Auction Costs Explained

We are seeing more and more clients opting to purchase properties via auctions. Auction purchases are attractive due to the competitive prices of the properties. However, there are some additional costs that prospective purchasers should be made aware of:

• Auctioneer’s fees – Once a property has sold at auction, and depending on the auction house, it is likely that the purchaser will need to pay additional fees on top of the deposit due directly to the auctioneer.  This is sometimes known as a buyer’s premium. The buyer’s premium is usually calculated based on a percentage of the purchase price. However, some auctioneers do have a set minimum amount of premium that must be paid. This can be more than the purchase price or deposit paid for the property.

• Seller’s costs – As well as paying the legal fees on the purchase, the special conditions for the auction are likely to require the purchaser to cover the seller’s costs and disbursements e.g. legal fees and costs such as Land Registry fees for obtaining title documents and the costs of searches. The amount required by your solicitor to complete a transaction can therefore be more than expected once these additional costs have been added up.

• Lender’s costs – If you are obtaining lending to purchase the property, you may be required to cover the lender’s legal costs.

• Stamp Duty Land Tax (‘SDLT’) – HMRC guidance suggests that all costs paid towards the purchase of the property (i.e., the chargeable consideration) need to be added up. HMRC guidance states the following:

• if it is a condition of the contract that the fee is paid;
• completion of the transaction is conditional upon the fee being paid; and/or
• if the fee is only payable once the transaction goes ahead;

then the fee is deemed to be included in the chargeable consideration for the purposes of SDLT.  SDLT is then payable on the purchase price and the additional fees.

As an example, if a property was purchased for £250,000.00, the buyer’s premium was £6,000.00 and the seller’s costs came to £500.00 (inclusive of VAT), SDLT would be calculated on the total figure of £256,500.00.

• Notice to complete costs – If the purchase does not complete on the contractual completion date, the seller’s Solicitor is entitled to recover additional legal fees and interest calculated at the daily contractual rate until the date of completion. It is likely that the solicitor acting on the purchase will also increase their fee estimates, so it is important that your Solicitor is satisfied with the source of funds checks and in receipt of funds and signed documents by the contractual completion date.

You should be aware that failure to complete an auction on the completion date / date specified in a notice to complete can result in you:

• losing your deposit;
• still being liable for seller’s costs and your legal fees;
• being liable for any difference in price if the property is resold at a lower price; and
• being liable for damages.

BHW regularly acts on auction sales and auction purchases for both residential and commercial properties. If you would like a fee estimate for an auction sale or purchase, then please contact either the Commercial Property team or Residential Property team on 0116 289 7000.