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In most property auctions, the Buyer’s Premium is an expense, added to the Hammer Price, the auctioneer sells the property for. You should always know in advance of the auction what the buyer’s premium amount actually is. It is usually expressed as a fixed amount which is then added to the price the property sells at. Some auctions may express the buyer’s premium as a percentage of the sale price.
For example, if you go to an auction with a buyer’s premium of £3,500 on each property, and a property sells at £100k, so when you go to pay for the property, the auction company will then ask for £103,500.
The buyer’s premium is pretty straight forward and is the industry standard. Most auction houses charge a buyer’s premium and it is the way most auctions earn their profits.
If you are buying a property at auction, you need to be aware of the buyer’s premium before you set your top bid. Most auction buyers already do this, but if you’re new to the process you will have to do a quick calculation before bidding. Simply think of your top price and add on the buyer’s premium, you will then get an idea of what you will be expected to pay if you are the successful bidder. Many new buyers forget about the buyer’s premium. Many are embarrassed when the cashier has to explain the buyer’s premium in front of a line of customers who already know. Save yourself the embarrassment and money by doing the quick calculation first and always keep the buyer’s premium in mind when you make your bid.
TIPS FOR BUYERS: Add the buyer’s premium onto your top price before you bid.
Sometimes you can but you must do your homework first. Many properties at auctions have failed to sell on the open market and often for justifiable reasons. Some properties will be unmortgageable, for example, non-standard construction properties where very few lenders if any will lend on these type of properties. You must make sure you have your finance in place before you bid or you risk losing your deposit.
Be careful with properties that might be subject to adverse planning in the area or where the property has serious defects like dampness, subsidences, Japanese Knotweed or contamination issues. Also check the neighbourhood, particularly close neighbours. Don’t be seduced by high yields as there is no guarantee tenants will continue to stay on in the property.
This is basically the general conditions of the sale and the seller’s obligation in the contract to provide the purchaser a good title to the property. Generally speaking the seller ends up with no obligations other than to deliver a deed which allows the title to be transferred and to discharge any mortgage security.
The seller generally does not need to deal with other title problems and does not need to discharge any notices of potential liability (NPL). For example, a statutory notice on a building. This is why you should always seek the professional advice of a solicitor in advance of making an offer for a property at auction. Your solicitor can carry out searches on the property and advise accordingly.
It is a case of caveat emptor for anyone buying at auction and you should let your solicitor review the Articles of Roup so you know all the conditions of your purchase, like how much deposit is needed on the day of the auction and when the full sale amount is due. Not meeting these strict conditions can prove to be expensive.
Now that you know how the buyer’s premium works for both buyers and sellers at auctions, go and enjoy your auction experience, but remember to take your time and don’t be tempted to buy a property until you have completed all your due diligence. Properties that are secured at a bargain are normally at a bargain for a reason but you may see an opportunity in a property no-one else has spotted.
If you need more information to protect yourself when buying at auctions. Please speak to Ken McEwan on 0131 524 9797.
Note: This article is for information purposes only and does not constitute any form of advice or recommendations. You should seek proper professional advice from this firm before making any decisions about auction property.
