Key differences between Auctioneers and Estate Agents
Estate agents offer property within a very tight radius of their office (just a few miles) whereas auctioneers work over a much wider geographical area. Several London auctioneers cover the whole country. This means that you can't rely on just following your local auctioneer to monitor your local market.
Differences in the buying process
Estate agents - You make an offer, have it accepted, do your due diligence, then exchange.
With auctioneers - You view the property, do your due diligence, bid, and if you are the highest bidder at or above reserve, you exchange contracts on the fall of the gavel.
Estate agents usually quote an asking price and this represents the price that the vendor will generally, subject to contract, accept for the property. You may even be able to negotiate a reduction on it. This is known as 'sale by private treaty'. In the auction environment, the Auctioneer will generally quote a guide price which could be up to 10% below the reserve. The reserve is the minimum price that the auctioneer is authorised to sell the lot for on auction day. Depending on the bidding in the room the final sale price could end up being considerably more than the guide price and only on rare occasions will it be below the guide price. In essence when buying through estate agents the price start high and is negotiated down by the buyer, but in auctions it starts low and is bid up by bidders.
Legal position when the offer is accepted via private treaty and the hammer falls on a successful bid in an auction
Generally when an offer is accepted in the usual estate agency sale routine this is subject to contract and there is no legal obligation for the purchaser or seller to proceed with the purchase, and wither party is at liberty to either walk away from the deal or re-negotiate the deal. In the auction world, the fall of the gavel creates a binding contract between the parties and both are parties are bound by the terms and conditions that formed part of the contract of sale. Neither party can change their mind without risking adverse legal consequences.
The stage in the process when the parties should be considering the legal documentation, condition of the property, and the financing of the property.
In a private treaty sale this is generally done after an offer has been accepted though it would be prudent to have a source of finance confirmed prior to making an offer to avoid wasting the vendor's time. In the auction sale because he exchange of contracts takes place on the fall of the gavel all of the pre purchase diligence in respect of the legal documents and structural condition of the property should be done prior to bidding as well as ensuring that finance will be available in time for both payment of the 10% deposit and completing the purchase on the appointed time.
(Note: A small % of lots are sold on a conditional basis where the purchase is not purchasing the property on the fall of the gavel but merely buying an 'Option to Purchase at the hammer price')
Whilst at the vast majority of auctions the fall of the gavel represents the exchange of contracts for the sale of the property, Conditional sales are becoming increasingly popular especially in the northeast and currently 9% of residential lots offered nationally are done so on a conditional basis and for the North East this rises to 43%.
With a conditional sale rather than exchanging contracts on the property when the gavel falls you are purchasing an option to purchase the lot at the hammer price you bid to. The cost of this option will vary from auction house to auction house, but typically it is a % of the hammer price and often subject to a minimum amount. Being an option it is also subject to VAT. You are strongly advised to fully understand what your liabilities are as they will vary depending on the auctioneer, but generally you will have 28 days in which to do your due diligence and exchange contracts for the purchase of the lot. Should you not exchange within this time frame the vendor would be at liberty to re offer the lot and you would not be entitled to repayment of your option fee.
By David Leary