When it comes to selling a property, there is no one-size-fits-all approach. Some sellers are looking for speed and certainty, while others want to maximise the sale price by exposing their property to as many potential buyers as possible.
Although many people automatically instruct an estate agent, property auctions have become an increasingly popular alternative. There are now two main auction models available; the traditional auction and the modern method of auction, each with its own advantages and considerations.
At AFG Law, our commercial property team regularly advises clients on sales through auctions and open market sale. Understanding the differences at an early stage can help you make an informed decision and reduce the risk of complications during the transaction.
Traditional Property Auctions
Traditional auctions are often associated with investment properties, development opportunities, and commercial premises, but they can also be used when selling a house at auction.
Before the auction takes place, the seller will usually agree a guide price and a reserve price. The guide price is intended to attract interest and encourage bidding, while the reserve price is the minimum figure the seller is prepared to accept.
If bidding reaches or exceeds the reserve price, the highest bidder is successful. Once the hammer falls, contracts are exchanged immediately, making the transaction legally binding. The successful bidder will typically be required to pay a 10% deposit on the day, although the exact amount will depend on the auction’s terms and conditions.
Completion usually follows within 20 to 28 days, giving sellers a high degree of certainty once the auction has concluded. In some cases, completion can be required within 5 working days so it is important to check this before the auction.
Advantages and Disadvantages of Traditional Auctions
Like any method of sale, there are pros and cons. Advantages include:
- A legally binding sale as soon as the hammer falls.
- A clear timetable for completion which is usually shorter than an open market sale.
- Competitive bidding may increase the final sale price.
- Reduced risk of buyers withdrawing after the auction.
However, there are also potential drawbacks:
- If bidding does not reach the reserve price, the property may remain unsold.
- Some buyers may be deterred by the need to commit quickly.
- Sellers need to prepare comprehensive legal documentation before the auction.
- Buyers are at risk of entering into a legal commitment without seeking the advice of a solicitor
The Modern Method of Auction
The modern method of auction has grown in popularity in recent years and operates differently from a traditional auction. Rather than exchanging contracts immediately, the successful bidder usually pays a reservation fee which secures the exclusive right to purchase the property within a specified timeframe. This can also be referred to as an “exclusivity agreement”.
During this period, the buyer can obtain finance, carry out surveys, and complete legal enquiries before exchanging contracts. Often, there is a limited period after signing the reservation agreement when Buyers can raise enquiries so they need to bear this in mind. This approach can attract a wider range of purchasers, particularly those who require mortgage finance, but it does mean there is a longer period before the transaction becomes legally binding.
The key difference between a traditional auction and a modern auction is that with a traditional auction, the Buyer is committed to buying the property whereas with a modern auction, the buyer is still free to withdraw from the transaction before completion. That said, if they do, the Buyer will forfeit the reservation fee that they have paid.
Selling Through an Estate Agent
The traditional route of marketing through an estate agent remains the most common way of selling your home or commercial investment. An estate agent will market the property, arrange viewings, negotiate offers, and liaise with interested parties.
The open market can expose the property to a larger pool of buyers and often allows more flexibility during negotiations. However, unlike a traditional auction, the parties are generally not legally committed until contracts are exchanged. This means a buyer can withdraw before exchange without automatically facing legal consequences.
Which Option is Best for Commercial Property?
For many owners of commercial premises, the decision will depend on the nature of the asset and their objectives. A traditional auction may be particularly attractive where:
- A quick disposal is required.
- The property is expected to attract investor interest.
- There is uncertainty about market value.
- The seller wants greater certainty once a buyer is secured.
The modern method of auction may suit properties where buyers need additional time to arrange funding, while an open market sale may be preferable for higher-value or specialist assets where negotiation is likely to achieve the best outcome.
The Importance of Legal Preparation
Regardless of the chosen route, legal preparation is essential. Auction buyers expect to review a legal pack before bidding, while purchasers in an open market transaction will expect prompt responses to enquiries from their solicitors.
Preparing documents in advance can help avoid delays and provide buyers with confidence in the transaction. At AFG Law, we regularly assist with:
- Reviewing title documents.
- Preparing auction legal packs.
- Resolving title issues.
- Advising on leases and occupational arrangements.
- Liaising with agents and buyers’ solicitors.
Early preparation can often make the difference between a smooth transaction and one that becomes delayed.
Choosing the Right Sale Strategy
Every property and every seller is different. A business owner disposing of surplus premises may have very different priorities from an investor seeking to maximise value or a homeowner looking to move quickly.
When deciding between auctions and the open market, it is worth considering:
- How quickly you want to complete.
- Whether certainty is more important than flexibility.
- The likely profile of prospective purchasers.
- Current market conditions.
- The complexity of the property itself.
Obtaining professional advice before marketing begins can help ensure the chosen strategy aligns with your commercial objectives.
How AFG Law Can Help
At AFG Law, we regularly advise clients on the sale of commercial and residential properties through traditional auctions, the modern method of auction, and private treaty sales.
Our experienced commercial property team can:
- Review legal documentation before marketing.
- Prepare auction packs.
- Identify title issues that may concern buyers.
- Advise on contracts and completion arrangements.
- Support transactions from instruction through to completion.
Whether you are considering selling a property, exploring property auctions, or deciding whether the open market is the better option, obtaining legal advice at an early stage can help reduce risk, avoid unnecessary delays, and maximise the prospects of a successful sale.