Many of us have seen the TV programme Homes under the Hammer which focuses on selling and buying property at auction.
This method of buying and selling a property is becoming increasingly more popular as a quick alternative than purchasing through the more traditional route of estate agents.
It provides more certainty for the seller once the offer has been accepted and reduces the overall time taken between when the offer is made and when legal completion takes place. On average it takes about 4 weeks from when the offer is accepted.
The information below explores selling property by the traditional auction method, and what is expected from the seller if you do decide to sell a house by auction.
Types of Auction
There are two types of auctions :
• Traditional auction where you have 28 days from when the hammer falls to complete
• Modern day auction where you have 56 days to complete the transaction from when your offer is accepted. You pay a reservation fee in additional to the purchase price. This will be covered in a separate blog (to follow)
Why sell at Auction
Property auctions offer a fast-paced alternative to traditional selling methods. If you are struggling to sell your property whether because of the area, works that need to be carried out, or to avoid the lengthy conveyancing chain, this may be an option for you. The potential buyer could be looking to secure a unique renovation project and to bag a bargain.
If you live at the property and may have an onward purchase this may not be the right option for you unless you are prepared to break the chain and move out into temporary accommodation until your purchase is ready.
Understanding the Auction Process
The traditional property auction follows a clear structure. Properties are listed in a catalogue, referred to as 'lots', and interested buyers have the opportunity to view and research them ahead of auction day. On the day itself, bidding is public, and the highest bid above the reserve price wins. Once the hammer falls, the sale is legally binding, and the buyer will typically need to pay a 10% deposit immediately, with completion in 28 days.
What is the Reserve Price?
This is the minimum price you will accept to sell the property. If the lot does not meet the reserve price it won't be sold and the property will go forward to the next auction.
Auction Pack
Before the day of the auction you, as the seller, will have instructed a conveyancer to prepare and upload a legal pack which will consist of :
• Deeds to the property
• Searches including Local Authority search, water and drainage search and environmental search
• Property Information Form and Fittings & Contents Form
• Any other information pertinent to the property
• Special conditions of contract
Key Steps to take before the Auction
• Instruct a conveyancer to prepare the auction pack. You will need to complete some forms that will be part of the pack giving information about the property and what items of furniture your are leaving / removing
• Is there a restriction on title your buyer will need to comply with? This can include a management company restriction. Your conveyancer will contact the beneficiary of the restriction for what is required in order for the buyer to satisfy their requirements on completion
• If you are selling a leasehold property you will need to arrange for the landlord/management company to provide the leasehold pack ahead of the auction
• Do you have a mortgage? Your conveyancer will ensure the sale proceeds are enough to repay the mortgage. They will apply to the lender for a redemption figure. If there is a shortfall you will have to make up the difference
• Order Searches. Your conveyancer will arrange for a local authority search, water and drainage search and environmental search to be provided as part of the auction pack. The cost of the searches is usually recovered from the buyer after completion.
What Happens on Auction Day
There are usually lots of properties available to bid on. It can be a long day. You can attend the auction in person or the agent will deal with matters on your behalf. If your property is sold, the buyer will sign the contract on the day and pay the deposit straight away. The agent will sign the contract as seller on your behalf.
After the Auction
Once contracts have been signed you are both legally bound to complete the sale, usually within 28 days. The buyer will need to instruct a conveyancer if they have not already done so, and ensure that the finance is in place in time for the agreed completion date. You will need to sign a 'Transfer Deed' before completion which is the legal document that will transfer the property to the buyer. This will be dated and handed to the buyers Solicitor once completion funds have been received.
What Happens if it does not Complete?
• The defaulting party will be in breach of contract and will forfeit the deposit. The defaulting party may also have to pay compensation under the Contract
• The Conveyancer will serve notice on the defaulting party giving them 10 working days to complete. You cannot sell the property to another person during this period. Once this time has lapsed you are released from the Contract
Conclusion
Selling a property at auction can be a quick and fairly stress free way to sell a house. However, you should consider if this the right option if you are living at the property and are not able to move out by the completion date, and in a short space of time. There may be other reasons which could delay completion as there may be entries on the title which need addressing. Before deciding to go to auction, discuss with your conveyancer who will advise you on the legal title and what action needs to be taken now to get the property auction ready.
