Inside the Auction House: Doubling up on insurance

Inside the Auction House: Doubling up on insurance



Answers from the Rostrum...



Benjamin Tobin, Chartered surveyor and director of Strettons, has been selling properties by auction since 1979. Each month he corrects 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 the following auction process and watching either the joy or the disappointment of the successful bidder.





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 this part of the property market that the vast majority of buyers never engage in?  My guess is that it is the element of the unknown - the roulette of whether the buyer, the seller or sometimes 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 a 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 happens if there is a fire after exchange?




Answer: You have a problem












…Unless, of course, you have taken the trouble to insure your interest. At auction (as with any other property buy) you exchange a contract to purchase the property.  If there is a fire between exchange and completion, the seller may have insurance but this may not protect the buyer. So, when the 28th day after exchange of contracts arrives, you will be expected to pay the balance of the purchase price and complete, fire damage or no fire damage.





The answer is that the buyer needs to effect insurance, in theory, from the moment that the gavel falls (since legally, that is the evidence of the exchange of contracts).  Strettons were the first auctioneers to have an insurance representative present at the auction so that a successful buyer can get cover before a disgruntled under-bidder has time to vent his frustration!






In theory the seller should not cancel insurance until after completion but the buyer has no way of knowing whether there was even insurance in place, let alone whether the seller has cancelled it to save some money.  Even if it was in place, there may be limited cover or the sum insured may be too low.  It is therefore essential that these fears are overcome by the buyer arranging insurance.




You may say that the chances of the building catching fire (or suffering from some other insurable loss) during the 28 days between exchange and completion, are fairly remote, but I have known not only of fires, but floods and other damage.




Most insurance policies have a restriction against “double insurance” imposed to prevent fraudulent claims, but I believe that this is the only circumstance where insurers actually accept double insurance to be valid.  In the event of a claim and double insurance the insurers will expect the vendor’s policy to deal with the claim. The buyer’s policy will happily deal with the claim if the seller does not have a policy.





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