Once you have officially placed the winning bid at a property auction and the hammer falls, the law requires you to pay the amount you have offered.

According to the Sales of Goods Act 1979, a contract of sale is formed at the point when the hammer falls on a particular lot.

At this point, it’s very difficult to withdraw from the sale. You will have to pay typically what is 10% as the deposit plus any auctioneer and legal fees within the set timeframes.

But what happens if you’ve found the perfect auction property in your area, but you can’t pay? In this article, we will explain the consequences should this scenario emerge…

What Happens if I Can’t Pay My Deposit?

As soon as you have placed the winning bid on an auction property and the auctioneer has declared the lot sold, you will need to pay a deposit.  Depending on the terms and conditions, this varies between 5 and 15%.

Most auction houses charge a buyer’s (reservation) fee which ranges from 2 to 5%.  This may also be charged as a fixed sum.

If you find that you cannot pay the upfront amount required, the seller may sue you for the amount you promised. You may also be liable for other costs related to the seller’s expenditure of time and auction fees, along with other damages.

The best thing to do here is to communicate directly with the auction house.  In such circumstances, most will rather deal with the situation directly than start legal proceedings.

Perhaps, for example, you can borrow the funds temporarily or seek out appropriate auction finance.

What Happens if I Can’t Pay the Buyer Auction Fees?

Here at Property Solvers Auctions, we put a hold on all bidders’ credit or debit cards prior to the bidding.  This means that we know that the buyer has the disposable funds available.

If the auctioneer does not operate in this way, we would suggest contacting them directly to discuss when and how you can pay.  Again, most will not want to deal with the hassle of taking legal action.

What if I Can’t Afford to Complete the Auction Purchase?

Typically, you will be given between 28 and 56 days to come up with the full amount you bid at auction via the agreed means. The precise timescale will be specified by the auction house.

If you find that you are unable to access enough money to fulfil your bid, or if your mortgage falls through, you could face serious legal repercussions.

Completing on an Property Auction Sale Requires Payment of an Initial 10% Deposit, Followed by the Remainder 90% Upon Completion Plus Auction Buyers Fees

Should you miss the completion date specified by the auction house, the seller’s solicitor will serve you with a Notice to Complete. This means that, beginning the next day, you will have 10 business days to pay. If you are close to securing the required finance, you may be able to extend this deadline.

If you do not complete even with this extension in place, you will lose any deposit you have paid. It is also highly likely that you will be sued for damages.

There could also be depreciation costs too.  This means that you will be liable to cover the expenses faced by the buyer of the property. After all, they will need to list their home for auction again and maintain it as they wait for the new auction date. They may also have to sell the property for less than they thought they would receive from you. As a result, you may be liable for the difference.

Withdrawing Your Bid

As long as you do so before the auction of your particular lot has closed, you are permitted to withdraw any bid you have made. You may also drop out of a “conditional” (or modern method) online auction sale. However, the auction house will not refund your buyer’s (reservation) fee in this instance.

In this way, you can backtrack on any amount if you are not sure whether you have the funds to pay it.

However, it is a completely different matter once the auction sale contracts have exchanged.

How to Protect Yourself Against Legal Action

So – how do you prevent these issues from arising?

In order to avoid significant legal action against you when bidding for a property at auction, you need to be properly prepared.

Firstly, you should determine your existing budget and decide on a clear maximum bid that you can definitely afford.  Read through the auctioneer’s terms + conditions and check your bank account(s) and ensure you’ll have enough to pay the deposit and associated fees.

If you are a mortgage buyer, make sure you get a mortgage in principle. Once you have it, examine all of the small print. You need to ensure that there is no chance of it falling through.

You should check the property’s legal pack and the general terms of the auction thoroughly. This will help you to make sure you understand all of the expenses involved and the amount of time you have to pay them.

Most vitally, you should instruct an experienced conveyancing solicitor who will provide you with all the legal advice you require. Ideally, your chosen legal adviser should have experience with clients who are buying property at auction.

The more thorough your research (due diligence), the more secure you are likely to be within the process.

Bidding at a Property Solvers Auction

Property Solvers sells property via both conditional and unconditional auction. Via the former, you will have 56 days to complete. Via the latter, you will have 28 days. Browse all the auction properties we have available today.

If you have any questions about our processes or regulations, don’t hesitate to get in touch with our specialists today. We will be more than happy to provide you with the information and assistance you require.