Blog Post

Is the ‘Hammer price’ all you pay when buying a property at auctions?

Publish Date: 10 February 2021

By Priscilla McGregor-Kerr


Is the ‘Hammer price’ all you pay when buying a property at auctions?

Further reading

Charity Auction using EIG technology

Well the short answer is “NO” and in this article I will explore the various fees and costs that you might have to pay when purchasing a property at auction. These additional costs come in several different forms, and it is important to ascertain when carrying out due diligence on a property as to  the extent at which additional fees and costs will be payable over and above the hammer price.  These additional amounts over and above the basic purchase price could add a significant % to the  total cost of the project, well in excess of 10% in extreme cases.  

It should also be noted that most, if not all of these fees, will fall outside what a lender will assist  with, and would have to be funded from other means. For example, you have a line of funding that  will lend 75% of the hammer price, and you purchase a lot for £200,000. In addition, there is a total  of £15,000 in acquisition costs such as stamp duty, buyer’s premium and contributions to vendor  costs. The total cost of acquisition would be £215,000, but the lender will only lend 75% of the  hammer price £200,000, and not 75% of the total coasts £215,000 leaving you to fund 100% of these  additional costs. 

So what are the potential additional costs? Let’s examine each one in turn. 

SDLT, or more commonly known as Stamp Duty 

This is a duty payable to HMRC, subject to the sale price being above certain thresholds, whenever a  property is sold. The amount payable depends on four main factors: 

  1. Both residential and commercial have a threshold under which no stamp duty may be  applicable. 
  2. Is it residential or commercial? Different rates apply and generally commercial is less.
  3. Is the purchaser a person or a non-natural entity i.e. company etc., and if so higher rates  may apply? 
  4. If it is a person and they already have an interest in a property, then there will be a liability to pay a surcharge of 3% on top of the standard rate. 

Generally, the higher the price the greater the % payable on the total value. 

I have not attempted to explain the rules and rates in this article as space does not allow it, merely  to flag that SDLT is a complex calculation and in order to ascertain your potential liability one should  either use an online calculator, (HMRC has a good one on their site) or ask a solicitor or accountant  to advise you given your personal circumstances. The liability can be significant, for example an  individual buying a house for £750,000 to rent out and they already own their own home will pay  £50,000 in SDLT (6.6% of the purchase price). 

Buyer’s administration fees 

Most auctioneers charge a ‘Buyers Administration Fee’ and this is payable by the purchaser on  exchange of contracts and as a separate payment to the deposit that is also payable at that time.  The fees are always included in the auctioneer’s guide to buying at auction which should be carefully read. I have seen the level of fees range from £195 to £1200 inc. VAT though there may be some  auctioneers outside these boundaries. In addition, some auctioneers have a threshold below which a reduced Buyers Administration Fee is payable. Subject to this last point is should be noted that the  fee is fixed at a set level and is not a % of the sale price. 

Buyer’s Premium 

The vast majority of auctioneers charge the vendor a catalogue entry fee and a % commission on the  final sale price, and do not charge the purchaser a buyer’s premium (a % of the hammer price) as  well. However, a growing trend is for the auctioneer to accept entries for sale by auction on the  basis that the seller will not be charged anything by the auctioneer, and the auctioneer will look to  the successful purchaser to pay a % premium as a fee. 

Again, this will be clearly set out in the catalogue and you must be aware as to the potential liability you will have if you are the successful purchaser. The % ranges from 1% to 3.5% (+ VAT) and some  are subject to a minimum fee as well. For lower value properties, this can have a significant effect on what you pay. For example, one firm has a minimum fee of £5,000 + VAT which equates to  £6,000 and this would be payable even if the hammer price of the property was only £30,000 and in  this instance, would increase the cost of the property by 20%. It is also worth noting that the buyer’s  premium could well be added onto the purchase price when calculating SDLT liability so do please  take professional advice on this point. 

Special Conditions of Sale 

The Special Conditions of Sale are additional Conditions of Sale that form part of the contract for the  sale of the lot and are drafted by the Vendor’s solicitor. It is vital that you read and understand  these as they may contain onerous clauses that you will be bound by whether or not you have read  them. In addition, they sometimes appear in the legal pack towards the end of the pre-auction cycle. I should stress though that significant charges for the vendor being found in the Specials are  the exception rather than the norm. Be aware that some solicitors will draft a clause with say “2%”  in it as “two percent”, making it more difficult to spot when skim reading the Specials. In one  extreme case I saw the extra costs in the Special Conditions amount to over 10% of the hammer  price! Do read them very carefully and slowly!  

The type of additional liability you might well find in the ‘Specials’ are: 

  • Contribution to vendor’s legal fees. This could be a fixed fee (sometimes several thousand) though a  figure nearer 2% is far more common. 
  • Contribution to marketing costs. 
  • Pay the vendor’s auction entry fee and commission due to the auctioneer.
  • Cost of Local Authority search fees. These could be in the region of £300. 

Whilst this would not be payable on completion if you were looking to buy a site or  piece of land there could be a clause that stated if you were to get planning permission then you  would have to pay the vendor a % of the uplift in value as a result of the planning permission. You  would need to budget for this eventuality. 


(Please note that the above article is for information purposes only and you are strongly  recommended to seek professional advice to ascertain the exact breakdown of additional costs) 


Written by: 

David Sandeman,  

Managing Director 

Essential Information Group