As the property market slows down, an increasing number of property owners and potential buyers are attracted by the prospect of buying a property at an 'online auction'.
This is a method of selling and buying property which can be quicker and avoid a chain – a benefit to both sellers and buyers. But there are some pitfalls, particularly for the unwary buyer.
Typically, a property is displayed on line with an auction 'timer', often 30 days. A prospective buyer will register with the estate agent and may have to pay a fee, which could be refundable. This buyer can bid on line for the property at all times of the day or night. At the end of the auction 'timer' period, the highest bid wins. It is at this point that the 'winning' buyer has to immediately pay a non-refundable reservation fee. This can be as much as 2.5% of the sale price plus vat (or a minimum of £6,000 plus vat). The buyer then has an agreed timeframe within which to complete.
The problem for the buyer is that if they withdraw from the purchase (e.g. because they cannot secure the funding to buy the property), they lose their reservation fee and this is a substantial amount of money.
The sting in the tail is that if the purchase does proceed, the reservation fee is added to the total purchase price for the purposes of calculating Stamp Duty Land Tax.
Anyone thinking of buying a property at any sort of auction should take specialist legal advice before the auction and before placing any bid, as to the legal title and any pitfalls in the contract in addition to being sure that they can find the money to complete the purchase if their bid is successful.