Under the Hammer: essential tips for property auctions

Buying or selling a property at auction can offer both buyers and sellers unique advantages, but it also comes with potential risks. Unlike a traditional sale, auction transactions tend to move quickly and with competing bidders the property will be sold to the highest offer.

For both individuals and companies, understanding the process of auction sales is essential to deciding whether this is will be the best route. This article explores the key considerations to keep in mind when selling or purchasing a property at auction.

The type of property

When deciding on whether to sell a property at auction, it is important to consider the type of property. Certain properties are often better suited to auction sales, for example; properties that are difficult to value, those in need of renovation or sites requiring planning permission for future use. In these cases, sellers can attract potential buyers by setting a lower guide price and encourage competitive bidding. For buyers, auctions provide the opportunity to secure these types of properties that may not otherwise be available.

Price, costs and fees

Due to the competitive and fast paced nature of auction sales, some properties may sell for higher prices than they would in a private sale. Multiple bidders can drive the price up quickly, creating opportunities for sellers to achieve higher sale prices.

Although auction sales can be competitive, sellers are required to pay the auctioneer fees. These fees will be due even if the property does not sell. Additionally, commission rates for auction sales are typically higher than those for private sales. These extra costs should be carefully considered by potential sellers.

The Auction Pack

An Auction catalogue will be prepared containing the property particulars. Auction houses tend to use their own catalogues, and usually use the Royal Institution of Chartered Surveyors Common Auction Conditions. The seller, or their solicitor, provides the necessary information and the seller’s solicitor usually prepares the legal pack.

At auction sales, buyers generally have little to no opportunity to raise further enquiries with the seller’s solicitor. Additionally, the legal pack may be incomplete. It is therefore important for buyers to monitor the legal pack to ensure that there have been no changes or amendments up until the auction. Inspecting the property in person is highly recommended. Buyers should also check whether there are any requirements to insure the property and, if so, ensure that appropriate insurance arrangements are in place.

Speed and certainty

Auction sales are typically done in a day and the contract will be binding when the ‘hammer falls’. This means the buyer is obliged to complete the purchase on the date specified in the contract. For sellers, the process offers a chance to sell quickly, without the lengthy negotiations that often delay private sales. Since the COVID pandemic, digital auctions conducted through online bidding platforms have grown, making the process even more convenient for both buyers and sellers.

However, the fast pace of auction sales also has its disadvantages. Inspection time is often limited, which can result in hidden structural defects, unresolved disputes or other unknown problems. Additionally, there is little opportunity to negotiate the contractual terms. Buyers must be fully prepared before bidding, for example if you are buying a property at auction with a mortgage, the appropriate mortgage arrangements  must be in place before you start bidding.

If you are considering selling or buying a property at auction and would like tailored advice or support, please get in touch with our property team who will be more than happy to assist.