Why do people choose to sell at auction?

There are advantages and disadvantages of selling property at auction. If the property attracts bids and sells, the main advantages of selling property at auction are certainty and speed. Upon the fall of the hammer the buyer is obliged to complete on the date stated in the sale contract unless the title of the property requires consent, in which case the contract may be  conditional on obtaining consent. As the buyer cannot withdraw without penalty, they cannot enter into post auction negotiations, or raise enquiries.

The main disadvantage of an auction is the cost. The seller may have to pay the auctioneer’s fees even if the property does not sell. In addition, the commission payable if the property does sell may likely be greater than would normally be charges on a sale by private tender. The Seller will need to provide a legal pack (see below) which will incur “upfront” expenses.

How do I put forward my property for auction?

Importantly and firstly check the date of the auction. The seller should check how much notice the auctioneers require to include the property in a forthcoming sale. This is to allow time for the auction catalogue to be published and for the property to be properly marketed to optimise the chances of your property being seen by prospective buyers. Placing property in an auction where there has been no opportunity to market the property via the catalogue would increase the risk of the property not selling, whilst the auction fees would still be payable.

You will also need allow sufficient time for your solicitors to prepare the legal pack. For example, it may be necessary to obtain a local search from the local authority before the pack can be completed.

Approving the auction catalogue

The auction catalogue is prepared by the auctioneers and contains the particulars of each property (or “lot”) that will be offered for sale at the auction.

The information in the auction catalogue may include:

• The full address of the property.
• A photograph of the property.
• The tenure of the property (freehold or leasehold)
• Brief details of any leases to which the property is subject, including annual rents and unexpired lease terms.
• The guide price for the property. The seller should obtain professional valuation advice on the guide price.
• The seller’s legal advisor’s contact details in the catalogue. These details, together with a file reference, are usually included in the catalogue to ensure that any correspondence is correctly directed.

It should also state the energy performance indicator from the energy performance certificate (EPC). An EPC should be included in the legal pack.

Either the seller or their legal advisor will be asked to provide the above information. If the information is provided directly by the seller, the seller’s legal advisor should be asked by the seller to check the particulars against the title documents. If a mistake is found in the auction catalogue, the auctioneers should be notified as soon as possible. If it is not possible to correct the mistake before the catalogue is printed, the correction will be printed in an addendum.

Producing the legal pack

Your legal advisor will normally prepare the legal pack, which should include:

• The special conditions of sale
• Copies of the title deeds.
• Copies of any leases or other legal documents to which the property is subject.
• Copies of any searches undertaken by the seller. The seller may wish to provide in the special conditions that the buyer will reimburse the seller for the cost of the searches
• Replies to standard form pre-contract enquiries, if these are being provided.
• Where applicable, an EPC and recommendation report.

Once the legal pack is produced, any additional information or amendments should be provided to the auctioneers and to prospective buyers. This will usually be dealt with by way of an addendum.

The seller should check with the auctioneers whether they will provide copies of the legal pack to prospective buyers, or whether the seller’s legal advisor will be expected to do this. If only the auctioneers are providing copies of the legal pack, it is vital that any enquiries from prospective buyers received by the legal advisors are promptly passed on to the auctioneers.

The sale contract

The sale contract for a lot in an auction sale can comprise some, or all, of the following documents:

• General conditions of sale. The general conditions of sale are the same for all of the lots in the auction and may be printed in the auction catalogue.

• Extra conditions of sale. The extra conditions of sale, which are produced by the auctioneers, vary the general conditions in relation to all the lots in the auction. As with the general conditions, the extra conditions may be printed in the auction catalogue. Not all auctioneers produce extra conditions of sale.

• Special conditions of sale. The special conditions of sale, which are produced by the seller’s legal advisor, set out the conditions that apply to an individual lot.

• Addendum. An addendum may be used to:

1. correct the particulars in the auction catalogue
2. correct information in the legal pack; or
3. provide additional information about a lot.

Any addenda will be available to prospective buyers at the auction

At the auction

At the auction, any addenda will be made available to prospective buyers and may be announced before the bidding starts on the relevant lots. Some auctioneers require the seller’s legal advisor to attend the auction to deal with any queries that arise on the day. Other auctioneers provide their own legal advisor to do this.

The auctioneer will open the bidding for each lot. The seller can set a minimum price that the auctioneer must achieve to sell the property. This is known as the “reserve price” and is normally kept confidential. While any guide price would normally be set at, or above, the reserve price, the seller may not fix the final reserve price until shortly before bidding commences.

If the bidding reaches the reserve price and the lot is sold, the hammer will be brought down. The successful bidder will usually be required to sign the memorandum of sale and pay the deposit to the auctioneers before leaving the auction room (the sale contract will specify what methods of payment are accepted and how the deposit will be held). The buyer will also normally be asked to provide contact details for their legal advisor.

If the bidding for the lot fails to meet the reserve price, the seller may still agree to sell the lot at a lower price. This would be negotiated by the seller and prospective buyer after the formal bidding for the lot has closed. The sale would still take place on the terms of the auction sale contract.

After the auction

The auctioneers will send the signed memorandum of sale to the seller’s legal advisor, who should contact the buyer’s legal advisor and confirm the completion date.

The completion date will be stated in the sale contract and is often expressed to be a number of days after the date of the auction. It is helpful for the parties to expressly agree the actual date on which they expect to complete, to avoid any misunderstandings. For example, if the auction takes place on 1 April, with completion 20 days after the date of the auction, is the completion date 20 April or 21 April?

This method of selling proves to be popular where an owner knows little about a property, for example a sale of inherited property or a repossession sale.  You should however consider the pro’s and con’s and discuss with a local estate agent as well as the auction house you are considering in order that you can make an informed choice as to how you wish to proceed.