Sales by auction, or to use the old Scots word, “roup”, have a long history in Scotland and are enjoying a revival in popularity. The aim of this article is to provide an overview of the auction procedure and outline the main advantages and disadvantages of an auction sale from both a buyer’s and a seller’s perspective.
Auctions attract a wide variety of sellers and buyers including government bodies, developers, investors and owner occupiers. Recently, the more unusual lots on offer include: former reservoirs; water treatment works; disused telephone exchanges; former railway land; as well as empty commercial properties and investment properties sold subject to existing leases.
Auction terminology explained
Much of the terminology used in an auction sale is very different from an ordinary conveyancing transaction:
Articles of Roup: This document forms the main auction contract, contains the conditions upon which the property is sold and is effectively an open offer to sell.
General Conditions of Sale: The auctioneers’ own general conditions to which all sales of properties entered into their auction will be subject.
Special Conditions of Sale: The seller may require to include additional conditions which apply to their particular property only. These should be examined carefully by potential buyers as they can include details of reserved rights of access; rights to continue to use services or lay new services over the property being sold; state that the purchaser will be responsible for paying or contributing to the seller’s legal expenses; and give information regarding the VAT status of the property.
Minute of Enactment and Preference: At the auction the successful bidder and the auctioneer sign this document which has the effect of acceptance of the offer (Articles of Roup). It makes the contract binding on both parties and is the equivalent of concluded missives in an ordinary sale.
Reserve and guide prices: The reserve price will be set between the auctioneer and the seller and is the price below which the property will not be sold on the day of the auction. Usually, this is not disclosed to potential bidders. However, the guide price will be disclosed and is intended to provide potential bidders with an indication of how much the property is expected to sell for at auction.
Proxy bidding: Allows a potential bidder to authorise an agent (e.g. their solicitor) to attend the auction and bid on their behalf. Nowadays, most auctioneers also allow telephone and/or internet bidding.
Auction errata: A list of any amendments to the auction catalogue, the Articles of Roup and Special Conditions of Sale for a property which is distributed on the day of the auction to potential bidders. Bidders should make sure they read the errata carefully as it may alter the contract of sale for the property in which they are interested.
Key features from a seller’s perspective
- Certainty: An immediate binding contract is in place.
- Speed: the seller fixes an early completion date (usually 28 days) and achieves a quick sale.
- The purchaser must either have cash to finance the purchase or have funding in place.
- A deposit is paid on the day of the auction, which is usually a minimum 10%.
- An auction sale is not subject to contract or concluding missives at a later date.
- The best price might be achieved through competitive bidding.
- Increased market exposure – auctioneers tend to advertise both nationally and locally and spend heavily on both traditional and online marketing.
- No negotiations or discussions on the condition of property are permitted.
- Buyers can’t introduce any suspensive conditions on the sale, such as obtaining planning permission, surveys, specialist reports, etc.
Key features from a buyer’s perspective
- Buyer beware: If you bid for a property at auction, you are deemed to have made all necessary enquiries about the property and are subject to a legally enforceable contract to purchase as soon as your bid is accepted. Speed: the seller fixes an early completion date (usually 28 days) and achieves a quick sale.
- Pre-auction checks: Do your homework!
Legal: Make sure you instruct your solicitor to examine the title to the property and any special conditions of sale BEFORE the auction.
Local authority: Contact the local council to enquire whether any planning permission for conversion, alterations or change of use required for a property are likely to be available and also to check if there are any outstanding or pending notices affecting the property, which could mean you have to pay out for unforeseen works.
Inspect the property and instruct a survey/valuation if necessary.
Finance: Are you able to fund the purchase within the timescale for completion?
Estimates for works, repairs, etc.: Make sure you know what any repairs/refurbishment plans will cost.
- Know your limits!: Decide on a maximum bid (taking into account finance and legal costs, stamp duty land tax, refurbishment costs) and stick to it.
- Avoid impulse buys: Unless of course you have money to gamble!
Conclusion
Auctions can provide a useful alternative to the traditional method of buying and selling. However, whether you are a buyer or seller - involve your solicitor in the process as early as possible!
Contact
Deirdre Anderson
(Created in November 2006 and may not have been updated at time of reading).