Selling or buying a Property at Auction

In light of the current Stamp Duty Land Tax (SDLT) holiday, many homeowners will be looking to move home before the deadline in March 2021. As such, more and more people are considering auctions to get a quick sale and make the most of this tax break.

Those familiar with the BBC’s ‘Homes Under the Hammer’ will be sceptical of this method, given the show’s frequent coverage of fixer uppers and abandoned sites being sold in this way. However, in this new post-outbreak market a new type of auction has emerged and with it, new opportunities for buying and selling properties.

As such, what do buyers and sellers need to know about this mysterious new way to buy and sell homes and what implications does it have for the conveyancing involved?

What is a modern Auction?

This ‘modern auction’ as it is known combines traditional marketing techniques with an eBay-style online bidding system. Initially, a local estate agent will take photos of the house and market it in the local area, much the same as if it were marketed on the open market. This however, is where the similarities end from the traditional method.

At this point the reserve price will be discussed. The reserve price will be the minimum price that you are willing to accept and a sale will not be reached if no offer reaches this value. This price is kept secret from all potential buyers and is just between you, your estate agents and the auctioneer.

The property’s ‘market price’ is set at less than the reserve price to entice in buyers on Rightmove, Zoopla and other sites. The approach here, in contrast to the traditional open market method of marketing higher than the price you expect to receive, is to entice buyers in at the low price, forcing them to bid higher and higher against their competition. After this marketing phase the auction can begin.

If everything runs according to plan, the property should sell 20 business days after the beginning of the auction for the highest bid. At the point of the digital gavel being struck, contracts are exchanged with a completion date set for 20 business days later (unless specifically requested otherwise). At this point, the buyers pay a significant non-refundable deposit to the Auction House, locking them into the sale.

After this timeframe has elapsed the property is sold and you will receive the value of the highest bid, minus the conveyancing fees and any agents’ fees that have been included.

Pros and Cons

Aside from a quick sale, there are other perks involved in selling at auction.

For starters, upon completion of the auction, contracts are then exchanged, meaning that the price is fixed. The buyer also then pays a non-refundable deposit to the auction house. This means that the likelihood of the sale of falling through is much lower, and that you are guaranteed the price agreed on auction day. Auction buyers tend to also be cash buyers, meaning that you aren’t usually dependent on a chain.

There is also the added benefit of passing on some of your fees (minus the conveyancing) onto the buyer: meaning that the highest bid at the end of the auction is what you actually receive. In some cases, the estate agent’s commission and auction fees are all paid by the buyer.

It is worth noting that you may not receive as much by selling at auctions as you would on the open market. As the buyers have to pay a higher price than they actually bid (if the fees are included), you could expect your bids to be lower as a result.

The other factor to contend with the timescale requirements related to buying at auction, you can limit the number of potential buyers . As such, it is important to consider your own personal circumstances before making a decision on how to market your property.

Effect on conveyancing

If you have decided on auctioning your property, it is important to let your conveyancer know early as they will have to prepare a legal pack in preparation for the auction and work on a very fast turnaround after the auction has ended. It is therefore imperative that your conveyancer is made aware of the timescales involved.

How can GoodyBurrett help?

If you are thinking about buying or selling your property at auction, or have any other conveyancing needs, we are here to help!  Contact us on 01206 577676 or email [email protected] 

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