Buying and selling a commercial property at auction

Many more people are looking to make an investment by buying at auction. In the past most properties were placed in auction because there was a problem with them and so they could not be placed on the open market for sale. That is not the case in the current market. Sellers are using auctions as an alternative market place as often it can facilitate a quick sale of the property. Stephensons can provide assistance with buying and selling properties at auction. Call now on 0203 816 9303 for a free, no obligation initial chat with one of our legal advisors or for a bespoke fee estimate.

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Top tips for buying at auction

1. Ensure you carry out your due diligence

As with a transaction on the open market it is a case of “caveat emptor” or “buyer beware”. In fact, it is even more important that buyers carry out their due diligence on auction properties as, at auction, on the fall of the auction hammer exchange of contracts takes place and so that is when the buyer becomes committed to buying the property. Although the content may vary, all properties placed in auction will have an “auction pack”. This is a set of documents that the seller will make available to the buyer for them to consider before attending the auction. It is very important that buyers both consider auction packs and take legal advice on the pack.

2. Timing

Always ensure you and your solicitors have as much time as possible to consider the auction pack. In many cases, documents can be missing from the pack. Your solicitors may need time to obtain them.

3. Funding

Most auction contracts state that a 10% deposit is payable on exchange of contracts. You will need to ensure that you have cash available to pay this. In addition, most auction contracts also state that completion must take place within 20 working days. This is a very short timescale to arrange a mortgage. If you do need to arrange mortgage funding, you should liaise with your mortgage broker or lender before the auction to make sure they can comply with the timescale.

4. "Extras”

In addition to the purchase price, most sellers, at the very least, include conditions in the auction contract that will require you to pay all or part of their legal fees. In addition, you may be required to pay other sums including refunding the cost of searches within the auction pack. It is important you understand, before the auction, what sums you will be required to pay on completion.

5. Buildings insurance

Most auction contracts state that the “risk” that is responsibility for the property passes on exchange of contracts, so on the fall of the auction hammer, to the buyer. It is very important that you ensure you are able to arrange buildings insurance before the auction and indeed that you put it in place as soon as the hammer falls.

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Top tips for selling at auction

Auctions can be a quick and easy way to sell your property. It is, however, important that you prepare carefully for the auction so that you can make the most out of your investments. If a property is placed in auction but does not sell, you will usually still incur some auctioneers fees. Call us now on 0203 816 9303 for a free, no obligation initial chat with one of our legal advisors, for a bespoke fee estimate and to see how we can help you maximise your chance of success at auction.

Below is a helpful guide to putting your and property in auction:

1. Collate your title information

Most properties are now registered at the Land Registry. We will usually be able to download the necessary information from the Land Registry, but there may be some documents that are unavailable. For example, if your property is occupied by tenants on short term leases and/or tenancy agreements, these will not be held by the Land Registry. You should start to collate your title documents as early as possible. Here at Stephensons we will be happy to talk to you about the property and what documents you will need.

2. Timing

Auction packs are usually made available to prospective buyers online. You will want as many people as possible to consider the pack. Be prepared to instruct the auctioneers and your solicitors as early as possible to prepare the auction pack to ensure it is available for viewing by interested parties as early as possible. We at Stephensons recognise this and will strive to prepare the pack for you as quickly as possible.

3. Title defects

If your property has a title defect that is easily resolvable then you may wish to consider taking steps to resolve it before the auction to increase the saleability of the property. You can also choose not to resolve defects. We will be happy to assist you with this and provide you with advice on the available options.

4. Consider your options

Take steps to consider as early as possible whether or not you wish to impose any covenants or restrictions on the property after it has been sold. This could include overage or a covenant not to do something on the property (such as not to use it as a public house).

5. Will the buyer meet your costs?

A seller does have the option of asking to buyer to pay a contribution towards some or all of the seller’s legal and other costs (such as searches). This is increasingly common.

6. Searches

You should consider carefully what searches are included in the auction pack. As a seller you should try and provide the buyer with a much positive information about the property as possible. Do remember, the cost of searches will be an “up front” fee. If the property does not sell at auction you will be responsible for this cost. Here at Stephensons we will be happy to discuss with you the searches to be included in the auction pack.

7. Replies to standard enquiries

It is important to provide the buyer with as much information about the property as you can, provided that it does not reveal any problems. Whilst for sellers replies to Commercial Property Standard Enquiries can be cumbersome to complete they should always be included in an auction pack where possible.

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As an award-winning top 150 law firm, with over 450 staff based in offices across the country, you're never far from the advice you need.