Most people are not experienced in auction procedures, and participation by prospective purchasers can be a stressful experience. To help you, Sherry FitzGerald has produced this guide to buying a home by auction
Q. What is the purpose of selling at auction rather than by private treaty?
A. Auction is a traditional method of selling goods and chattels including land and property. In the past, properties put on the market for sale by public auction were more lik ely to have been of a unique style or perhaps be period homes for which there is high demand and a shortage in supply. However, recently, due in the main to the rising market particularly in Dublin and an increase in competition for properties, a much wider range of properties are now sold by this method.
Selling by auction tends to maximise the price available through increased exposure to the market over an intensive three or four week sales campaign. An auction campaign also gives interested purchasers a definite timescale to work within and at the auction itself they are in a position to opt out of the process at any time should the bidding go beyond their expectations.
Q. What is a ‘guideline’?
A. The guideline is a figure which is invariably lower than the price expected to be achieved at the auction, and is offered as a guide only, by the auctioneer.
Q. How is the guideline price arrived at?
The guideline is a price, which is approximately 10% less than the anticipated reserve and is set by both the auctioneer and the vendor. In other words, if the reserve price on a house is likely to be €600,000 the guideline will be €540,000. In addition, the IAVI policy is that guidelines should be within 10% of the anticipated reserve. Therefore, purchasers should generally expect that the reserve price on a property will be not more than 10% higher than the guideline.
Q. Can the guideline change during the sales campaign?
A. Yes, if there is a high level of interest in the property or other similar properties which have sold for exceptional prices during the campaign the guideline can be revised upwards. Prospective purchasers with a strong interest in the property should be advised to keep in touch with the auctioneer during the campaign.
Q. What is the reserve?
A. The reserve is the actual figure a vendor will sell at. This figure is normally agreed between the vendor and the auctioneer on the day of the auction. Ultimately, it is up to the vendor to decide on the reserve as it is their property. Once the reserve has been reached the property will be sold to the highest bidder.
Q. What does ‘on the market’ mean?
A. When bidding has exceeded the reserve the auctioneer declares the property to be ‘on the market’, indicating to bidders that the highest bid from that point will secure the property.
Q. What happens when a property is withdrawn?
A. Should a property fail to reach the reserve the property is withdrawn at the auction. At this point, it is Sherry FitzGerald’s policy to negotiate exclusively with the highest bidder in an effort to achieve a price level acceptable to both the vendor and purchaser. In this case the prospective purchaser has a tactical advantage because they know that they have no competition in the market for the property. However, if the negotiations are conducted professionally the outcome can be a ‘win – win’ situation for both vendor and purchaser.
Q. If I am not the highest bidder, do I still have the opportunity to negotiate for a property withdrawn at auction?
A. Possibly. If you find yourself in this position you should indicate your desire to negotiate to the auctioneer. In the event of negotiations breaking down with the highest bidder you may then get the opportunity to negotiate for the property.
Q. If I am really interested i n a house what should I do?
A. Once you make the decision to pursue a property that is for auction you should arrange through the auctioneer to have the property surveyed; put your financial arrangements in place; consult your solicitor in good time so that all legal issues are clarified and, finally, decide what the property is worth to you and at what level you are prepared to lose it!
At the auction itself, try to get in a good position in the auction room so that you can see what is happening around you. Ideally you should be accompanied by your solicitor or advisor who is authorised to bid on your behalf.
Q. What happens if I am successful in bidding for a property?
A. This is generally covered by the Conditions of Sale, a legal document which is available prior to the auction for examination by purchasers solicitors so that they can be satisfied with title, the procedures to be followed after the auction and so on. In general, the purchaser and the vendor sign a binding contract setting out a closing date immediately after an auction and a 10% deposit is paid there and then.