What is an auction?
A property auction is a public event where real estate (such as homes, commercial properties, or land) is sold to the highest bidder. It’s an alternative method of buying and selling properties, distinct from traditional private sales.
An auction pack will be made available prior to an auction containing a collection of important documents and information about a property that is being sold at auction. This pack typically includes a variety of legal, financial, and property-specific documents. It provides prospective buyers with the details they need to make an informed decision before placing a bid and helps potential buyers assess the property and understand any risks, obligations, or costs involved before the auction takes place.
What is a traditional auction?
The auctioneer conducts the auction by calling for bids from participants, until no one is willing to bid higher, at which point the auctioneer announces the final price, and the item is sold to the highest bidder The contract will then be exchanged meaning both the buyer and seller are legally bound into the contract. Once the auction ends, the lot, being the individual item or group of items offered for sale, cannot be re-offered.
The hammer price, or winning bid, does not include any buyer’s premium, which is a separate fee the auction house often charge a buyer for their services on top of commission charged to the seller. The winning bidder pays the buyer’s premium on top of the hammer price.
The successful buyer is usually not entitled to raise any enquiries to the seller relating the property or any of the contained documents. It is therefore important for buyers to have the auction pack thoroughly reviewed by a legal professional before bidding to ensure there are no issues with the legal title to the property or to ensure all documentation needed to complete and register the purchase is available, as once the auction ends, the sale is legally binding.
What are the benefits of a traditional auction?
Traditional property auctions offer several benefits for both buyers and sellers including:
Once a bid is accepted the successful bidder is legally obligated to complete on the specified date, which is typically 28 days after the date of the auction.
Unlike private sales where deals can fall through, a traditional auction guarantees that the highest bidder will secure the property, assuming all conditions are met. Of course, some auction sales do still terminate but there are financial penalties for the defaulting party, so this is rare with auction matters.
Traditional auctions can be a good platform for selling properties that are hard to sell, such as unusual, damaged, or non-standard construction homes.
Bidders compete openly, often driving the price higher. Sellers can benefit from the competitive nature of auctions, sometimes achieving a higher sale price than they might have through private negotiation.
The auction process is transparent, with all bids made publicly. Buyers and sellers alike can see the activity, which can help eliminate misunderstandings.
All terms of the sale are clearly outlined upfront, and once the auction is complete, the sale is final with no hidden negotiations or last-minute changes.
What is a modern auction?
A modern property auction is an updated version of the traditional property auction, and it is typically conducted online.
Just like traditional auctions, properties sold at modern property auctions come with an auction pack however unlike traditional auctions, the contract is not exchanged once the hammer falls. Instead, the buyer pays a non-refundable reservation fee and is expected to both exchange and complete within a certain time period, typically 56 days. This provides the buyer with more time to arrange financing or conduct due diligence before completing the sale.
As contracts are not exchanged when the reservation fee is paid buyers purchasing via the modern method can raise enquiries with the sellers on the auction pack as well as any other legal points, as necessary. Additionally, there is no legal obligation on the buyer to complete the purchase, however, a buyer is unlikely to get their reservation fee back.
The modern auction reservation system simplifies the auction process by allowing for a smaller, upfront reservation fee, while giving both buyers and sellers more time to complete the deal. It’s a flexible, less risky option for buyers compared to traditional auctions which may feel rushed or tied to a rigid process.
What are the benefits of Modern Property Auctions?
Modern property auctions offer several benefits that cater to both buyers and sellers, particularly with the use of online platforms and flexible auction methods. Some of the key advantages of modern property auctions include:
Just like traditional auctions, all terms and conditions are provided upfront, so buyers know exactly what to expect before committing. This reduces ambiguity and provides clarity.
Modern auctions often come with lower costs for sellers compared to traditional in-person auctions.
In contrast to the traditional auction route, under modern method of auction, in theory, the buyer’s conveyancer can raise and request replies to title enquiries following a successful bid. A buyer purchasing a property through a traditional auction does not have this option.
The reservation fee or deposit often required in modern auctions give sellers more security, as the buyer has already demonstrated financial commitment before the sale is finalised.
Modern auctions have widened the “traditional” criteria and attract mortgageable properties in good condition. This is because people can purchase with a mortgage due to the slightly longer timeframes.
Contact the author
This article was written by Katie Pendlebury, Trainee Solicitor in our Corporate and Commercial department. If you wish to discuss anything mentioned above, contact Katie below.