of contract and therefore will not be liable for any other losses incurred by the Seller.
Similarly, in this case it is prudent to retain a lawyer to review the legal pack prior to departing with any money even if it is the reservation fee as opposed to the full 10% deposit. A review of the pack will tell you if there are any adverse issues which could impact your future development plans for the Property or even its value.
Not all properties but some are specifically placed at auction due to the fact that there are restrictions on the title; for example agricultural occupancy only. An overage restriction could be placed on the title whereby if you were successful in obtaining planning permission to develop any part of the land a high percentage of the increase in value could be payable to the seller. There are many elements in the legal title which could affect how you can use the land and it is therefore important to ensure you have the right legal advice before bidding and securing a property or a piece of land.
Selling at Auction
If you are looking to sell at auction you will usually be required to submit a legal pack prior to the auction. This will include documents such as the legal title and the contract; some sellers will also include searches. If you sell at auction and wish to include searches it is important the contract is amended to include a provision to claim a reimbursement of the cost of the searches from the purchaser, without such a provision these costs cannot be reimbursed. We are experienced in preparing auction legal packs and will be happy to provide you with a quotation for undertaking such work. We have long-running established relationships with many auctioneers and thus once instructed by you we can correspond directly with the auctioneer with speed and efficiency.
Our Senior Legal Assistant Ruth Drew comments:
‘I have been at an Auction where the guide price for a small piece of land was set for around £20,000, the actual land sold for £121,000. Though this is not always the case, some properties will not sell at all. The disadvantage to the seller here is that the lowest bid and the fact the property did not sell will be general knowledge therefore could affect negotiations going forward.
Having attended many auctions it is apparent that not everyone does their homework prior to attending and bidding. Indeed on a few occasions purchasers have requested my assistance after they have successfully bid and; as the gavel has gone down, actually purchased the property or land. My advice would be to always obtain the legal pack prior to bidding and have it reviewed by a Solicitor/Conveyancer. It is better to obtain advice beforehand rather than ending up with a property/land that is not of use to you. It is imperative you know what you are potentially purchasing.
Both myself and our team at Pictons will be more than pleased to assist with any queries you may have with regard to auction sales and/or purchases and we shall be more than pleased to attend the auction with you should you require’.
If you have any queries in respect of the above, please do not hesitate to contact our Senior Legal Assistant Ruth Drew on 01908 355739 or via email at email@example.com or our Partner of Residential Property Pauline Carlin on 01442 229674 or via email at Pauline.firstname.lastname@example.org. Alternatively come and visit us at one of our offices!