Buying and Selling Properties at Auction

Buying or selling a property at auction need not be unduly complicated. Here are some pointers to help you consider whether or not you should consider looking at an auction going forward, and some areas where our Residential and Commercial Property Teams at Leathes Prior can assist you.

Selling a Property

Selling a property at an auction may be suitable for certain types of owners. Firstly, if you are looking to sell a property as an Executor, or as a buy-to-let owner. In both cases, as a seller you may lack the first-hand knowledge of the property that you would likely have if you were selling your own home. As the idea of an auction is to provide all of the information that you have available in the auction pack, be up front about what you do and don’t know about the property, and then a buyer can choose whether to take or leave it when bidding. If you are trying to sell such a property on the open market, you may find that a transaction could take longer as you have to try and resolve issues that arise as the buyer makes enquiries throughout the purchase process.

An auctioneer, much like an estate agent, will assist with pricing up the property. Normally there will be a guide price indicating roughly the price bracket that the auctioneer expects the property to sell within, and you would also have the option of setting a reserve price. A reserve price simply indicates that if the property does not reach a certain value at the auction, it will not be sold. Some auctioneers will give you the option to put any unsold property into a subsequent auction for either a reduced fee or no additional charge depending on their terms and conditions. However what you may find is that an auctioneer will approach whoever bids closest to the reserve price, and will try and negotiate a deal with a prospective buyer especially if they only fell just short of the reserve price. We find that this proactive approach assists in helping sales go through even if it involves waiting for things to be finalised a few days after the auction itself.

Following the successful sale of the property at auction, the terms set out in the auction pack normally provide a fixed completion date which we tend to set out as being 4 weeks after the auction has taken place. The buyer would normally have to complete the purchase by that stage, and in some cases the seller can allow completion to take place earlier if everything is ready to go.

Leathes Prior would assist by putting together the auction pack, which consists of information supplied by the seller, as well as obtaining search results and other documentation (such as planning documents, certificates and the like), and compiling this for listing on the auctioneer’s website. We would also prepare the special conditions of sale, which essentially forms the contract in conjunction with the standard terms and conditions from the auctioneer. This allows each sale to be carefully tailored to the requirements of the seller. Once a buyer has agreed to purchase the property, they would pay a deposit to the auctioneer, who would then deduct their charges and would forward the balance to us to hold pending completion. The buyer’s solicitor would then send the remaining balance at completion and we would then pay this out as instructed by the seller. If we are also dealing with a probate, we would transfer the sale proceeds to our Wills, Trusts & Probate Team for them to distribute as part of the larger estate.

Please note that there has been a recent change to capital gains tax, whereby if you are selling any residential property that is not your principle primary residence, you must declare and pay any tax to HM Revenue & Customs within 30 days of the sale completing. Given that any sales of buy-to-let properties would likely be caught by this, we would suggest that you seek advice from an accountant during the process so that you are set up to calculate and pay the tax within the timeframe.

Buying a Property

Purchasing a property through auction may not necessarily be the way that most people acquire their main residence. Normally, most home buyers need to set up a mortgage, and due to the condensed timeframes for purchasing a property through auction, you may find that traditional sources of finance are difficult to obtain. This is clearly an issue when you are contractually obligated to purchase a property and, often within a 4 week window. You’ll find that companies providing bridging finance often advertise in auctioneer’s brochures, and you can speak with the auctioneer when expressing interest in a property to see if they can put you in touch with companies supplying bridging finance. It would also be advisable to speak to an independent financial advisor to see if they can recommend a suitable source of finance. We would also suggest that you have this arranged before you consider bidding, as this may also govern how much you can safely bid up to during the auction.

In many cases, Leathes Prior would only be employed after a purchase has already successfully taken place, but we do provide services to review and comment on auction packs in advance of the auction taking place, and if you have the opportunity we strongly suggest that you seek a legal opinion before bidding on any property.

An auction pack would normally be available 2-3 weeks before the auction takes place. We can produce a report for you based on the information that we find within the auction pack, and we can note points of concern that you may need to address following the purchase, and we would also have the opportunity to raise enquiries with solicitors acting for the seller given sufficient time. The period before the auction functions in a similar way to when a sale on a property has been agreed on the open market but before contracts have been exchanged. This gives the buyer an opportunity to ask any questions to fill in any gaps in the information that may have been supplied within the auction pack. This allows any potential buyer to make an informed decision as to whether they should bid on a property or not.

Once the purchase has been arranged, we would deal with completion and then registration at HM Land Registry for you in the normal manner, and would deal with the stamp duty land tax return. If you are buying a second or subsequent property for buy-to-let purposes or to renovate and sell, currently there is a 3% additional stamp duty land tax to pay across all bandings, and we can advise and assist you with calculating this.

At the present time, Leathes Prior can provide a full service whether you are considering buying or selling a property through auction. Please contact us by calling 01603 610911 or by email if you have any further queries or if you would like to instruct us.