Bidding at auction and why I didn’t go rogue

Recently I attended a local property auction, as far as auctioned land and properties are concerned, we are small and varied here in Shropshire with 12 lots entered spanning some five counties including a mix of both land and residential dwellings. It appears the popular TV renovation programme Homes Under the Hammer hasn’t stemmed the pull to purchase via auction. I entered a packed salesroom, filled with those waiting to see if their property would convert to a hammer down, those nervously waiting to see if they were going to be seeing their bank balances reduce and those who had popped out for tea, cake and an atmosphere of tension! Although, I didn’t fall into any of those categories, as I’d been asked to attend the auction and bid as a third party.

Prior to the auction, it was important to make sure that all the correct paperwork was in place. As some of you may know, due to money laundering regulations, bidders must provide identification to prove name and residential address such as a passport and recent utility bill. I’d also prepared a document signed by the prospective buyer to show that I had the authority to bid on their behalf. Initially the buyer was told that the solicitor wanted the auction house to bid on their behalf and sign the contract –however, this approach raises a conflict of interest and so we agreed that I would bid and the auction house would sign the contract. As with most auction sales, you can predict the lots that are going to sell well because they are typically listed at the end. However, the auction got off to a flying start with Lot 1, 0.2 acres of amenity land selling for over three times the lower guide price! It was interesting to note that all but one of the residential properties listed did not sell under the hammer. What did sell well were small parcels of land for example 5.06 acres in Cheshire for £102,000. So it makes one wonder if land and non-residential property are sought after due to the associated lower stamp duty charges and inheritance tax reliefs. The lot I was interested in unfortunately went above the maximum threshold I’d been given, so I didn’t go rogue or get the eBay bug and continue bidding! However, the whole process did make me wonder why was there an issue over the third party bidding as I’d never come across this before.

After the auction, I contacted the solicitor and asked about any legislative changes and what was the issue. And this is what I learnt, there have not been any legislative changes, however, the concerns around third-party bids arise because there is an agency relationship between the prospective purchaser and third party bidder. Therefore, there is an issue with how the seller can verify to what extent the third party has authority to bid on behalf of the prospective buyer. The risk to a seller at auction is that should the prospective buyer decide the bidder “went rogue” and bid beyond authority then the seller would potentially find it difficult to enforce the contract and put them in an adverse position. For a seller, the best option for when a buyer does not attend the saleroom is usually to go with proxy or telephone bidding because the auction house has direct, enforceable instructions and ultimately if they go beyond these, then a known insurance policy can be utilised. There are many buying agents operating on behalf of investors, so it made me wonder, how do they overcome these issues. The solution, it appears, is to have a power of attorney drawn up by a solicitor which then gives a seller far more protection. Obviously, this would need to be prepared in advance and at a cost.

In summary, if buying at auction then make sure you have registered in good time, read through the legal pack carefully and if you don’t know what you are looking for then ask a professional who specialises in property and do not presume you can turn up at an auction and bid on behalf of someone else – even if they are family members – because it may not be accepted. If you are appointing a third party to bid on your half, then provide clear instructions in writing if not using a power of attorney.

If you are looking to buy in Shropshire and would like my opinion on a potential purchase, then feel free to get in touch via email