Buying at Auction
What to watch out for
There are at least 3 main reasons for selling a property by auction as opposed to through an estate agent (private treaty sale).
1. Good Market – Prime Location
Traditionally properties at the higher end of the market in prime locations are suitable for sale by auction. A solid redbrick house in Dublin 4 or 6 would be intensively marketed with the view to build up interest in the property. The expectation is that 3 or 4 bidders would turn up at the auction house, which would result in the highest possible price for the property. When the auction process works well, then it works very well for the seller. The acid test is how many contracts have been issued by the seller’s solicitors prior to auction and how many surveys have been carried out on the property.
On the day, the auctioneer is on tenterhooks to see if the people who expressed interest in the property actually turn up. The auction starts when you have more than one person bids for the property. Once the auctioneer says the property is now on the market (“the property is now on the market”) this means that the reserve figure for the property has been reached and the property will now be sold to the highest bidder. The purchaser will be expected to sign a contract straight away after the auction ends and pay a 10% deposit.
If there is only one bid on the property the auctioneer will normally withdraw the property and negotiate with the bidder with a view to selling and signing contracts that day.
It is for this reason that the title and the planning of the property must be investigated pre-contract.
Online auctions have become popular in the last while. The Contract and legal documentation is posted online and bids are accepted electronically. The bidders authorise the auctioneer to sign the Contracts. The Contract deposit is paid electronically.
2. Receiver Sales
A receiver is normally an accountant who is appointed by a bank or a lending institution in accordance with the mortgage registered against the property in order to sell it.
The easiest way for a receiver to sell the property is to put it up for auction, whether physical auction or online auction.
The receiver and the bank will work out the reserve price. Once the reserve has reached the property is sold.
Auctions are public.
Banks like auctions because:
- If the reserve is low enough then the bank can be almost certain that the property will sell.
- Because auctions are public the bank is not open to a charge that they undersold the property.
- The price at auction is the market price for that property on that particular day
3. Bad Title and Planning Problems
Some houses are unsaleable because the title showing ownership to the property is badly flawed or there are big planning problems. However, almost any property can be sold by auction. The special conditions contained in the contract for the sale can be carefully drafted to exclude the defects and liability of the seller for same. It is up to potential purchasers to review the title, read the contract and the special conditions and form their own opinion. This is a classic case of “caveat emptor” (buyer beware).
Sometimes professional buyers will, with their legal advisors, buy a property with legal or planning problems. They will be fully aware of the problems. They will negotiate in detail the terms of the special conditions to reduce their affect. The professional buyer will expect a discount but have a plan to sort out those problems.
Auction buyers needs solicitors and surveyors prior to Auction
Other times unwitting buyers will go to an auction not having instructed a solicitor and/or without a survey. They unwittingly buy a property with title and planning problems or problems with the condition of the property itself.
If they are borrowing money to buy the property, the lender will expect their solicitor to furnish a certificate of title to say that the title and planning is in order. If the solicitor is unable to do so it may cause real difficulty. Usually the closing date for a property bought at an auction will be 4 weeks after the signing of the contracts. The four week closing period is never enough time to remedying long standing title or planning defects.
Four Week deadline to complete
If the sale is not completed within 4 weeks a 28-day notice will be served by the seller and interest at a high rate, 8% to 12%, is charged. If the property is not closed within the 28-day period then the seller is entitled to rescind the contract, forfeit the deposit and resell the property. If the seller resells the property within 1 year for less, then they can sue the purchaser for difference in price. Alternatively, the seller may decide to sue for specific enforcement of the contract. This would normally only happen if the seller thinks the purchaser is a person of means – “a mark”.
It is therefore vital to have the following matters sorted before attending an auction.
- Instruct the solicitor to read the title and the contract for sale.
- Survey – Have a survey carried out.
- Planning – Carry out a planning search.
- Finance – Have finance in place before attending an auction.
Get your questions answered.
Ethna is also well versed in Landlord and Tenant law acting for both Landlords and Tenant in the negotiation of leases and advising on the parties respective rights.
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