Selling or buying property by auction
Are you thinking of using an auction house to buy or sell property?
Auctions can be a great way to snap up a bargain or obtain a quick release from an expensive asset – but only if you understand the financial risks and have done some thorough homework. It pays to be prepared!
Whether you are selling or buying a house through an auction house, read our tips on how to avoid the pitfalls.
Selling your property through an auction? Here are some tips: If you are considering selling your property through an auction house, have a think about the following:
- Before you do anything, be aware that if you property sells at auction, you will have to vacate it within a set time period of often 28 days from the date of the auction – but this can be anything which is set out in the Special Conditions relating to the sale. (Are you prepared for that? Can you pack in time? Have you booked the removal vans?)
- Do your research before choosing the auction house. Ensure they deal with properties similar to yours.
- Meet the auctioneer and discuss the sale with him/her. Find out how much they will charge you for advertising the property and for their commission. A commission fee of around 2.5% of the sale price is normal. (Note: you will have to pay these charges even if the house does not sell.)
- It is essential to obtain a property valuation before the auction. This will enable you to set a reasonable reserve price. A reserve price is the lowest price the house will sell for. If no one makes a bid above the reserve price, the house will not sell. Say, for example, your sale price is £200,000 and you set your reserve price for £185,000. If the highest offer at the auction is £184,000, the property will not have met its reserve price and will not sell.
- Set a date for an “open house” for potential buyers to view your property or set aside a date on which you will accept bookings for viewings.
- Instruct a solicitor to prepare the contracts of sale. This must be done in good time before the auction. The auctioneer will normally include the contract in the auction brochures.
- It is also a good idea to instruct your solicitor to attend the auction so that they can deal with any unexpected points that arise. At the very least, ensure you can reach your solicitor by telephone on the day.
- At the auction, once the auctioneer’s hammer falls, you will be bound to a legally binding contract. At that point, the buyer must pay a deposit to you amounting to 10% of the sale price. The balance of the purchase price becomes due on the completion date as specified within the Special Conditions of Sale.
- Your solicitor will handle the conveyancing aspects of the sale after the auction.
Selling your property through an auction? Here are some tips:
There are also risks with buying a property through an auction. If you have found a property that you are interested in buying, consider the following:
- The property is normally vacated within 28 days from the date of the auction.
- Have you got a mortgage offer? Make sure the offer is in place before you bid for a property.
- Do you have the funds available to pay the deposit immediately after the auction? 10% of the purchase price will become payable at that point.
- Do your research on the property in good time before the auction.
- Gather and consider all the available information about the property. Is there a reserve price? What is the property worth? (Consider obtaining a property valuation before the auction.) Are there any surveys? Have you checked the council records relating to the area and any potential issues such as rights of way and subsidence risks?
- Visit the house for a viewing. Find out if the buyer has set a date for an “open house”. If no date has been set, ask the auctioneer to find out if you they can arrange a viewing.
- Instruct solicitors before the auction and ask for guidance in relation to the conveyancing. The solicitors will want to review the paperwork including the contract of sale which is normally included in the auctioneer’s brochures for the auction.
- If you are successful at the sale, contact your solicitors as soon as possible after the sale and ensure all documents are forwarded to them: remember that once you have successfully bid for a property, you will only have the number of days set out in the Special Conditions of Sale to complete the purchase.
- At the auction, once the auctioneer’s hammer falls, you will be bound to a legally binding contract. At that point, you will be liable to pay a deposit amounting to 10% of the sale price and the balance of the purchase price 28 days later.
How can we help?
We have considerable experience of helping our clients to prepare for auctions. We can explain the process, assist with the build up to the sale and advise on and draft the contract of sale.
We can normally offer a fixed priced for our legal services including the attendance at the auction – which will give you some peace of mind about your total legal bill. For more on our approach to charging and managing your legal costs, click here.
For further information call 0161 785 3500 or make an enquiry.