Buying or selling at auction? Here’s 15 key phrases you need to know

Buying or selling at auction? Here’s 15 key phrases you need to know
Oct 22 , 2020

Over recent months, the auction market has shown its value to buyers and sellers as a way to carry out property transactions quickly and securely.

Online auctions are becoming increasingly popular but if you're new to the market, there are a range of associated terms that you may not be familiar with.

To set you on your way before buying or selling at auction, we've identified 15 key phrases you need to be aware of and what they mean.

1. Addendum

Forming part of the property description, an addendum is any change made to an available property that has been made after the auction catalogue was originally published. An addendum could be a change in guide price or that a property is no longer available. Many auctioneers provide attendees with one addendum sheet covering all changes made ahead of the event.

2. Bidding war

If there is one property that is very popular with buyers, this could lead to a bidding war in which the eventual sale price is likely to be a lot higher than first predicted. For sellers, this is your dream come true. Meanwhile, for buyers, it's important to make sure you don't get swept up into trying to beat a competitor and paying more than you want to for a property.

3. Catalogue

This important document provides a description of all available properties and details on how to view them, as well as the General Conditions of Sale. The catalogue is prepared by the auctioneer and published in advance of the event - you should be able to find it in a prominent position on the auctioneer's website.

4. Exchange of contracts

As with a traditional property sale, the exchange of contracts is when the transfer of property becomes legally binding. At online auction, once the electronic gavel has fallen, there is usually 28 days to exchange contracts with a further 14 days set for completion.

5. Gavel/hammer

The auction gavel, also known as a hammer, is a ceremonial mallet used by the auctioneer. It is struck against a block to signify the start or end of an auction. You will increasingly see the phrase 'online gavel/hammer' which denotes the same processes virtually.

6. Guide price

The guide price is an indication of what the seller expects to receive for the property, as well as what the auctioneer thinks it could sell for. Guide prices can range between two figures or a single figure. They are often exceeded during the auction and frequently change in the lead up to an event.

7. Legal pack

This is a collection of important legal papers prepared by the property seller's solicitor prior to an auction. It allows the buyer (and their solicitor) to make a decision on whether a property is worth buying by giving them access to information on title deeds, leases, searches, special conditions of sale and more. The legal pack will be made available online ahead of an auction.

8. Lot

Put simply, a lot is a property or group of properties that is available to purchase at auction. Each lot (property) will have its own number, allowing buyers to easily cross-reference with the catalogue before and during the event.

9. Memorandum of Sale

A document distributed by the auctioneer or selling agent which confirms the details of the buyer, seller, their solicitors and the agreed sale price. A Memorandum of Sale is issued at the end of an auction at the point an offer on the property has been accepted.

10. Modern Method of Auction

Also known as a conditional auction, the Modern Method of Auction sees the highest bidder pay a non-refundable reservation fee to secure a period of exclusivity on the property. This is usually 28 days to exchange, followed by 14 days for completion.You can read more about our similar 'Sell Now' process here.

11. Proof of funding

This is used to make sure that the buyer has the funds they say they do in order to make a purchase. The proof of funding usually comes in the form of a letter or bank statement.

12. Reservation fee

This non-refundable fee is paid by the highest bidder in a conditional auction in order to secure exclusivity to purchase the property. They will then have a timeframe to exchange contracts and reach completion. Reservation fees, which are designed to ensure commitment from the buyer, vary and can cost up to 5% of the purchase price. Our 'Sell Now' reservation fee costs the buyer just 1% of the sale price.

13. Reserve price

This figure - which is not made public - is the minimum price that the seller is willing to accept for their property. The auctioneer will not sell the property for less than this agreed price. The figure is agreed privately by the auctioneer and seller before the auction and is subject to change.

14. Traditional online auction

This is an auction which takes place online whereby the auction has a fixed timeframe and the highest bidder at the end of the event is the winner. It is a very similar concept to a traditional live auction, although online events last longer and allow bidders to make an offer 24/7.

15. Yields

This is the return on investment expected when purchasing a property. Yields are calculated by dividing the annual rental income of a property by its purchase price and multiplying it by 100 to give a yield percentage. If you are looking to purchase a property to let, it's important you calculate the yield before making any offers.

So, there we have it. With these phrases under your belt, you should be able to buy or sell at auction with ease!

You can find out more aboutwhat Opal Auctions can offer you here. Meanwhile, our advice onwhy you should consider selling with us via auction is here.