Auctions are tempting for bargain hunters and a graveyard for the unwary

ONCE upon a time, auctions of private houses only happened when your house was expensive and exclusive. The vast majority of residential properties were sold over a few months by private treaty or private negotiation. The announcement by Gunne auctioneers that it will be selling 10 properties by auction on June 30th may be a pointer for the future. This multiple auction might show that “ordinary” non-distressed vendors are showing signs of impatience with the private treaty route.

Savills is also holding a multiple auction on September 29th for receivers, banks and private sellers. It hopes to have at least 100 properties ranging in price from €100,000 to €1,000,000.

On April 15th, English estate agents Allsops held a multiple auction extravaganza here with Space, its Irish agents and this will be repeated next month. But the Allsops auctions are predominantly of distressed properties being sold by receivers. The Gunnes and Savills multiple auctions are not.

Vendors have reason to be frustrated, with so many properties languishing on the books of estate agents. But buying at auction is more than ever to be avoided by the faint-hearted. Buyers must be ready and able to buy and have 10 per cent deposit in their pocket. When the hammer falls, it’s your property. Just sign please.

Auctions have long been known among solicitors as a way to get rid of a delicate or problematical title. Solicitors acting for vendors are often furnished with the titles to properties only shortly before an auction. There may be insufficient time to repair defects. People turn up at auctions without solicitors’ advice. Problems listed in the contract conditions may not be fully understood until later. Then it’s too late.

The first thing to remember about buying at auction is that the rules of the 1947 Auctioneers and House Agents Act still apply. A new law is expected this year. But for now, it is worth remembering a few points.

Firstly, it is still lawful, if not entirely ethical, for vendors, or people on their behalf, to bid up to the reserve price. This must be provided for in the contract as is usually the case. Whether vendors actually bid is obviously unclear.

Secondly, as in the case of the Gunne multiple auction, most properties are now being sold with an Advised Minimum Value (AMV). The “guide price” that most estate agents offered until the end of the boom years to “guide” buyers became utterly discredited. But even the AMV can be confusing.

The AMV that you see in the newspaper advertisements usually means the auctioneer’s true opinion of the value of the property at the commencement of the marketing campaign. This definition was recommended in a report to the Minister for Justice, Equality and Law Reform in 2005. But the word “minimum” seems to be redundant and the auctioneer’s true opinion might have changed by the date of the auction. AMVs have no legal standing.

Thirdly, there is no obligation on an auctioneer to disclose the reserve price, which is the vendor’s genuine minimum sale price. Traditionally, it was virtually never disclosed pre-auction to the buyers. In a bow to the new realities, Gunne has disclosed it in all of its properties in this multiple auction (this is becoming common). Perhaps this is because Buyer’s Fatigue has clearly set in with a very low threshold for nonsense.

Auctions follow basic rules and are a very unforgiving environment. Buyers break those rules at great cost. So what to do?

Fully check the actual property before you bid; that means a full survey – it is far cheaper than the possible downside afterwards.

Have your solicitor fully check the title before you bid. Never bid at an auction with your eyes closed. Do not assume that your solicitor will make it okay afterwards.

Bring a blank cheque and be ready to sign it for 10 per cent of the purchase price. If you are relying on bank finance, be 100 per cent certain that there are absolutely no uncertain loan conditions between you and the loan cheque. Do not assume that you can negotiate anything in the contract before or after the auction.

Do not get caught in the frenetic atmosphere of the auction and bid beyond your limit; it happens.

You are legally held to be fully aware of the property and its title. If you’re not, do not bid.

The trauma of recent years has led to a lot of angst and soul-searching on how to sell residential property. Private treaty sales can take forever and then they often fall through. Auctions concentrate the mind. The house or apartment is either sold or not sold. Watch this space.

* Pat Igoe is a solicitor in Blackrock, Co Dublin