Buying and Selling Property at Auction
Sometimes it may be beneficial to put a property into an auction, or you may find yourself wanting to bid on a property that has been entered for sale at auction. Properties can be put up for auction for a number of reasons; such as a quick sale, needing considerable redevelopment or it may have proven problematic to sell on the open market. Transaction at auction can give parties the security of having sold but also flexibility. Buying at auction can be beneficial for a buyer as you may get a good price, meaning the scope for refurbishment and a higher resale is achievable. Buyers can also note what other interested parties are bidding and there is less chance of being gazumped.
Before an auction takes place, it is important to prepare a legal pack that contains all of the necessary information that a buyer may need so that the transaction is as transparent as possible.
What may be included in the Legal Pack?
This can include auction conditions, special conditions set by the seller, title documentation, searches, draft transfer, Energy Performance Certificate, replies to enquiries, completed Property Information and Fittings and Contents forms, details of any service charge or ground rent and copies of planning permission or other building regulation documentation. It is important to include as much information as possible so as to minimise any issues after the auction has taken place. A buyer is then given opportunity to review the auction pack before the date of the auction to be able to make an informed choice as to whether to bid or not, and if they do, at what price they believe is realistic.
Are there different types of auction?
Yes, there are two type of auction – the traditional auction method and the modern auction method.
The traditional auction method is less flexible and has a shorter time frame as completion generally takes place 28 days after the auction. Exchange of contracts occurs when the hammer falls on the highest bidder, and therefore all parties are locked in at that stage. If a buyer was to then withdraw, they are likely to be lose the deposit that is paid at the time of the auction.
The modern auction method is a newer style of auction that allows a buyer to bid and put down a reservation fee, but they have not yet exchanged contracts. The transaction must then be completed within 56 days – being 28 days to exchange contracts followed by a further 28 days to completion (although the parties can agree an earlier completion if this is desired).
Can I buy with a mortgage at auction?
You can use a mortgage to buy a property at auction, however you need to be prepared with all information beforehand. It is easier to buy with a mortgage using the modern auction method than the traditional method, as there is a longer time frame and you have not exchanged contracts. If a property is purchased using the traditional auction method, a buyer could find themselves in a situation where a mortgage lender will not agree to lend any money on that particular property if there are issues with it – meaning the buyer could lose the deposit as exchange of contracts will have already taken place.
What special conditions can a seller impose?
The seller can include conditions as they wish, but must be aware that any condition could impact on the saleability or value of the property. These could be items such as reimbursing the seller for searches, that certain deed of covenants or overage agreements must be entered into, or criteria about any current tenancies affecting the property.
How can we help?
We can assist in preparing a legal pack so that a property is ready for auction with all necessary information available to a buyer, making the process as smooth as possible and enhance the likelihood of achieving a good sale place. We can review the legal pack and provide a report before the auction date, this will help in identifying any issues with the title or stipulations on what the property can (or cannot!) be used for in case this impacts on a buyer’s views of wanting to bid.
If you have any questions, or this is something our Property Department can assist with, please free to get in touch.