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Selling Up? What to expect if you use a property auction

Landlords are selling up in significant volumes these days - partly to cash in on capital appreciation, but mostly thanks to recent regulatory and fiscal changes making buy to rent unprofitable,.

Others are anticipating the situation getting worse still for buy to let if the Renters Reform Bill becomes law under the Conservative government, or a still stronger version is produced should Labour win this year’s General Election.

If you want to consider selling your property through an auction, agents’ trade body Propertymark sets out below what you should expect.

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Why should you auction a property?  

It is good for people to consider all methods of sale. Auctions are not right for every seller or property, but there are circumstances where this should be considered the first choice of sale. Once you as the auctioneer have listened to the client’s circumstances, only then can you advise them. Auction is often dictated by the seller’s circumstances as much as by the condition of a property. 

What are the disadvantages of selling your property at auction?  

Again, it comes down to listening to the client’s needs and their circumstances. You as the auctioneer can then advise them on the best way to sell their home. It is generally accepted that when you sell at auction, you achieve a lower figure than by selling by private treaty. But competitive bidding can produce higher results than selling by private treaty. 

What are the differences between unconditional and conditional auctions?  

It is essential when bidding on a property at auction that the purchaser is fully aware of the terms of the auction. There are, in essence, 2 types of auction: unconditional and conditional. 

An unconditional auction (also known as a traditional auction) works as follows: The successful bidder exchanges contracts at the close of the auction and this is a legal and binding agreement. They pay a 10 per cent NON-REFUNDABLE deposit and completion will normally take place 20 working days after the date of the auction, unless stated otherwise.  

A conditional auction (also known as modern method/committed purchase) is different. The purchaser will pay a reservation fee to secure the right to enter into an exclusivity period, normally 56 days (but this can vary) in which to exchange contracts on their chosen property. The reservation fee is usually around 4.2 per cent inclusive of VAT of the purchase price, and is often subject to a minimum fee of around £7,200 inclusive of VAT. It is important to remember that this reservation fee does not form part of the purchase price of the property and is also subject to Stamp Duty Land Tax (SDLT). 

As you can see, there are fundamental differences between these 2 types of auction, and it is vital that all prospective purchasers fully understand the terms of the auction that their chosen property is being sold by. 

What costs are involved with auctioning a property?  

If auctioneers are selling properties via the traditional auction way, the fees involved are an auction entry fee. They are normally around £250-750 + VAT. They are paid when the client instructs the auctioneer to proceed with the sale of the property. This is the client’s commitment to the auction, and the auctioneer will do all of the paperwork involved.  

In addition, the seller will pay a commission in a normal way, but that is paid upon the successful completion of the sale of the property.  

If you are looking at conditional sales, then the fee module is very different in as much as the seller tends to pay nothing and the costs are picked up by the purchaser because conditional auction sales are an agreement to purchase a property with a fixed time frame to exchange contracts. It is a very different method of sale to traditional auction.  

Generally, the purchaser will pay a fee of 3 and a half per cent plus VAT subject to a minimum fee of £6,000 just to reserve their chosen property. That fee does not go towards the purchase price of the property. It is important that any purchaser checks the terms of business whether they are purchasing in the traditional or the conditional way in order that they are aware of all costs involved. 

Best advice for people who do not sell their property at an auction 

Generally, auctioneers will know the reason why the property has not attracted enough interest, and it is often that those people in the market do not feel the property is priced attractively enough. The property could then be offered in a subsequent auction with a revised price to secure enough interest. 

A local or a national auction – which one is best?  

There are fewer local auctions than there used to be. There are more regional and national auctions. However, the reach that the internet gives means that even if you are selling your property locally, you will get worldwide coverage. As long as the auctioneer is using the internet, it is fair to say that anybody will be able to find it if they are looking for that type of property. 

How should people choose between an estate agent or an auction house?  

Generally, estate agents do not have auction departments because they are specialised and expensive to run. Selling at auction entails different rules and regulations than selling by private treaty.  

All agents should be partnered with a professional NAVA Propertymark auctioneer in order to give their clients a route to market to auction.  

When the agent meets the client for the first time, they should then advise the best method of sale. If auction is not the best method of sale, then the auctioneer would refer the seller to an NAEA Propertymark member in order to sell by private treaty. 

What is the difference between a reserve price and a guide price? And how is each one determined?  

At auction, there are very strict rules to abide by. The guide price is the marketing price that the property is advertised at. This can happen in two ways.  

You can have a single figure say £100,000+ or you could have a band price range, say £90,000 - £100,000. In the first example, the reserve price can be no greater than 10 per cent of the quoted figure, so not greater than £110,000.  

In the second example, your reserve price can be no greater than the highest figure quoted in that band, so not greater than £100,000. This is to give all prospective purchasers a very good idea of where the property can be sold at.  

Auctioneers are not allowed to have ridiculously low guide prices just to encourage interest in a property. It is misleading and considered to be “bait advertising”. 

What role do solicitors play?  

A seller’s solicitor produces an auction legal pack for the property. That should contain as much information as possible about the property. Any prospective purchaser must ask their solicitor to look at the legal pack provided by the seller’s solicitor because the purchaser needs to satisfy themselves before they purchase their chosen property. Quite often, prospective purchasers don’t get a solicitor to review the legal pack, which leaves them open to not being fully informed prior to bidding. Knowledge is power, and the key to everything! 

Once a sale is concluded, then the auction legal pack provided by the seller’s solicitor is forwarded to the buyer’s solicitor along with a memorandum of sale to confirm that a sale at auction has taken place. The buyer’s solicitor must conclude the contract on the due completion day with the seller’s solicitor. 

What are legal packs?  

An auction legal pack contains as much info as a seller’s solicitor can provide on a property such as title documentation and property information forms. If the property is leasehold, there should be a leasehold management pack. Also searches or a search indemnity policy, and an EPC. 

Top tips for auctioning  

Richard Worrall, NAVA Propertymark President and Advisory Panel Chair, shared his top tip when it comes to auctioning a property. He concludes: “My top tip is always listen to the advice of your chosen auctioneer. It is a method of sale that is very different to selling via private treaty and your NAVA Propertymark auctioneer will always give you clear advice on setting the correct reserve price that is needed in order to achieve the best possible result for the seller.” 

 

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