Hidden Costs buying at Auction - Buyers Premium

SPMMarske

Hello All
I am looking to venture into buying a property at auction, and I have read everything! The buyers premium is supposed to be a percentage amount payable to the auction house to cover admin fees - fair enough. I am looking at a property marketed by Bond Wolfe Auctions, Birmingham. They are very clear that they charge £1400 for admin fees and expect that amount paid on the fall of the hammer along with 10% of the property value as deposit, or £5000 as a minimum - again, fair enough. However on reading the legal pack, in the Special Conditions, I find this paragraph .....

15. On or before completion the Buyer is liable to pay the Seller £7,999.00 by way of a buyer’s premium. The seller will not be providing an invoice and the General/Standard Conditions is varied accordingly.

Everything I have read says the Buyers Premium is paid to the auction house, not to the seller. It is also described everywhere as a percentage, normally 10%, not a flat rate. Bear in mind that the guide price on the property is £5000! On top of that, no Invoice! This feels like an amount of money being slipped into the back pocket of the seller with no documented trail. As a business owner I feel I may have a hard time explaining an £8k short fall with no invoice to the tax man! 

Anyone with knowledge of this I would like to hear your take on this.

Cheers

Steve

eddddy

A few auction properties have those kind of extra payments mentioned in their special conditions of sale - it seems strange.

But it's not really "money being slipped into the back pocket of the seller with no documented trail" - it would be paid via solicitors, and I guess it would be documented on each solicitor's completion statement. That would probably be sufficient evidence for the tax man.

davidmcn

It's not "undocumented", it's in the special conditions, which form part of the contract.

NameUnavailable

I sold at auction and included a clause in the special conditions that the buyer had to pay an amount to me (to cover some of the fees I incurred) and this is fairly common, so always read the legal pack!

diggingdude

Are you buying the property as a company then? 

SPMMarske

diggingdude said:

Are you buying the property as a company then? 

I was thinking that it could be a good option for me. I have an established Property maintenance business operations as on a sole trade basis. Are you thinking this is a good or bad idea?

SPMMarske

NameUnavailable said:

I sold at auction and included a clause in the special conditions that the buyer had to pay an amount to me (to cover some of the fees I incurred) and this is fairly common, so always read the legal pack!

I get that completely, and had the clause stated as much, then I would have understood better. However, £8k in costs buried in a legal pack clause, seems a little excessive particularly on a property with a guide price of £5k! There must be some benefit to the seller over just insisting on a higher guide of reserve price and making the transaction more transparent. 

Markneath

It probably wont sell for 5k in reality, the low guide price is to suck people in. 

The guide price should be the minimum selling price but you can guarantee it won’t be. 

With all the extra charges and conditions it baffles me why anyone would buy from auctions anymore. 

SPMMarske

Markneath said:

It probably wont sell for 5k in reality, the low guide price is to suck people in. 

The guide price should be the minimum selling price but you can guarantee it won’t be. 

With all the extra charges and conditions it baffles me why anyone would buy from auctions anymore. 

I am located in the North East of England and prices such as that are not uncommon. I have been watching them closely for a while and a £5k start is not uncommon. The final price is normally closer to £10k, but these places are a mess and this one is in a Radon field!!! There is another currently up for auction, guide price of £5k, that sold for £10 a few years back. A two bed semi for a tenner! Given the area its in the first improvement to be made would be the moat and gun turrets!!!
However, I think on the whole you may have point about auctions. Since my original post I dipped into a number of other property legal packs and found a range of additional costs hidden in the small print!

Markneath

Before Covid I was looking at auctions as a way to pick up another BTL property but it just seemed to be full of scams. 

Like you pointed out lots of hidden fees but more concerning the amount of houses where the keys were lost for open house viewings was fairly high. 

I wasn’t sure if they were hiding faults or doing it in the interests of a preferential bidder with the missing keys. 

adante911

Steve, did you go any further with that Bond Wolfe auction? I came across this same (£7999.00) clause today and it just doesn't make sense to me. 

• Why would I be paying the Seller an £8000 fee?

• A Buyers Premium isn't the same as a payment to the Seller on top of the purchase price.

• If, for example, this wasn't the sellers main home and they had to pay Capital Gains then this would affect that payment.

• What part of a property sale isn't covered by an Invoice?

• I notice a number of these properties were recently for sale through standard Estate Agents (non Auction) and have been "snapped up" by Bond Wolfe somehow for their auction (to inflate the numbers in their auction?). Could they be buying properties through another company and selling them thru their auction then you pay them the £8K? Land Registry is unfortunately too late updating to confirm current ownership of the properties in question.

• There's all sorts in this contract that makes no sense "The Buyer undertakes not to insist upon the Seller being registered proprieter of the Sellers Title." Who exactly owns it then?

Would love to get your take on it or even better if you proceeded to purchase and can shed any light.
Thanks, Norm