Once you’ve won a property auction, the law requires you to pay the bid amount. According to the Sales of Goods Act 1979, a contract is formed when the auctioneer’s hammer falls.
It is very difficult to back out of the sale at that point, and you must typically pay a 10% deposit plus any auctioneer or legal fees within the timeframes set.
But what if you can’t pay for the perfect auction property you found? In this article, we’ll explain the consequences of this situation.
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What happens if you win an auction but don't pay in time?
If you can’t pay the total amount necessary, the seller may take you to court to get back what you promised.
You could also be responsible for other expenditures caused by the seller, such as auction fees and the time spent on the contract. The best thing to do in this situation is to talk to the auction house directly.
There are two payments you make when buying at auction:
- Auction Day: You’ll be required to pay a deposit or reservation fee on auction day. This is usually 10% of the purchase price but if you’re buying through a Modern Auction it’s reduced to 2-4% of the price, with a minimum of £5,000 plus VAT.
- Completion Day: You must pay the remainder of the purchase price plus any fees by the completion deadline, which is usually 28 days but can vary.
What if you can't pay the deposit or reservation fee?
The Sales of Goods Act 1979 declares that a sale by auction is officially completed when the auctioneer announces its end by dropping the hammer or in any other customary way.
In simpler terms, it means that the hammer of the auction has the power to make a legally binding contract when it falls.
This contract will need to be paid for immediately or else you will violate it.
If you are unable to pay the deposit or reservation fee on auction day or choose not to, the auctioneer and seller can take legal action against you for the amount owed. There is no way to dispute this, as it is all established in a binding agreement.
When you take part in an auction, you accept the terms and conditions.
What Happens if I Can’t Pay the Buyer Auction Fees?
They Put a hold on all bidders’ credit or debit cards before the bidding starts. This ensures that the buyer has the disposable funds available.
If the auctioneer doesn’t operate in this way, it’s best to contact them and discuss when and how you can pay. Most don’t want to go through the hassle of taking legal action.
What if I Can’t Afford to Complete the Auction Purchase?
Typically, you have between 28 and 56 days to pay the full amount of your bid at auction, as specified by the auction house. If you are unable to pay or your mortgage falls through, you may face serious legal repercussions.
If you fail to complete by the deadline set by the auction house, they will serve you with a Notice to Complete. This gives you 10 business days to pay, with the potential to extend the deadline if you are close to securing the necessary funds.
If you do not complete it, even with the extra time, you will forfeit your deposit and could be sued for damages.
In addition, you may be liable for depreciation costs, such as the expenses faced by the buyer who had to list their property again and the difference between your bid and the amount they eventually sold for.
Withdrawing Your Bid
You are allowed to withdraw any bid you have made as long as it is before the end of the auction for your lot.
If you are participating in a “conditional” (or modern method) online auction sale, you may also drop out. However, the auction house will not return your buyer’s (reservation) fee in this case.
This enables you to backtrack on any amount you might not have the funds to pay for. Yet, once the auction sale contracts have been exchanged, it is a completely different matter.
How to Protect Yourself Against Legal Action?
To prevent legal action when bidding for a property at auction, it’s important to be well-prepared. Start by assessing your budget and deciding on a maximum bid you can realistically afford.
Go through the auctioneer’s terms and conditions and make sure you have enough money in your accounts to cover the deposit and associated fees. If you plan to take out a mortgage, make sure to get a mortgage in principle and read through all the small print.
Check the property’s legal pack and the auction’s general terms to understand all the expenses and deadlines. Most importantly, hire an experienced conveyancing solicitor who can provide legal advice and has experience with clients who buy at auction.
Do thorough research and due diligence to be as secure as possible.
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