Inside the Auction House: The Transparency Factor

Inside the Auction House: The Transparency Factor



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Answers from the Rostrum...

 

Benjamin Tobin, Chartered surveyor and director of Strettons, has been selling properties by auction since 1979. Each month he will correct our common auction misconceptions, giving us the real answers from the Rostrum...

 

Over the past few years there have been a stream of television programmes on the subject of buying properties at auction. Frequently these have followed a similar format; the camera follows a buyer or buyer around the property market, inspecting buildings, most frequently houses or flats (but occasionally small business premises) with the suspense provided by following the auction process and watching either the joy or the disappointment of the successful bidder at the auction.

 

I have featured on numerous such programmes and I am still questioned by clients who see me on daytime satellite TV selling a property that went through our auction sometimes several years earlier. One lady tells me that her trips to the gym would not be the same without me selling (or occasionally not selling) a property!

 

But why the fascination with part of the property market that the vast majority of buyers never get to engage in? My guess is that it is the element of the unknown both with where the roulette of whether the buyer, the seller or sometime both, are overjoyed, disappointed or merely satisfied with the price.

 

Bridging Lenders, however, frequently use auction, and yet sometimes without a detailed understanding of how it works. The rationale seems to be “it does work, so don’t get involved”

 

In any event, there is never any shortage of questions when people (whether or not they are from a property background) find out that I am a property auctioneer.

 

With that in mind here is the latest in my series of questions and answers:

 

Question:

What makes a special condition special and what is general about a general condition

 

Answer

 

The uniformed auction buyer often has the impression that auctions are the way for an unscrupulous seller to offload problem properties onto an unsuspecting “sucker”.

 

In fact the auction buyer has the same protection as any other property purchaser, with the significant advantage that all relevant information is available “up front”.

 

The auction catalogue usually has a description of the property and either includes or refers to both General and Special Conditions of Sale. General Conditions of sale are either standard conditions prepared by the Law Society for either commercial or residential properties, or more likely, the Common Auction Conditions published by the RICS Real Estate Auction Group. I was one of the authors of the 1st Edition in 2002; in response to changes in law and practice, and feedback from the market, the 3rd Edition was published in 2009. The aim was to produce a set of conditions governing the basic terms of an auction sale of real estate which would be in a standard, Plain English form, which would be acceptable both to most lawyers and also to most purchasers. The Special Conditions of Sale deal with non-standard matters where there needs to be a deviation from the General Conditions. It is unusual, but certainly not unknown, for us to offer properties just under General Conditions, where no deviation or departure from the norm is required.

 

Together, the Catalogue and Conditions will form the auction contract although most auctioneers will encourage sellers to provide an auction pack which should contain any relevant information. This will include such things as

  • copy title

  • plans

  • planning consents

  • EPC’s

  • leases

  • guarantees

  • insurance policy

  • answers to standard enquiries

  • copies of any relevant correspondence or documents

  •  

    Our policy is to encourage sellers and their lawyers to provide as much documentation as possible and we believe that we were the first auctioneers to put all of this information on our web site for bidders to download without charge. Our view is that the more information we provide, the more comfortable a buyer is and therefore the more likely he is to make that extra bid. Equally, the nature of auction is that the price is pushed up by competition – after all, the word is derived from auctus, past participle of augere - to increase.

     

    It is not unknown for buyers to get too enthusiastic and bid more than they had intended, at which point they start looking for reasons to argue. If we have honestly provided them with all relevant information they have little chance of succeeding in this.

     

    When the Government started work on the introduction of Home Information Packs, their model was taken from the information that we provide before the auction and I was interviewed by the team planning the legislation.

     

    In a private treaty sale the buyer sees the property, has an offer accepted and only then starts doing due diligence leading to exchange of contracts. At auction, the order is reversed so that the due diligence should all be available for the buyer to see at Day 1, leading to exchange on the auction day.

    Adding in Consumer and Misrepresentation legislation buyers should have a lot of protection against being sold “a pup”, so long as they have seen the property and used the information provided to them.

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