Buying property at public auction or “roup”, to use the Scottish term, was commonplace in Scotland many years ago. However, although auctions have always taken place, it has been comparatively rare in recent times for properties to be sold by auction. Property here has been either sold on the open market or by private agreement between seller and buyer, writes Forbes McLennan.
In the difficult market conditions now upon us, I suspect there may be a revival for property auctions and we may see some properties in Aberdeen “going to roup”.
Property auctions are seldom held in Aberdeen. The vast majority of property auctions in Scotland are held in Glasgow or Edinburgh although the property sold at these auctions will come from all over Scotland including the North-east. The properties being sold can range from quirky items like electricity sub-stations and septic tanks, to expensive properties such as country estates. In my time I have acted for clients who have bought anything from underground bunkers to development sites at auction.
The main thing for buyers to remember is that every property comes to auction for a reason. It is essential that the buyer find out what that reason is. Often the property will have not sold on the open market or the seller will think it is not worth putting it on the open market. This reason may be something to do with the property – for example, structural defects, unauthorised alterations, dampness and rot problems, expensive repairs, title problems and so on – or something to do with the seller – such as financial or personal problems which make it a necessity to achieve a quick sale. In most cases the property will be unmortgageable. This means that the buyer must have cash available to pay for the property.
Any purchaser buying at auction must accept the property “warts and all”. In an open market purchase, the purchaser may have some comeback on the seller depending on the terms of the contract or “missives”. This is not the case with an auctioned property. Any buyer at auction will be hoping to purchase the property at a heavily discounted price. The trade-off is that the buyer will effectively be inheriting the seller’s problems. There is nothing inherently wrong with this as long as the buyer is going into it with his eyes open. In this sense a property auction is no different from a normal sale room auction or car auction, although the stakes are much higher.
As for the auction itself, a catalogue will be available online with details of properties for sale. In some cases a seller’s pack including surveyor’s Home Report will be available. Buyers should try to obtain as much information about the property as possible.
There is no need to actually attend the auction although that is always best. Bidders can place bids by telephone through the auction house or even online in some cases. Sometimes it will be possible to pre-empt the auction with a successful bid prior to the auction date.
If successful, the buyer has to pay a 10% deposit there and then along with the auctioneer’s admin fee which can be around 1%. The contract is concluded that day and the date of entry is normally 28 days from the auction date. This is a very tight timeframe. The buyer is immediately committed to the purchase which is again unlike an open market situation. Buying a property at auction is therefore not something to be entered into lightly.
The main aim for most buyers at auction will be to purchase the property at a knock-down price, renovate it and then sell it on as a mortgageable property on the open market. This approach is frequently seen on TV in the programme “Homes Under the Hammer”. In order to achieve this, the acquisition cost is crucial as it will not be possible to make money in the short term if you overpay at auction. You also must have some idea of the cost of the renovations, which is why buying at auction can suit tradesmen who can do renovations themselves or at cost price.
If the sales market is not good, another approach is to retain the property after renovation and lease it out, perhaps with a view to selling later when the market improves, or to build up a portfolio of leased properties.
Clearly there are pitfalls when buying at auction but a prudent buyer can minimise the risk by doing his homework and not overpaying. The exercise can be profitable but only if the purchaser buys the right property at the right price.
Buyers looking to purchase at auction should seek advice from a solicitor experienced in the property market at the outset and not after the property has been bought.