Buying or Selling a Property by Auction?

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Ultimate Guide to Buying & Selling Property by Online Property Auction

Buying / Selling in a Property Auction - An Intro

An online property auction is simply an auction in which the bids are placed online. In pre-Internet times, all the interested parties would gather together in one location, typically a hotel, and place bids by raising bidding paddles in the air. When the bidding would run out of steam, the auctioneer would proclaim “going once, going twice” and assuming no further bidders emerge, shout “sold” while banging the gavel to signify that the auction had closed.

With the Internet, the need for people to colocate in order to bid on a property is rendered redundant. Interested parties register to bid online and the “going once, going twice” drama is replaced with a more clinical, yet equally effective, online countdown timer. The net result is the same: the highest bidder buys the lot.

How Does an Auction Differ from a Private Treaty Sale

The vast majority of properties sold in Ireland are sold by private treaty. This is the process with which most buyers and sellers are familiar. The estate agent provides guidance to the vendor in terms of a guide price or asking price and the property is listed for sale on Daft and MyHome. Interested parties attend viewings and make offers. The highest offer is presented to the vendor and if this is acceptable, the estate agent collects a booking deposit and the property is marked “sale agreed”. None of this has any legal basis at all. The buyer and seller can change their minds without penalty and the buyer can request their booking deposit back at any point up until contracts are signed.

The estate agent then issues a sales advice note to both sides solicitors to apprise them that a sale has been agreed, subject to contract. The vendor’s solicitor issues contracts to the buyer’s solicitor. During the sale agreed period, the purchaser arranges for a survey to be done and if relying on a mortgage, will further require a bank valuation to be carried out. This conveyancing part of the process is run using antiquated offline systems and regularly drags on for months on end as the solicitors tortuously fumble the sale over the line. There is no desire or incentive for the legal profession to improve the conveyancing process so we’re stuck with it; it is what it is as they say.

Private treaty sales are characterised by their flexibility and lack of clarity. There is no clarity in terms of how long the property will stay on the market or how long the conveyancing will take. Offers can be withdrawn as can provisional acceptances of offers. Offers can be changed after the survey has been completed. It is a wooly, flexible, ill-defined process that takes several months and generally frustrates all those who partake in it. But for amateur buyers (the vast bulk of the market), this lack of legal rigidity is also the attraction. Buyers find making legally binding bids daunting and will shy away from auctions as a result. Vendors looking to maximise the value of their property will not want to diminish the buying pool so will tolerate the lack of clarity in return for ultimately getting the highest price. The flexibility of private treaty is its chief drawback as well as its main attraction at the same time.

Auctions are very different propositions. Everything is clear cut and rigid. Bids are legally binding and can’t be withdrawn once placed. Once the reserve price has been met, the vendor is bound to sell the property. Legals are uploaded to our website in advance of the bidding. Buyers’ legal representatives study the legals in advance of placing their bid. Likewise should the buyer wish to carry out a survey, they can do so but again this happens before the bid, not after as in private treaty. Once the auction finishes, contracts are signed and the bidder is legally obliged to close the sale as per the terms of the contract or risk losing their bidding deposit and being pursued for specific performance of the contract.

An argument could be made that auctions are the preferred selling mechanism for when closing certainty trumps value maximisation and private treaty the preferred method when value maximisation is the main goal. Oftentimes auctions offer both as competitive bidding drives prices upwards.

What’s the Difference between a Reserve Price and an Asking Price and a Guide Price?

A reserve price is set only for auction properties. It is the minimum price that the seller will accept for the property. Once a bid of this amount, or more, is made the seller is obliged to sell. Guide price and asking prices relate to private treaty sales and are merely an indication as to what the vendor is expecting in terms of the sales price. While a reserve price has legal implications, a guide / asking price has none.

Can I Bid on an Auction Property if I am Mortgage Approved?

There is a perception that buying properties at auction is the preserve of sophisticated professional investors buying with cash. Amateur, family buyers relying on mortgages to finance their bids tend to shy away from auctions. It is possible to bid at auction based on mortgage approval. However, extreme care should be taken when doing this. As mentioned, unlike private treaty sales where offers can be withdrawn without penalty at the drop of a hat, bids at auctions are legally binding.

A careful conversation with your lender will be required to ensure that funds will be available to you to close the sale in line with the terms of the contract. Anything less than closing on the date specified on the contract will cause major problems. So while it is possible, non cash buyers should bid at auction only after close liaison with their lender and solicitor and having fully informed themselves as to the consequences of placing a bid. For example, in a private treaty sale, the bank will send a valuer to the property once sale-agreed. They will lend to the borrower the agreed percentage (eg 90%) of the value ascribed to the property by their valuer regardless of the amount the buyer has agreed to pay. If there is a shortfall, the buyer either makes up the difference or withdraws their offer. In auctions, there is no option to withdraw your bid so if relying on a mortgage, having a professional valuation carried out in advance may be worth considering. Even with this, there is no guarantee that your lender will agree with this valuation so having excess cash on hand to make up any shortfall would be necessary.

Are All Properties Sold at Auction Distressed?

A distressed property sale is one where the owner of the property is being forced to sell, typically owing to their default on the mortgage secured against the property. When a borrower stops making payments on their mortgage, they can ultimately lose control of the property and the lender can install a receiver, who in turn engages an estate agent, to sell the property to recoup their client’s money. The receiver is typically paid the same amount regardless of the price achieved and the charge holder (the lender) can only take from the sale the balance owed to them so the incentive to drive value maximisation is somewhat muted compared to a family selling a property with a view to trading up. A receiver will typically prioritise closing certainty over value maximisation and as such, distressed properties typically are sold by auction. However, any vendor can choose to sell by auction. For example, they may do so if they have been through a tortuous conveyance in the past and vowed to never do that again. So while it is possible to sell any property by auction, the majority of properties sold in this way do tend to be somewhat distressed and accordingly bargains can be found for those with the stomach for the rigidity of the format.

The seller’s legal representative’s details are listed on the Auctioneera website. Queries can be directed directly to these solicitors. All available legal documentation for the property is available to view in the “legals” section of the website. It is the bidder’s responsibility to ensure that they are satisfied with the legal documents provided as no further queries can be raised once the bidding closes. Some properties listed at auction are ones with legal title issues that won’t make it through a traditional conveyance. Accordingly, it is crucial that the bidder’s legal representative advises the bidder in advance of placing a bid.

Can I Have the Property Surveyed Before the Auction?

Yes a survey may be arranged prior to placing a bid. Once a bid is placed, it is done so based on the property on an “as is” basis i.e. the bidder satisfies him/herself as to the condition of the property and bids accordingly. While defects discovered during a survey can be used as a reason for negotiation in a private treaty sale, this is not the case in auctions. The property is being sold “warts and all”, so to speak.

Are the Contents Included in the Sale of an Auction Property?

This is specified in the legal documents for that property. Oftentimes, the receiver will have very limited knowledge as to the contents of the property. In order to ensure no liability for the seller, the contracts generally state that the seller has no familiarity with the contents. The contents are not included in the sales price as to do this would mean that the purchaser has paid for them and for example, if some contents were subsequently repossessed owing to unpaid finance, the purchaser would look for recourse from the seller. The contract generally further reiterates that while the contents are not included in the sale, the seller takes no responsibility for disposing of the contents once the sale closes. So the contract essentially says: we don’t know what’s in there and whatever is there you can keep but you didn’t pay anything for it and have no recourse should there be any defects or charges against the contents. Legal advice should be sought to ensure that you are clear on the status of the contents of a property before placing a bid.

What is the Bidding Deposit?

This is an amount that must be paid to Auctioneera in order to bid on a property being sold by auction. If your bid is not the highest, then this amount is refunded or left on account for the next auction. If your bid is successful, this is retained by Auctioneera and deducted from the sales price of the property i.e. it becomes a partial payment towards the property and is no longer refundable.

What is the Processing Fee?

The processing fee is a non-refundable fee paid to Auctioneera in order to bid on one of our properties being sold by auction.

What Happens Once the Auction Closes?

Once the auction closes, the underbidders are contacted to advise us as to whether they want their bidding deposit returned or to leave on account with Auctioneera, available for use when bidding on future properties.

The Auctioneera agent in charge of the sale digitally signs the contracts on behalf of the top bidder and the seller and forwards a copy to both sides’ solicitors. The buyer and seller’s solicitors then liaise in order to close the sale as per the terms on the contract. It is crucial that the top bidder is in a position to expeditiously close the sale after the auction as failing to do so will expose him/her to serious legal consequences.

Congratulations, Your Offer Has been Placed and Is Now the Highest!