
Buying or selling a property at auction can be fast and efficient. However, it’s not without its potential drawbacks that you should be aware of before committing to your purchase.
This guide from Consultant Conveyancing Solicitor Sarah March-Paschal covers some of the most frequently asked questions about auction property sales and the conveyancing process involved.
What is a property auction?
A property auction is a public sale where properties are sold to the highest bidder. The sale is conducted by an auctioneer and is usually held in a public venue or online.
There are two types of property auction: traditional and modern.
What is a Traditional Auction?
In traditional auctions, bids are only taken on the day, and the purchase must typically complete within 28 days. The day of a traditional auction IS exchange of contracts – so you are legally obliged to complete once your bid is accepted or you will lose your deposit and face the normal consequences of a failure to complete.
What is a Modern Auction?
On the other hand, modern auctions offer more flexibility, with bids made over a longer time period. Buyers will have to commit to exchange within a certain timeframe (once their bid is accepted 56 days is the norm to exchange) but their legal adviser may only get a very small timeframe to raise enquiries (5 working days from issue of contract is not unheard of). Any fees on a Modern Auction will also count for SDLT. Buyers usually have up to 56 days to complete the purchase on a modern auction after exchange of contracts.
What types of property are sold at auction?
A wide range of property tends to be sold at auction, including:
- Residential property, such as houses and flats
- Commercial property, including offices, shops, and industrial units
- Land
It is also common to see properties at auction that have unusual features, require significant renovation, or have been acquired through repossession.
What are the pros and cons of buying a property at auction?
There are plenty of benefits to buying a property at auction, although there are some potential pitfalls to be aware of, too.
Pros:
- The process usually completes much faster than a typical property transaction
- It is possible to secure a property below market value, especially if it requires significant work
- The bidding process is open and transparent, unlike the offer process of traditional transactions
- Once the hammer falls, the property is yours, so there’s no risk of gazumping (the seller accepting another offer after accepting yours)
Cons:
- The deposit (usually 10% of the price) must be paid immediately, and is nonrefundable
- There is less time to conduct due diligence checks, such as surveys, before you’ve committed to the purchase
- The sale price is final, so there’s no room for negotiations
- There are additional fees involved, including auction fees, legal fees, and survey fees – although some of these fees must be paid regardless of how you purchase a property – (e.g. the ‘buyer’s premium’ counts towards SDLT).
- If you have a lender, that lender must be made aware that this is an auction purchase. They will expect you to have fully investigated the title and there is a risk they will withdraw their offer leaving you with a hefty completion amount to find.
What are the pros and cons of selling a property at auction?
Selling a property at auction also comes with various pros and cons you should be aware of.
Pros:
- Auction is usually a fast and efficient way to sell a property compared to typical sales
- The sale is legally binding as soon as the hammer falls, offering certainty for sellers
- Depending on the property, you may be able to achieve a higher price, thanks to competitive bidding
- Auctions can attract a wide range of potential buyers, including cash buyers and investors
Cons:
- Sellers may be required to pay a commission fee to the auction house
- There is no guarantee that your property will sell at the auction
- While you may be able to achieve a higher price, it is also common for auction properties to sell for below market value
- You’ll need to prepare the property for auction in advance, including preparing the auction legal pack
Can you get a mortgage to buy a property at auction?
Yes, it’s possible to use a mortgage to buy a property at auction. However, you must have a mortgage offer in principle before the auction as the sale will progress quickly and is legally binding. If your lender withdraws their offer after auction because the title is unsatisfactory (your legal adviser’s position is that they must advise your lender about this, or cease to represent them if this is the case) then you may be stuck without funds to complete.
You can find lenders who are willing to lend on auction purchases – though they may put conditions on renovation works being carried out to a certain standard and to a certain time frame – and of course their terms vary from those of standard high street mortgages.
Can first-time buyers buy at auction?
Yes, anyone can buy a property at auction, including first time buyers. However, you should ensure you understand the process beforehand and have your finances and solicitor lined up.
Do I need a solicitor when buying or selling a property at auction?
Yes, you’ll need a conveyancing solicitor to deal with the legal aspects of an auction transaction. Their role involves reviewing the auction legal pack, conducting searches, and exchanging contracts.
It’s important to choose a solicitor who is experienced in auction transactions, as the process does differ from typical property sales and purchases in that the turnaround is much faster.
Do I need a survey on an auction property?
It’s highly recommended that a survey be carried out on an auction property before the auction takes place. A survey will help you identify any potential issues with the property that could influence your decision to bid on it.
When does exchange happen?
Exchange of contracts technically happens when the auction closes and the highest bidder wins. On the day, the winning bidder must pay the deposit and sign the contracts that signal exchange.
How long does it take to complete an auction purchase?
This depends on the type of auction. With the traditional auction format, completion must happen within 28 days. With the modern auction format, exchange must happen within 56 days with completion must happen within a further 56 days, although this can vary.
What deposit do I need to buy an auction property?
The deposit required to purchase an auction property is typically at least 10% of the purchase price, which is paid on the day of the auction. Bear in mind you will be expected to pay fees on top of that 10% to the auction house – the seller does not pay the agents – you do! Check these before you budget for a bid.
What is the process of buying at auction?
If you’re looking to buy a property at auction, it pays to know what to expect beforehand. The typical process looks something like this:
- Research and view properties: Attend auction viewings and research the properties you’re interested in, including conducting surveys if relevant.
- Arrange finances: If you’re using a mortgage to purchase the property, make sure to secure a mortgage offer in principle in advance and have funds available for the deposit and fees.
- Instruct a solicitor: At this time, you should also choose a solicitor experienced in auction property transactions.
- Review the legal pack: Carefully review the legal pack provided by the seller’s solicitor. Your solicitor will assist you with this. It would help to get the papers to your solicitor at least two weeks before the auction so enquiries can be made and a full title report can be provided to you.
- Attend the auction and bid: If you’re the highest bidder, you’ll exchange contracts and pay the deposit immediately on the day.
- Complete the purchase: Your solicitor will handle the conveyancing process, and completion typically takes place 28 days after the auction.
What is the conveyancing process for an auction sale?
The conveyancing process for an auction sale is similar to that of a traditional sale, but things usually progress much faster. Your solicitor will conduct searches, raise enquiries with the seller’s solicitor, and prepare the transfer deed before completion.
What is an auction legal pack?
An auction legal pack is provided by the seller and contains information and documents relating to the property, including:
- Title deeds
- Special conditions of sale
- Searches and enquiries
- Fixtures and fittings list
- Property Information Form and papers about the property (e.g. guarantees)
- Leases (if applicable)
- Planning permissions (if applicable)
What is a management pack?
A management pack is typically provided for leasehold properties that are sold at auction. It contains information about the management company, service charges, and ground rent.
What are the fees involved in buying or selling a property at auction?
Beyond the purchase price of the property, there are certain fees involved in an auction purchase for both buyers and sellers. These fees typically include:
Buyers:
- Auctioneer’s administration fee (e.g. fee for the legal pack)
- Buyer’s Premium
- Your Solicitor’s fees
- The Seller’s Solicitor’s fees and disbursements (allow about £1,500 at least)
- Survey fees
- Stamp duty land tax (Land transaction tax in Wales), which will include the Buyer’s Premium
Sellers:
- Auctioneer’s commission
- Solicitor’s fees (although at Setfords we charge the buyer a fee which covers our fees and disbursements at contract – this is standard)
- Energy Performance Certificate (EPC) costs
Can the seller or buyer pull out of an auction sale?
The contract is legally binding for the seller and the buyer when the hammer falls, so neither can pull out of the sale after this point without repercussions. The buyer pays a deposit for the property on the day of the auction. If they pull out after this point, they will lose the deposit and may also be liable for additional costs. This is true for both traditional and modern auctions.