Modern Method of Auction
Selling or buying a property in a traditional property auction can be a hair raising affair sometimes with nerves of steel involved. It is not for the faint hearted. But the auction arena is changing and another method of buying property and land is becoming increasingly popular - the Modern Method of Auction or the Conditional Auction and there are definite advantages for both the buyer and the seller.
How does a traditional property / land auction work?
Many different types of properties and land are bought and sold by a traditional auction method – often properties such as repossessed properties, uninhabitable properties, unmortgageable properties and land for development,
Under the traditional method the buyer is committed to the purchase and a completion date regardless of any potential issues they may then subsequently discover on the property. A 10% non refundable deposit is required and contracts are exchanged on the same day. Due to the immediate timescales buyers need to have their finances in place prior to attending the auction.
Completion must happen within 28 days.
How does the modern method of auction work?
Modern auctions take place on line.
With the modern method of auction the buyer pays a non-refundable reservation fee or reservation deposit within 48 hours of the auction ending which does not form part payment of the final selling price. The buyer is required to formally exchange and complete within 56 days of their solicitor receiving the draft contract from the seller’s solicitor. This is the reservation period.
After securing the property at the modern method of auction the buyer will need to carry out the usual searches, check the title and the information pack.
The auctioneer prepares the buyer’s information pack under the modern method of auction in the same way as they would have done under the traditional method.
The buyer’s information pack includes the title register and plan, property information questionnaire, water and drainage search and the local search.
The modern method of auction allows buyers time to check the property and to raise funds but the deposit will be lost if the sale does not proceed. It is definitely advisable to ensure the funding is in place and the title is checked prior to making the bid at the auction and entering into the reservation agreement.
The seller or buyer cannot terminate the reservation during the exclusivity period of 56 days which gives some buyers a grace period and limits the possibility of being gazumped. The reservation can be terminated at the discretion of the auctioneer.
The seller can also terminate if the buyer is in breach of its conditions.
The seller can reoffer the property for sale at the end of the reservation period should formal exchange and completion of contracts not have taken place.
What are the advantages and disadvantages of the modern auction?
There is more time for buyers - 56 days over 28 days in the traditional auction, giving some flexibility around raising finances, carry out searches etc.
Buyers are not committed to buying, although they will lose a hefty deposit, usually 10% of the purchase price, if the sale does not complete.
From a sellers perspective, this is probably not the route to take if attempting to sell difficult to sell properties or land, as the buyer is not committed to buy.
What are the advantages and disadvantages of a traditional auction?
Once the hammer is down, the 10% deposit paid and contracts exchanged, the buyer has entered into a legal commitment to buy and cannot pull out, which gives security to the seller.
For sellers, this is the best route to dispose of difficult to sell properties/land and often attracts cash buyers. This also means that sales are achieved much more quickly.
For buyers willing to take a calculated risk, there are good deals to be had.
The modern method of auction is one of the fastest-growing sectors in property, but there are distinct advantages and disadvantages and it remains to be seen whether this will trend will continue. As a buyer or a seller it’s important to investigate the detail of both options carefully.
For further information on using either of these routes to buying or selling, contact Caroline Irvine in our property team or Tom Ansell in the residential conveyancing team.
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Caroline advises clients on landlord and tenant work and supports companies when they are buying and selling properties.