This guide offers facts and help with understanding the types of auctions available, what to consider before deciding to buy or sell at auction and the pros and cons of each.
While the number of auction cases we see are currently low, there is a lot to consider and many things that can go wrong so we have also put together a Q&A section with even more information.
What is an auction?
A property auction is a sale where potential buyers (bidders) place competitive bids on a property, either in an open or closed format.
Auction properties will have a guide (may also be called a start price) and a reserve price, the reserve price being the minimum amount the seller will accept for their property. The reserve price is not disclosed to interested parties.
Auctions are popular because buyers and sellers believe they will get a good deal buying or selling the property. This will depend on the bidders and how much they are willing to pay.
Are auctions increasing in popularity?
Auctions are increasing in popularity as they provide the speed, security and upfront information that isn’t provided with private treaty sales.
The introduction of modern method of auction also opens the auction market to buyers that would not normally be able to take part due to purchasing with traditional property finance.
Types of property auction
Traditional method
- Can be in a room or online over a specified time
- Properties are advertised online or in a catalogue ahead of the auction
- Exchange of contracts takes place immediately after the auction ends
- The seller pays the auction house’s commission as well as other fees such as advertising and the cost of preparing a legal pack
- The winning bidder:
- will make payment of a non-refundable deposit (usually 10% of the agreed purchase price) which forms part of the purchase price
- may also be required to pay the auctioneer a non-refundable ‘administration’ fee which will not form part of the purchase price. These fees can vary
- will typically have 28 days in which to complete the purchase
- These auctions typically appeal to cash buyers and investors who do not need to raise finance
Modern method
- Are generally online auctions
- Properties are advertised online ahead of the auction
- Modern auction timescales allow the winning bidder to finalise a mortgage agreement (having previously secured a “mortgage in principle” – met the lender’s affordability criteria) before bidding
- A non-refundable Reservation Fee or Buyer’s Premium is paid by the buyer, committing them to the purchase
- Fees vary, usually being around five per cent of the agreed purchase price including VAT. These are often split between the online auction house and an estate agent
- The winning bidder will typically have 56 days to exchange contracts and complete the transaction
What are the pros and cons of auction?
Auction pros
- Auctions provide buyers and sellers with security, with buyers and sellers committed to completing, reducing the risk of being gazumped or gazundered
- Auction offers speed, with properties typically completing faster than open market sales.
- Traditional auctions - completion is within 28 days
- Modern auctions – completion is within 56 days
- Open market sales can take three months or more to complete
- Every property listed for sale at auction provides the interested party with upfront property information within a Legal Pack (also known as an Auction Pack, or Buyers Information Pack). Contents of the packs can vary but typically they contain the Title Register, Title Plan, Property Information Forms, an EPC and water and local searches
- As auction provides upfront information to interested parties that would normally only be received after the sale is agreed with private transactions, this allows viewers to make informed decisions before agreeing to purchase
- You may be able to find a good deal for a property, especially if you are looking for a fixer-upper/project and you are happy to do the work
- With traditional auction, contracts are exchanged once the auction is concluded, providing additional confidence of the sale completing
- Traditional auction can help sellers sell properties where they may have difficulty selling privately (for instance due to structural issues or missing documents)
- With modern method, the buyer and seller exchange and complete within 56 days, allowing buyers to arrange auction or traditional mortgage finance (subject to the lender’s criteria and the property’s suitability)
Auction cons
- Traditional auction can limit the level of interest in the property, given this method is not suitable for those needing to arrange finance to purchase
- With both modern and traditional auction, buyers are usually required to pay non-refundable fees with auctions that are not included in the purchase price. Buyers need to consider any fee as part of the total amount they wish to spend on the property
- Bidders may get carried away in the excitement of bidding, spending more than they had anticipated. As a bidder, make sure you know, and stick to your limit
- Buying at auctions is binding and final, neither the buyer nor the seller can simply “change their mind”
- If a buyer has not completed their due diligence before bidding (viewed the property, instructed a property survey, carefully considered the property and the property documents) they may find themselves unable to proceed, forfeiting any non-refundable auction fee and/or deposit
Key points for buying and selling at auction – due diligence
Whether you are a seller or buyer, make sure you have considered all the points below:
Selling at auction
- Consider your requirements before deciding which method of sale suits your needs best
- Auction is great for properties that need work and for providing speed and security, although you may receive a little less than you would selling it privately due to buyer fees
- Be sure that you can proceed to completion in the timescales provided by auctions. Auction requires both the seller and buyer to be motivated and committed
- What do you want to achieve for the property? Consider factors such as comparable properties in your area, the property’s condition and works needed, any material issues that may impact the property’s value and the agent and auctioneer’s guides on pricing
- Read any auction agreements carefully before signing. Auctions typically require sole selling rights, so make sure you understand the agreement you are signing and ask for clarification on anything you are unsure about
- Top tip - Sole selling rights mean you cannot market your property elsewhere or agree a sale privately. You may be responsible for fees if you doBe confident that you can sell. If you change your mind and withdraw from a sale where agreed, you could become responsible for auctioneers’ fees, as well as the buyer’s costs
Before bidding and buying at auction
- Carry out a physical inspection of the inside and outside of the property, including accessing garages, outbuildings, and loft spaces if possible
- Carefully review the contents of the Legal Pack provided and discuss any missing information with the auctioneer
- Take independent legal advice before bidding. A property lawyer will be able to review the legal pack for you and while you will be charged for this service, they can point out any areas of concern
- If looking to purchase with finance, discuss the property with your chosen lender to make sure it would meet their lending criteria. For instance, the property type, its construction, use, location, and proximity to commercial buildings
- Agree your mortgage in principle and consider instructing a property survey to avoid hidden surprises that may affect your mortgage application or cost you more than you can afford to fix
- Be sure that you can proceed to completion in the agreed timescale, or the fee and any deposits paid could be at risk
- You will be required to register to bid, as well as complete the auctioneer’s identity checks and evidence your source of funding
- Set your budget (including any fees) and stick to it
- If you do need to withdraw your bid, do this, either before the auction ends, or the seller accepts your offer (pre-auction) as auction is binding. If you change your mind once the sale is agreed, you may become responsible for auctioneer’s fees as well as seller’s costs and maybe even damages
What happens once an auction sale is agreed?
- The buyer and seller enter into a binding agreement to complete the purchase in the agreed timescales
- With traditional method, you will exchange straight away and pay the 10% deposit with completion within 28 days
- With modern method, you will typically have 56 days to exchange and complete. The buyer may also have fees to pay to the auctioneer at this time
- Both the buyer and seller will need to have a property lawyer in place to act for them. Your property lawyer will be required to complete client care and identification checks
- If buying with finance or a mortgage, progress your application in a reasonable time
- While conveyancing is completed by your property lawyer, your auctioneer or estate agent may provide updates following a sale being agreed
- Respond to any requests from your property lawyer, the auctioneer or your lender if buying with a mortgage/finance promptly to avoid delays
- If you are the buyer, make sure your property lawyer has the funds needed, when asked, ready for exchange and completion
- Your property lawyer will confirm when completion has taken place and the buyer can collect the keys
What are the most common Property Redress complaints about?
- The property was misrepresented because:
- the plot available was misrepresented
- it was unavailable to sell due to shared ownership
- the easement not included
- Confusion or lack of transparency about the auction process, terms and conditions, and fees involved relating to:
- legal pack advised 28 day deadline to complete, after auction bid accepted this was reduced to 20 days
- information missing from auction pack (council tax band, listed building status)
- unpaid ground rent not disclosed
- Unmortgageable properties and ‘nasty surprises’ not disclosed or included in auction pack such as the:
- buyer not told of previous sales that had fallen through as they couldn't get mortgages on the property
- extensive defects in building and ongoing remedial work not disclosed prior to bidding
- overage rights on property not disclosed prior to bidding
Common FAQs
What is gazumping and gazundering?
Gazumping happens when someone makes a higher offer for a property than someone whose offer has already been accepted by the seller and the higher offer results in that person buying the property.
Gazundering is when a buyer lowers their original offer just before contracts are about to be exchanged. So, where gazumping affects the buyer, gazundering affects the seller.
What are start and reserve prices?
Auction properties will be offered with a ‘guide’ or ‘start price’. This is the published price for the property and confirms the level where bidding should start. Starting bids are for guidance only, they are not the price that the property is being sold for.
The seller will also have a reserve price which is not disclosed to interested parties. As a guide, this it typically no more than 10% above the guide or starting price. This is the minimum amount the seller has agreed to accept for their property.
Can I still sell the property, if it does not meet the reserve price?
Technically if the reserve is not met, the auction is void, however the seller may sell the property privately, afterward. Notice must be given to the auctioneer and if there are no contractual conditions in the agreement, this can be commission free.
But auctioneers often protect themselves with conditional clauses, so may feel entitled to fees if the property is sold before or after the auction or the auctioneer has a set amount of time after the auction to identify a suitable buyer.
Modern methods of auction agreements, where the buyer pays the fees, may include conditions meaning that the auctioneer or estate agent have contractual terms entitling them to a fee if the property is subsequently sold privately.
Sellers should always make sure they have agreed a sensible reserve price based on a realistic guide price and check the auctioneer or estate agent’s terms very carefully before deciding to transact privately
What are sole selling rights?
As auctions are binding, it is likely that your agreement with the auctioneer is subject to sole selling rights. This means that you agree
- the property can only be marketed by the auctioneer while the contract is in place. It also means that
- you agree not to sell to anyone introduced by someone else, or that contacts you directly
If you do, you may become responsible for the auctioneer’s fees.
What if I change my mind about selling at auction?
Your auction contract will confirm:
- how you can terminate the contract
- any notice period, minimum contract term
- if there are any fees payable
If you have entered into a reservation agreement with a buyer, you may be unable to withdraw without penalty, so if your circumstances change you should get in touch with your auctioneer straight away to let them know.
Can a sale be agreed outside of the auction?
Interested parties can make offers to the seller, through the auctioneer. The seller can accept the offer and agree to sell before the auction begins but this will be under the auction’s terms and conditions.
Are bids legally binding?
A bid doesn’t legally bind the bidder to buy the property, unless they are the winning bidder when the auction concludes, or where their offer is accepted before or after the auction and the buyer will need to complete the auctioneer’s reservation process.
This will likely include paying any auctioneer’s fees and signing a reservation agreement.
What is a reservation agreement?
A reservation agreement is an agreement between the buyer and the seller committing them to the sale, reducing the risk of a sale falling through. The agreement confirms that the seller is reserving the property exclusively to the buyer, and that the buyer is committed to buying the property.
Can I buy an auction property if I’m purchasing with a mortgage?
Traditional auction is usually unsuitable for those buying with a mortgage
Modern auction allows a longer time to complete so that buyers requiring finance have time to secure their mortgage.
Auctioneers are not surveyors and are unable to confirm if a property will be mortgageable. If considering a property, you should carefully consider the property and discuss it with your lender or broker before bidding, ideally having a mortgage survey completed before bidding for peace of mind.
What’s automatic bidding?
Bidders who are unable to watch an auction can place bids automatically up to their maximum amount. Automatic bidding requires you to place an initial bid and identify a level that you would be willing to bid up to. If you are outbid during the auction, automatic bids will be made on your behalf in increments, above the previous bid. This continues until either bidding stops below your maximum bid or another bid meets or exceeds your maximum level.
Are reservation fees included in stamp duty liability?
HMRC confirm that the chargeable consideration (monies or monies worth) for a land or property transaction is what has been given (either directly or indirectly) to acquire the subject matter (i.e. property) of the transaction, by the purchaser or a person connected with them.
This includes fees which must be paid to acquire the property. This means that whatever the buyer pays, it will form part of the purchase price for the property and will be included in their liability for stamp duty. In all circumstances we would recommend discussing this with your chosen property lawyer before committing to a bid.
How do I choose an auctioneer?
Auctioneers, like estate agents, have no legal requirements to be regulated, trained or part of a professional body but must be part of a redress scheme.
It is essential to do your due diligence and market research when choosing an auctioneer.
Consider using one who is a member of the National Auctioneers and Valuers Association, which is part of Propertymark, or who are RICS members and bound by their standards. For more information see the RICS property auctions consumer guide
Do I need to use the auctioneer’s recommended services?
No. Estate agents and auctioneers may recommend services that they feel would be beneficial to you which are only optional. The estate agent or auctioneer may receive commission from the service they recommend but you should always consider your options and other providers before accepting services.
What can an auctioneer do to help achieve the best price for a seller?
Once an auction has begun, a good auctioneer can keep the momentum up and help generate interest, however they cannot interfere with the process or allow anyone else to do so.
While it is common, it is also illegal and a criminal offence in the UK under the Consumer Protection Act and the Fraud Act (2006), to place fake bids and planted bidders who engage in what is known as ‘shill bidding’, effectively and artificially increasing the price for other bidders.
What is not illegal is:
- off the wall bidding - an auctioneer bids on behalf of the seller up to, but not including the reserve price, used to get a sluggish sale going but not disadvantaging the eventual buyer
- puffing - someone who is hired by the seller at an auction to bid on the property to encourage other people to bid as well, up to the reserve price but auctioneers should not make consecutive puffed bids
- chandelier bidding - bids ‘taken off the chandelier’ by the auctioneer to get bidding started up to the reserve. This creates an appearance of greater demand or encourages bidding momentum and can be done up to the reserve. If no real bids are then received, the auctioneer will say “passed” or “unsold” when the hammer comes down
For further relevant reading with advice on how to avoid similar scenarios, see these three case studies:
Modern auction – reservation fee
Traditional auction for several plots of land and misrepresentation
Traditional auction and deposits
