Selling a Property at Auction: What is the Conveyancing Process?

23/08/2018
Selling property at auction is becoming increasingly popular. In simple terms you pay an auction house a fee to sell the dwelling as a lot at auction and, if it is successfully sold, you'll normally have to pay an additional commission – often around 2.5% of the selling price – to that auction house.

However it is vital that you instruct experienced auction conveyancing solicitors very early on in the process such that they have sufficient time to carry out required actions such as preparing the pre-auction legal pack and address any other critical matters that may be involved, particularly, for example, if you are selling a freehold interest that itself contains leasehold interests.

Looking a buying a property at auction? Click to read our article Auction Conveyancing: A Buyer's Guide


This article examines:




Looking at Selling your Property at Auction?

You should always instruct conveyancing solicitors with experience in the auction sale process because there are time limits which, if they are not met, might derail your sale and there are many other potential pitfalls.

Our solicitors can also carry out additional specialist work required. For example, if you are selling a portion of land which has no previously agreed right of access, our solicitors can also ensure that this is addressed and incorporated in your selling contract prior to auction sale.

* Fixed Fee – Experienced Auction Sale Solicitors - Speedy Delivery of Auction Pack



    1

    What are the Pros and Cons of Selling Property at Auction?



Pros

Cons

  • Speedy and predictable process; successful buyer must immediately pay over 10% deposit (contracts are exchanged at this point) and is then contractually obligated to complete in 28 days (normally)
  • Multiple buyers at auction can drive up potential selling price significantly
  • If a property is run down, 'peculiar' or otherwise not mortgageable, more chance of selling than via an estate agent - auctions attract specialist buyers (investment, cash buyers, DIY 'doer-uppers')
  • Can fix a broken property chain if one of the buyers has backed out
  • No risk of protracted negotiations with buyer or 'gazundering' at the last minute
 
  • Expenses incurred through auction house's fees and commission (normally around 2.5%) on successful sale
  • Property may remain unsold
  • If property is unsold, you still have to pay the auction house
  • Property may sell for less than expected/less value than an estate agent might have achieved
  • Inexperienced solicitor can make mistake on timescales meaning auction is postponed - or worse
  • Inexperienced auction house may reduce chances of a sale or potential sale value
  • If your property remains unsold, you'll normally have to pay an additional cost to the auction house if you want to make a further attempt to sell it by auction. 
  • You might also have to pay more legal costs if you wish to retain your solicitor for the purpose (unless you're protected by a No Sale No Fee Guarantee)

Fixed Fee, No Sale No Fee with a 5 out of 5 rating

 
    2

    What is the Auction Sale Conveyancing Process?

Although we've described a scenario where you choose your auction house before you instruct your solicitor, as will be seen further on, there are scenarios where you might be advised to instruct your solicitor first, such as if you're selling a freehold interest with leaseholders involved.

1. Select an auctioneer/auction house

Ideally you should select an organisation with experience of the type of property you're selling and the location. You should expect to have to pay the auction house at this point for the marketing costs that will follow. You should get advice from your auctioneer/valuer about any reserve price you wish to set: this is the lowest price you'll accept for the property.

NB The reserve price is not disclosed to prospective buyers: they only get the guide price.


You always need to provide an Energy Performance Certificate (EPC) to the auctioneer (click for more information about this, including cost).

2. Instruct an Auction Sale Conveyancing Solicitor

You must do this well in advance of the auction date - your auction house should advise you of this - because your solicitor will need to examine the legal title to create a contract of sale and will also need to resolve any issues, such as the removal of redundant notices and restrictions which could deter prospective purchasers.

In order to do this, your solicitor will book a local authority search and this of itself may take a few weeks to be returned.

Most importantly, your solicitor needs to prepare the property auction legal pack.

What does a property auction legal pack contain?
The legal pack contains essential legal documents relating to the auctioned property - it needs to be made available to the auction house about 3 or 4 weeks before the actual auction and is essential for the auctioneer to have so they can circulate the particulars of your property to prospective bidders. The legal pack (not dissimilar to a standard seller's draft contract pack) usually includes:
*What are "special conditions"?
You can choose to instruct your solicitor to put additional conditions in your legal pack, which normally concern a requirement for a successful buyer to pay additional costs relating mainly to costs you have yourself incurred.

These might include:
  • Costs of local authority and other search fees
  • A contribution to your own legal conveyancing costs - this might be a fixed fee
  • A clawback or overage clause - this is a sum that may be payable in addition to the original sale price following the completion of a specified condition e.g. an uplift on the original sale price where planning permission for residential homes is subsequently granted
You should think through the implications of imposing special conditions; depending on the size of any costs you choose to pass on, you might reduce interest from potential bidders.

3. Auction takes place

A: Property Is Successfully Sold
The buyer immediately has to pay you 10% of the winning bid price and sign the contract of sale which then gives them 28 days (normally) to complete.

You normally have to pay the auction house around 2.5% of the selling price as commission for a successful sale: they normally expect this to be paid at latest when you complete and receive your completion monies.

If the auction does not result in your property reaching its reserve price, the auction house normally canvasses interested bidders to present a best bid offer and consults you about whether you are happy to sell.

When the buyer has signed the contract, you send this to your conveyancing solicitor who then prepares matters in the normal way for completion. The buyer's solicitor has to make an electronic transfer of the balance of the sale money on the day before completion and on completion day, the auction house releases the keys to the buyer and the process concludes.

B: Property remains unsold
If the auctioneer is unable to sell your property at the auction (and you decline any best bid offer), you would normally get the auction house to relist your property for a future auction - this may involve an additional cost - and you'll have to retain your solicitor for carrying out the subsequent conveyancing, which may also involve a further cost.

SAM Conveyancing offers a No Sale No Fee guarantee to protect you if you are unsuccessful in selling your property at auction on the first attempt (click for more details).


    3

    What happens if you wish to sell a property by Auction with Tenant/s in situ?

If you wish to sell a property by auction which has renting tenant/s in situ, you should ask your managing agent to provide you with copies of the tenancies and rent payment schedules. Your solicitor will need to include these in the legal pack. Consideration should also be given to the ability to transfer any tenancy deposit to the purchaser following completion.

    4

    What happens when you want to sell a Freehold Interest with unexpired Leasehold Interests within it at Auction?

In this scenario, you have to be aware that the tenants holding leasehold interests in your freehold (flat owners) may be eligible to exercise their Section 5 Right of First Refusal (you have to offer them the chance to buy the freehold - click to find out more).

You should ensure that your auction house is aware of the leasehold interests and they should then advise you that the timescales before any auction are much larger regarding this possibility - in particular you have to start by serving a Section 5 Notice between 4 and 6 months before the auction takes place (click to find out more about the timescale for this).

Looking at Selling your Property at Auction?

You should always instruct conveyancing solicitors with experience in the auction sale process because there are time limits which, if they are not met, might derail your sale and there are many other potential pitfalls.

Our solicitors can also carry out additional specialist work required. For example, if you are selling a portion of land which has no previously agreed right of access, our solicitors can also ensure that this is addressed and incorporated in your selling contract prior to auction sale.

* Fixed Fee – Experienced Auction Sale Solicitors - Speedy Delivery of Auction Pack



Related News Articles

 
Auction Conveyancing - Our buyers guide
02/12/2017
Selling a Freehold Interest in Flats – Section 5 Notice
04/09/2018
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