There are often reasons why a property is sold at auction. For example – speed. Auction sales can complete in as quick as 20 days, and sellers can be confident that their property will sell quickly and their buyer will not pull out, and there are no lengthy chains. Auctions can also provide for a higher sale price.
Sellers may also choose to sell at an auction because they may have had difficulties selling traditionally on the open market, or the property is in need of refurbishment, or because the property is a repossession property.
Another reason why a property is being sold at an auction well may be because the title to the property is defective, and therefore it is very important for a buyer to instruct a solicitor to examine an auction pack prior to bidding. Buyers should also instruct a surveyor.
What are the two different types of property auction?
In the UK, property auctions typically fall into two categories: traditional auctions and modern method auctions. Traditional auctions are fast-paced events, often held in-person or online, where properties are sold to the highest bidder once the auctioneer’s gavel falls. Modern method auctions, on the other hand, are conducted online over a longer timeframe, offering more flexibility for buyers and sellers.
In a traditional property auction, bidders gather either in a physical venue or online to compete for properties listed in the auction catalog. A modern property auction however, offers a more contemporary approach to property buying and selling, catering to those who prefer a more flexible process. Conducted exclusively online, these auctions allow for a longer bidding period, typically lasting several weeks.
Traditional auction: How it works?
At a traditional auction, the seller first must set a minimum price they want for the property. The seller’s solicitors will also have to prepare an auction pack, which will be presented to bidders prior to auction. This is typically 4 weeks prior to the auction. On the day of the auction, prospective buyers will bid for the property. The highest bidder will win the property and contracts are immediately exchanged with a deposit (usually 10% of the winning bid price) being paid. Then the remaining balance is paid by the date set by the auction company. This will be a completion date, which is usually 28 days after the auction date.
The seller will have to pay the auctioneer’s fees even if the property does not sell, and if the property sells then the auctioneer will additionally charge a commission. Some auction contracts will oblige the buyer to cover the sellers/agents fees and disbursements.
This type of auction sale is better suited for properties in need of modernisation.
Modern auction: How it works?
Sellers appoint an estate agent to arrange viewings and interested buyers must submit their offers online in the form of a “bid”. Sellers can set a reserve price, start date and duration of the auction. Properties are displayed online with an auction “timer”. Buyers register with the estate agent and place their bid. The estate agent/auction provider will ask you how you intend to fund your purchase, and you must be confident that you have the funds. You should make sure you get particulars about the property, and price accordingly. You can also instruct a surveyor to report on the condition of the property. You can usually bid online, and at the end of the auction period the higher bid wins. To secure the property you must pay a non-refundable reservation fee immediately.
This way of auction allows bidders place their bids 24/7 until the auction end date.
Which type of auction is best for me?
Unlike traditional auctions, online auctions are usually “conditional” rather than binding the winning bidder to the sale, the fall of the virtual hammer gives them a 28-day exclusivity period in which to exchange contracts, and 56 days in which to complete (so there may be time to get a mortgage).
Advantages of modern auctions
- The process of transparent, so you can see immediately how bidding progresses
- Modern auctions have a longer completion timescale (so if you are getting a mortgage – you have time for it)
- There are fixed dates for exchange and completion set by both sides.
Disadvantages of modern auctions
- Depending on the terms of the modern auction provider, buyers and sellers may have to pay a share of the costs of the legal pack
- There may be other administrative fees passed on by the auction company/estate agent
- If you win the bid – there is usually a minimum reservation fee. You will have to have a reservation fee ready and can’t be a part of your mortgage. If you decide to withdraw – it is non refundable. Paying a reservation fee will increase the amount of stamp duty.
Traditional auctions are often preferred for properties that need repairs or need to be sold quickly. They are popular with experienced investors and cash buyers, as they are less flexible and have a shorter timeframe to complete, so if you need to apply for finance – you will not have much time, and if you are not ready to pay the balance by a set completion date – you may lose your deposit.
How can Goughs help?
At Goughs Solicitors, we provide expert legal support to guide you through every stage of buying or selling property at auction. For buyers, we meticulously review the legal pack provided by the auctioneer before you bid, ensuring you fully understand the title, restrictions, and obligations associated with the property, while identifying any potential risks. For sellers, we prepare a comprehensive legal pack, including the title deeds, searches, and special conditions of sale, ensuring your property is auction-ready.
We can also assist with just post-auction formalities, such as correctly registering you as the owner post completion and obtaining the necessary documentation. . Whether you need full-service support from start to finish or assistance with completing the sale or purchase after the auction, we are here to help. Our expertise ensures compliance with the strict deadlines of auction transactions, and protects your legal interests every step of the way. Whether you’re a first-time auction participant or an experienced investor, Goughs delivers peace of mind throughout the process.
