Property auction glossary
The jargon made simple: To help you understand the new terms used around auction sales this is a simple glossary of common terms with an explanation behind each one.
An absolute auction is an auction where the property is sold to the highest qualified bidder with no limiting conditions or amount. The seller may not bid personally or through an agent. Also known as an auction without reserve.
Actual Completion Date
The date when completion takes place or is treated as taking place for the purposes of apportionment and calculating interest.
An amendment or addition to the previously published information concerning the subject lot. This can be made available via the website, and/or announced at the auction by way of a printed sheet. The purchaser will buy on the understanding that the lot is subject to the addenda and that the purchaser is deemed to be aware of them.
A method of selling property in a public forum through competitive bidding to the highest bidder. The auction usually takes place in a hotel or centralised venue where bidders can have easy access. Online auction is becoming increasingly attractive as a means of bidding as you can bid from your PC instead of travelling.
The catalogue gives a description of the property, details on how to view each property and the General Conditions of Sale. These are prepared by the auctioneer, stating the basis on which the auction is carried out.
Auction Listing Agreement
Is the contract between the auctioneer and the seller authorising the auctioneer to conduct the auction and sets out the terms of the agreement, rights and responsbilities of each party.
A reserve price is the lowest price the vendor will accept which is agreed between the vendor and the auctioneer. Most properties entered into the auction have a reserve price, this is confidential and not disclosed to any interested parties. It is subject to change.
The person who conducts an auction. The auctioneer introduces each lot offered for sale, acknowledges bids, and announces whether lots are sold or unsold and their final bid prices. Also refers to persons whom the seller instructs to direct and conduct the marketing of the property and subsequent sale by auction.
A cheque drawn by a bank usually on its own Head Office. It is generally accepted as the equivalent as cash although it needs to be paid into the bank's clearing system in the same way as any other cheque.
The offer to buy a property at a specific price.
Bidding at an auction is fast paced with approximately twenty to thirty lots being sold per hour.
Refers to any price offered by the bidder.
The excitement and competition in the auction room can fuel bidding wars and the sale price achieved may be far in excess of what anybody had anticipated or predicted.
This usually refers to a successfull bidder who will buy a property at auction without having viewed it.
A property viewing appointment for all interested people to attend at the same time.
A type of short term loan, generally used as an interim loan before the arrangement of larger or longer term financing. Typically paid back when the property is sold or refinanced with a traditional lender. Tends to be more expensive than traditional loans and mortgages, but they are usually arranged quickly and with relatively little documentation.
Buyer's Administration Fee
A payment made by the purchaser to the auctioneer at the point of exchange to cover the cost of concluding the sale and managing such matters as the Money Laundering Regulations.
A fee which is payable by the buyer to the auction house. It may be calculated as a proportion of the property value, such as 1% or 2% of the hammer price paid but can also be a fixed fee per lot.
Buying After Auction
If a property fails to meet its reseve it will be classified as unsold, however it will still generally be available for sale after the auction, usually at the reserve price. The main advantage of buying unsold property after auction is that the auctioneer will generally disclose the reserve price.
Buying Before Auction
In some cases it is possible to buy a property before auction. If an offer is accepted before auction the usual auction sale conditions still apply. This means a 10% depost will be required and contracts will be exchanged. The sale will complete in the same timeframe as specified in the auction conditions. The main reason why people offer on a property before the auction is to secure the deal.
When a property increases in value over time, it is known as capital growth. Capital growth also known as capital appreciation, is the price appreciation on an investment relative to the amount which was initially invested. For example, if a property was bought for £100,000 and the value increased to £150,000, the capital gains yield is 50%. Capital gains yield = (market price of a property – original purchase price) divided by original purchase price x 100
This is the term used to describe buyers who are funding the purchase from their own resources and not having to look to banks or other funding sources. It must be stressed they are not arriving at an auction with suitcases of cash - as under the Money Laundering Regulations, auctioneers cannot accept amounts of cash in excess of £9,000 and most will not accept any amount of cash as a deposit.
The catalogue gives a description of the property details and how to view each property and the general Conditions of Sale.
Certainty Of Sale
When buying a property at auction, so long as the highest bidder is at or above reserve, the 'deal is done'. There is no scope for gazumping or gazundering, it's yours, as exchange of contracts takes place on the fall of the gavel or in the case of 'sold prior' and 'sold post', the exchange takes place when both parties have signed the memorandum.
Clearing House Automated Payment System - the system allows for the payment of any amount to be transmitted electronically by one bank or branch to another on the same day. This is the most common method of transferring funds between lawyers on completion of a property purchase.
Special conditions that may form part of a contract of sale. This is quite common with land being sold at auction. For example, a vendor may require the buyer to make additional payments if and when planning permission is obtained for development, or when such a planning permission is carried out. The payment is in addition to the agreed purchase price and is usually a % of the increase in the value of the land.
Funds available immediately. Cheques will be special cleared following the auction so you must ensure you have the funds immediately available to cover the deposit.
The term used for business bank loans. Commercial lending can be placed on the property purchased at auction, or it can be charged against a different asset by the borrower. This allows the borrower to ‘drawdown’ funds to purchase a property, but does not necessarily mean the loan is secured on the property bought.
The date by which the sale scheduled to be finalised. There is usually a defined time period from the auction to the completion date. The purchase price is paid in full by the buyer’s conveyancer and received by the seller’s conveyancer. Completion can take place at the same time as the exchange of contracts but is usually 4 weeks later. The seller must move out of the property on this date and release the keys to the buyer, who may move into the property. Penalties will be applied if the sale is completed late which can include losing your deposit.
In a conditional auction if the highest bidder is at or above reserve at the close of the auction, the buyer must place a non-refundable reservation fee to secure an option to exchange contracts on the property. The buyer is then given 28 days to exchange contracts and a further 28 days to complete the purchase. Failure to exchange contracts within the prescribed time frame may lead to the purchaser losing their deposit.
Usually 10-15% of the total budget to cover any unforeseen issues.
A signed agreement in writing for the sale of the land agreed between the Buyer and Seller containing all the terms agreed between them.
The transfer of legal title of property from one person to another, or the granting of an encumbrance such as a mortgage.
Conveyancing Legal Fees
The cost of the conveyancing work will vary according to the value of the property and the amount of work which is required.
An agreement which is contained in the deeds where a person agrees either to do or not to do something in relation to the property.
Decision In Principle
Where you get an agreement from the lender for the mortgage you require based on initial assessment of your circumstances.
The sum paid on exchange of contracts to secure the purchase, normally 10% of the purchase price but sometimes subject to a minimum figure. The deposit is a part payment on a guarantee that the Buyer will complete the purchase. If the Buyer unjustifiably refuses to complete, the deposit is forfeited and kept by the Seller, less Agents and Solicitors fees.
Provides a pre-approved facility, which can be drawn down gradually, as and when you need it. Enables you to borrow what you need now with the facility to take further funds later on with minimal paperwork.
Essential Information Group 'The Home of Property Auctions' and industry leader in providing Property Auction information & results.
An Energy Performance Certificate (EPC) is a guide that potential buyers or tenants would review when they look at a property. Its main purpose is to shows how efficiently a home uses energy and an estimate of the cost of running a home. Sometimes they can include recommendations on how to improve the energy efficiency of the property.
Epitome Of Title
A chronological index of documents which prove title to the land to be mortgaged or sold. It is accompanied by photocopies of the relevant documents.
Exchange Of Contracts
In an auction the exchange of contacts take place on the fall of the gavel and the relevant terms of the contract such as address, purchase, vendor, price etc are recorded in the Memorandum of Sale. The successful bidder at the auction will be asked to sign the memorandum of sale in the auction room. The Auctioneer has the authority to sign the Memorandum on behalf of both buyer and seller. The purchase is not actually complete at this point, but there is a legal obligation for the purchaser to buy and the vendor to sell.
A legal term referring to a person named by the maker of a will or nominated by the testator, to carry out the instructions of the will.
Fall Of The Gavel
The fall of the gavel in the auction room is binding and it is at this point that contracts for the lot be offered are exchanged.
Refers to the highest bid accepted and at which a lot is knocked down if it is at or above reserve, but will be unsold if it is not.
The Property Title document will show any financial charges registered against the property such as a mortgage lender. The purpose of registering a mortgage is to ensure that anybody who deals with the property will have notice that there is a mortgage which takes priority to subsequent legal interests.
A term used to describe purchasing an asset and quickly reselling (or 'flipping') it for profit.
If you own the freehold, it means that you own the building and the land it stands on outright, in perpetuity. It is your name in the land registry as “freeholder”, owning the “title absolute”.
A gavel is a small ceremonial mallet commonly made of hardwood, typically fashioned with a handle and often struck against a sound block. It is a symbol of the authority and right to act officially in the capacity of chair.
The term used to refer to when a seller accepts an offer from one potential buyer, but then accepts a higher offer from someone else. One of the advantages of buying at property auction is that this cannot happen, but it can happen when buying through private treaty via estate agents.
Applies only to sales by private treaty as the benefit of buying at auction is that exchange of contracts is deemed to be on the fall of the gavel. Under English law, the price you agree on is not definite until the 'exchange of contracts'. Up until that time, either party can try and re-negotiate the terms of the contract and if the prospective purchaser attempts to lower the price this is called Gazundering.
The periodic, though usually annual, rent payable in return for a lease of land or property.
Guide prices are provided as an indication of the vendor's minimum expectation. They are not necessarily figures which a property will sell for and may change at any time prior to the auction. Virtually every property will be offered subject to a Reserve (a figure below which the Auctioneer cannot sell the property during the auction) and which should be set within the Guide Price Range or no more than 10% above a single figure Guide Price.
Habitable Property Test
The property must have a kitchen sink and a toilet to be deemend habitable.
Many buyers will buy unsold properties after auction and this practice which is known in the business as ‘hawking’, is fairly common. The main advantage for buying unsold property after auction is that the auctioneer will generally disclose the reserve price.
Previously known as the Homebuyers Survey and Valuation (HSV) and often still referred to as a Homebuyers Survey, was introduced in 2009 and is completed within a standard format as laid down by RICS. It will not detail every single aspect of the building, but it does spotlight urgent matters that have a substantial effect on the value of the property and need attending to or further investigation.
It is often the case that auction houses put the lots which they believe will be the most popular towards the front of the catalogue. Typically, lot 1 will be a ‘hook’ to ensure plenty of people get excited by the catalogue and also attend the auction early hoping to pick up a bargain. Some auction house may also use ‘reverse hooks’, in which they hold back some of the most popular properties until the very end to ensure bidders attend auctions towards the end of the day when the room may have quietened down.
House Price Index (HPI)
An official statistic that captures changes in the value of residential properties in England and Wales.
In The Room
A bid from someone in the auction room (not by phone).
The bid increment is the amount by which the current high bid is raised each time someone places a higher bid.
Property held in joint names can be held in one of two ways, with significant differences for each. Beneficial Joint Tenants or Beneficial Tenants in Common.
Whilst the auctioneer prefers to regulate the bid increments, it is possible to offer a different increment than the auctioneer proposes. This bid increment can be both higher and lower. A higher bid increment, also known as a 'jump' bid. This can be used by people to upset the rhythm of the bidding and jump the bidding to the next price level.
A UK government department created in 1862 to register the ownership of land and property in England and Wales.
Land Registry Search
www.landregistry.gov.uk provides a reliable record of information about ownership of and interests affecting land and property in England and Wales.
Leasehold means that you just have a lease from a superior landlord, often the freeholder (sometimes called the landlord) to occupy the property for a number of years. The leases are usually long term – often 90 years or 120 years but as high as 999 years – but can be short, such as a matter of months. A leaseholder has a lease with the freeholder, which sets down the legal rights and responsibilities of either side. The freeholder will normally be responsible for maintaining the common parts of the building, such as the entrance hall and staircase, as well as the exterior walls and roof. However, other leaseholders might have claimed their “right to manage”, in which case it is their responsibility. Leaseholders will have to pay maintenance fees, annual service charges and their share of the buildings insurance. Leaseholders normally pay an annual “ground rent” to the freeholder. Leaseholders will have to obtain permission for any major works done to the property. Leaseholders may face other restrictions, such as not owning pets or subletting. If leaseholders don’t fulfil the terms of the lease – for example, by not paying the fees, then the lease can become forfeited.
The vendor's solicitor prepares a legal pack containing copies of all the legal papers that you and your solicitor are likely to need to make an informed decision about your lot. The pack should include (where applicable) copies of: special conditions of sale, title deeds, leases, office copy entries, searches & replies to pre-contract enquiries. All legal packs will be available for inspection at the auction room and beforehand either online or at the auctioneer’s office. You must be aware that you buy subject to all documentation and terms of contract whether or not you have read them.
An agreement voluntarily entered into by two or more parties that is enforceable by law.
Local Authority Disposals
Housing Associations and Local Authorities commonly use auction to dispose of properties which are deemed financially unviable or surplus to requirements. These bodies have a public duty to show accountability for their actions and that the best price was achieved for the property. Selling via auction is seen to reflect a fair market price of that property at that moment in time.
Local Authority Search
Refers to the provision of specific information about a particular property and the surrounding areas for buyers and sellers. This is undertaken as part of the conveyancing process by a solicitor. If you are borrowing money to finance the purchase it will normally be a condition of the advance that you obtain a local search. If you are not having finance it is your option whether to have a local search or not.
Each separate property described in the catalogue or (as the case may be) the property that the seller has agreed to sell and the buyer to buy.
An amount by which something is won.
Memorandum Of Contract
A form preceding a contract of sale, in which two parties agree upon the same objective - the sale / purchase of a property.
Memorandum Of Sale
After an offer has been accepted on a property, the agent selling the property produces a 'Memorandum of Sale'. The Memorandum of Sale lists the buyer, vendor, buyer’s conveyancing solicitor and vendor's conveyancing solicitor and confirms the price the buyer has agreed to pay for the property. The selling agent distributes this document to the various parties.
The stock of an auction house tends to influence the sort of buyers attracted to the sale. Some of the best auction buys can be when a property is mismatched to the auction house & audience. For example, a regional auctioneer selling a property 'out of area'.
Refers to an untrue statement made by one party, which is not only relied upon by the aggrieved party but also induces them to enter the contract, causing them to suffer loss.
Money Laundering Regulations
Money laundering means exchanging money or assets that were obtained criminally for money or other assets that are 'clean'. The clean money or assets don’t have an obvious link with any criminal activity. Property Auctions require all buyers to comply with the ID verification process to comply with the regulations.
A legal agreement by which a bank or building society lends money at interest in exchange for taking a charge on the title of the debtor's property.
A mortgage valuation survey is commissioned by the lender in order to establish the value of the property. This will be taken into account when the mortgagor is deciding the maximum amount they will lend against the security of the property. It is not a detailed or in-depth report as to the condition of the building.
Provides a wide range of information about a neighbourhood including: population make-up, economic indicators, learning achievement, health, issues of crime and community safety, culture and available facilities.
Off The Wall
If an auctioneer is auctioning a lot but the level of bidding has not reached the reserve price, the auctioneer is permitted by statute to bid on behalf of the vendor, also known as 'off the wall'. This bidding pattern can then continue with the auctioneer bidding on behalf of the vendor up to but not including reserve.
Office Copy Entries
The documents produced by the land registry showing the contents of the electronic register for a property.
A service in which auction users or participants sell or bid for products or services via the internet.
Resource information that can be searched for and accessed via the internet, such as legal documents, local area knowledge, price trends, property details, property websites, search alerts and watching auction live are some examples.
A lot will be offered for sale with the auctioneer proposing an initial price to the room. If no interest is shown, the auctioneer will rapidly reduce the asking price of the lot to try to increase attention. If the room remains unresponsive, he will ask the audience for a starting bid – this will usually spark interest and a price will be shouted out from somebody in the room. The auctioneer will then commence bidding from that start price.
Some auctions use a paddle bidding system where bidders register to bid at the start of the sale and are given a paddle with their buyer’s number on it. If one wants to bid one holds up one’s paddle.
Per Annum Exclusive, this means that the yearly rent quoted does not include any other costs, such as business rates, service charge, insurance, utility costs, etc. All these costs are payable in addition to the yearly rent.
In order to enforce the terms of a lease a ground rent must be set, but in the past many leases had tiny ground rents so in some cases freeholders stipulated that the rent should, instead of money, be a ‘peppercorn’ (as used in pepper grinders) to save them the trouble of collecting the money. In theory the freeholder could still demand the peppercorn but in effect it means there's no ground rent to pay.
Ground rent is still charged by landlords, and is a condition of most leases. Ground rent is usually a small amount, typically £50 to £300 a year. If the amount is very small, or notional, it may be described as a ‘peppercorn rent’.
Planning Applications And Consents
As part of your due diligence it is wise to check the appropriate planning consents are in place for any property you are interested in. Plus, if any changes have been made to the property, ensure these have the required permissions or regulation approval.
If you wish to place a pre-auction offer you will need to speak to a member of the auction team who can explain the process. The vendor can consider offers prior to the live auction, but this is at their discretion.
Some but not all auctions require bidders to register in advance in order to bid.
Previews Or Exhibitions
A viewing of the property held in advance of the auction. Pre-auction viewings are open to the public and may be attended at no charge.
If you want to try and buy a property in advance of the auction it is possible to put in an offer in writing via the auctioneer before the auction date.
The sale of a property at a price agreed by the seller and the buyer or their agents.
Proof Of Funding
Usually in the form of a letter or bank statement, providing proof that the funds to purchase are available and ready to be used.
The auctioneers can undertake bidding on behalf of buyers unable to attend the auction in person. The buyers must contact the auction house prior to the auction to obtain an official, proxy bidding form. This must then be returned to the auction house with a deposit cheque within the time specified by the auctioneers. The buyer writes the maximum amount they will bid to on the form and the auctioneers will bid on behalf of the buyer, up to, but not beyond, the stated price.
A ratio that shows the amount of rental income received in a year relative to the purchase price of the property.
A property that has been taken back by a financial institution, for example, due to non-payment of the mortgage agreement.
To revoke, cancel or repeal (a law, order or agreement).
This is the minimum price that a seller is willing to accept for a subject property. This is a figure that the property will not be sold for less than. Reserve prices are not published; this is a private agreement between the auctioneer and the vendor and only known to them. The reserve can be subject to change at any time.
There may be a retention clause in a mortgage agreement where the lender may not be prepared to release the entire mortgage advance straightaway, some of the money could be retained until specified work is completed, for example properties are not deemed habitable until a toilet & kitchen sink are fitted.
Some auction house may use 'reverse hooks', in which they hold back some of the most popular properties until the very end to ensure bidders attend auctions towards the end of the day when the room may have quietened down.
RICS stands for Royal Institution of Chartered Surveyors
They are the global professional body promoting and enforcing the highest international standards in the valuation, management and development of land, real estate, construction and infrastructure.
Risk To Reward Ratio
Buying property at auction involves a number of risks and the reward for those risks should result in a lower purchase price than if you had bought through an estate agent. In buying property at auction and the speed with which the sale is made, it is critical you price the uncertainties. Unless a profitable RTRR exists there is no commercial incentive to buy at auction rather than through an estate agent.
A raised platform on which the auctioneer may stand to conduct the auction.
Schedule Of Works
A list of what you plan to do to the property so that contractors are able to quote on the project. This makes it easy to compare and contrast builder's quotes and to identify any areas of unusual expense.
To help you in your search for a suitable property there are web services available where you can set up search alerts with your specific property search criteria
If you intend to sell a property after refurbishing it then this expense needs to be added into the total costs.
Service charges are fees that most leaseholders pay to cover their share of the cost of maintaining the building they live in.
When you own a leasehold property you might have to pay into a fund to help cover any unexpected maintenance or repairs, like replacing the roof. There are rules about how landlords must manage these funds. You won’t usually be able to get back any money you pay into them, for example if you sell the property on.
Special Conditions Of Sale
Contractual terms that are specific to each lot offered. These are generally not printed in the catalogue but will be attached to the contract.
In addition to the auctioneer there will also be 'spotters' around the room who call attention to bids the auctioneer might not otherwise see because of the size of the audience or the layout of the room.
Stamp Duty And Land Tax (SDLT)
A tax charged on land and property transactions in the UK and is payable on completion.
Refers to the initial price at which the auctioneer offers an item for sale.
This refers to the properties that are for sale in an auction catalogue. Stock is the available property an auction house has listed for sale. Auction houses tend to specialise and become known for their type of stock.
An assessment of the condition of the original structure, checking that it has not substantially deteriorated or been modified so that it cannot perform as it did when originally built.
A survey for a property can be a condition report as the physical state of the subject property or it can be the process by which drawings and plans of the building or land are drawn up. If it is the former it could just be to ascertain the value of the property (valuation survey) or could be to give a detailed condition report of the property.
A telephone bid, made by a member of staff from the auction house. The staff member telephones the bidder from the saleroom to bid on particular lots and relays the bids to the auctioneer during the bidding on those lots.
Contracts to occupy or lease the property subject to rent. A lot may be sold subject to existing tenancy agreements.
A property that has been rented out. When an owner who has let their property wants to sell it, they have two choices; to sell subject to the tenancy or, to sell with vacant possession on completion.
A traditional auction is also known as an unconditional auction: When a property is sold in this way a 10% deposit is paid and contracts are exchanged immediately. Completion normally takes place 28 days later.
If a lot does not sell during the auction you can approach the auction staff and register your interest before you leave the auction room. They will then contact the vendor with your offer. You can also contact an auctioneer in the days and weeks after an auction and bid on unsold lots as well.
A property that will not be occupied at the time of completion.
Valuation Of Property
An estimation of the current and potential worth of a property.
Value Added Tax, a tax levied on the sale of goods or services by UK businesses, currently at a standard rate of 20%.
The person or company offering the property for sale.
The dates and times that a property is available via the auction house for access and inspection.
The opportunity to gain access to and look at and inspect the property to be auctioned.
‘Virtual Freehold’ is a generic term not a legal term and is used to describe a lease where the length of lease is far longer than the norm (which is typically 99 to 199 years). The length in a ‘virtual freehold’ will normally be 999 years and crucially the ground rent would be a ‘peppercorn’. To put this in perspective if William the Conquer had been granted a virtual freehold when he arrived in 1066 he would still have 48 years left to run!
The benefit of it is that because the tenure the owner has is leasehold and not freehold, the lessee is more easily bound to comply with obligations under the lease rather than relying on covenants in the title.
The action of removing a property from sale.
If a property is sold prior to auction or when there is a failure to reach the reserve price from insufficient bidding the auctioneer will withdraw the property from the auction.
From a legal point of view, vendors of the property do not usually answer any written enquiries whatsoever about the property being sold. The standard auction conditions of sale prevent the buyer or his solicitor from raising any questions about the property once the hammer has fallen.
A yield is the return expected on a property investment. When a property is being bought as an investment, the yield needs to be calculated. A yield is made up of; the rental yield and the capital yield.