Buying and selling property at auction is always popular and does have a lot going for it. Whether you are a buyer or a seller you avoid all the issues to do with “chains” and you either secure a deal or don’t on the day itself.
Whether it’s a one bedroom flat or a city centre site with major commercial tenants in occupation, auctions are now increasingly seen as an option for everyone, not just lenders wanting to offload properties repossessed from defaulting borrowers.
An auction is the ultimate way of establishing what a property is worth. There is no better way of establishing the current market value.
The deal becomes binding when an offer is accepted by the auctioneer and the hammer comes down. The buyer will then have to sign a contract/memorandum and put down a deposit of approximately 10% of the price there and then. A definite date is fixed for completion at this point – typically 4/6 weeks after the auction. That is when the change of ownership takes place and the balance of the money is paid over.
The problem with auctions is that there are also drawbacks and risks and this is where proper professional advice from solicitors is so very important.
There is some risk involved if you are the seller because it is vital that a proper, comprehensive legal pack is put together on your behalf. You need to make sure that the pack provides for the buyers to reimburse you for all searches supplied and you may want to try to get the buyer to contribute towards your legal/administration fees. Failure to supply a properly prepared legal pack may jeopardise the whole transaction if issues subsequently come to light – even after the auction itself.
The risks are obviously greater for the buyer. Once the hammer comes down it is no excuse to say that you don’t have the finance in place or that you haven’t had a proper survey/inspection carried out.
These are many matters that need to be addressed before the auction. You may, for example, need preliminary advice on such issues as Stamp Duty Land Tax, VAT, Capital Allowances and insurance, which may be your responsibility from the date of the auction onwards.
In addition, you clearly need to ensure that the property that you are buying is not affected by anything legally adverse. This requires the legal pack and searches etc to be properly checked by someone competent and that is where Guest Walker can come in once again.
Proper examination of the legal pack is particularly important where the client is looking to buy a property with an existing tenant in place – whether we are talking about a shop, department store, house or flat. The new owner will be bound by the terms of the lease/tenancy agreement and the implications of that are endless.
Many buyers will want to borrow against the property that they are hoping to purchase and all leases/tenancies must be acceptable to the lender. This again is where you need proper advice from Guest Walker.
The role of the solicitor obviously continues after the auction if the party in question is either the seller or a successful buyer and here again you need a firm with the relevant expertise to ensure that you end up with what you have bargained for. We will handle all required final searches, registration at the Land Registry and payment of Stamp Duty Land Tax.
What has got to be faced with an auction is that, whether you are buying or selling, there is going to be expense upfront that you may not be reimbursed for. There is no certainty that a property will sell at auction, which will leave the seller out of pocket. Many buyers will put in a lot of preliminary ground work and then be unsuccessful at the auction itself. It is vital that buyers understand that this is very possible and that they must still behave in a wholly objective and sensible manner when it comes to the auction itself.
The temptation to keep on bidding up and up can sometimes be absolutely irresistible. It is vital that buyers have the discipline to set an upper limit and stick to it.
Guest Walker can give plenty of practical advice about the auction and can even represent you on the day itself, subject to an appropriate fee being agreed.
One final point to mention is the complex area of guide prices and reserve prices. A property may have a guide price of a certain figure but it does not necessarily mean that this is what it will go for – or that it is the minimum price that is acceptable to the seller. This is evidenced by the commonly seen practice of properties attracting offers at auctions but not being sold because the reserve price has not been reached. Such practices make it difficult to secure real bargains but, with proper advice, there are still good deals out there for buyers who are properly organised – and are prepared to accept that they may not be successful at every single auction they attend. Building up experience and expertise can be a great help with auctions, particularly when backed up with the right legal advice.