Auctioneering Flashcards
What commission was charged for my clients lots at the dispersal sale?
For items less than £5,000 commission was charged at 7.5%.
This was reduced to 5% on the surplus above £5k.
What commission was charged for included lots at the dispersal sale?
For items less than £5,000 commission was charged at 12.5%.
This was reduced to 5% (plus VAT) on the surplus above £5k
What determines who successfully purchases each lot?
The highest bidder
What happens at the fall of the hammer?
The purchase is obliged to pay in full and remove the item from the property same day, unless other arrangements have been agreed.
Are the auctioneers responsible for commission bids?
Commission bids are made at the bidders risk. Auction staff are not responsible, and all commission bids should be made in writing ahead of the sale.
Are the auctioneers responsible for the description of lots?
Buyers must satisfy themselves as to the condition of the lots. They are sold subject to any defects.
What is the key legislation relating to Auctioneering?
Auction Bidding Agreements Act 1927 & 1969
Consumer Rights Act 2015
What is the Auction (Bidding Agreements) Act 1927 & 1969?
These Acts make it a criminal offence for someone to give an incentive or reward to any person for abstaining from bidding at a sale by auction and for any person to accept the inducement or reward.
When might a firm act as a “Principal” in the financial transaction?
When the asset sold is exclusively livestock.
When the sale is at an Auctioneers premises.
When the sale is not wholly or mainly for one client.
What happens if the the firm is acting as a ‘Principal’ rather than an ‘Agent?’
Sale proceeds are not paid into the a ‘client account’.
RICS Client Money Protection Scheme will not protect the vendor if the firm becomes insolvent.
What are the risks for firms acting as ‘Principals’?
Purchaser fails to pay for livestock (credit risk).
Cost of financing the period between paying out the vendor and being paid by the purchaser.
What is the Sales of Goods Act 1979?
Requires goods to be as described, of satisfactory quality and fit for purpose before 30th September 2015.
What is the Consumer Rights Act 2015?
Replaced the Sales of Goods Act 1979.
all products must be of satisfactory quality, fit for purpose and as described.
Come into force on 1st October 2015.
What are the Common Auction Conditions?
A set of standardised terms widely used in property auctions across the UK to ensure clarity and consistency.
These conditions govern the legal framework for buyers and sellers, outlining their rights and obligations during the auction process.
The most recent version, known as CAC Edition 5, was published in July 2024 by RICS.
Name the key aspects of the Common Auction Conditions
- The Auction
Bidding Process: Outlines the procedure for bidding, including registration, how bids are placed, and what constitutes acceptance of a bid.
Reserve Price: This is the minimum price that the seller is willing to accept. The property may not be sold if the highest bid does not meet or exceed this price.
Completion of Sale: Once the hammer falls, a legally binding contract is formed between the seller and the highest bidder. - Deposits
Payment: The buyer must pay a deposit, typically 10% of the final bid price, immediately after winning the auction.
Forfeiture: If the buyer fails to complete the purchase, the deposit is usually forfeited, and the seller may have the right to pursue other legal remedies. - Contractual Terms
Completion Date: The date by which the buyer must pay the remaining balance and complete the purchase, typically 28 days from the auction date.
Legal Pack: This includes all legal documentation related to the property, such as title deeds, searches, and planning consents. Buyers are expected to review this prior to bidding.
Special Conditions: These are property-specific terms that may override the general Common Auction Conditions. These should be clearly outlined in the auction catalogue or the legal pack. - The Seller’s Obligations
Title of Property: The seller must provide proof of good title to the property.
Condition: The seller is not obliged to carry out any repairs or improvements to the property before the sale unless explicitly stated in the special conditions.
Vacant Possession: The seller must ensure the property is vacant unless it is being sold with tenants in situ. - The Buyer’s Obligations
Due Diligence: The buyer is responsible for ensuring they have all necessary information about the property and should inspect the legal pack before the auction.
Completion: The buyer must pay the remainder of the purchase price by the completion date or risk forfeiting the deposit and facing legal consequences. - Risk and Insurance
Transfer of Risk: Once the hammer falls, the risk in the property transfers to the buyer. It is the buyer’s responsibility to arrange insurance from that point onwards, even though legal ownership transfers only on completion. - Authority to Bid
Proxy Bidding: If a bidder is acting on behalf of another person or organization, they must have proper authorization to do so and may be required to submit this to the auctioneer before bidding. - Special Conditions and Addenda
Special conditions or amendments specific to the property may be added before the auction, and it is the buyer’s responsibility to stay informed of any changes, as they become binding.
What is a buyers premium?
An additional fee charged to the buyer on top of the winning bid amount.
A percentage of the final sale price and is paid to the auction house to cover their costs and generate profit.
When were the Common Auction Conditions last updated?
July 2024.
They are included in Appendix A of the RICS Auctioneers selling real
estate professional standard (7th Edition March 2018).
Talk me through one of the Common Auctions Conditions
In relation to bidding and reserve prices, the Common Auction Conditions express the following;
A3.1 All bids are to be made in pounds sterling exclusive of vat.
A3.2 we may refuse to accept a bid. we do not have to explain why.
A3.3 If there is a dispute over bidding, we are entitled to resolve it, and our decision is final.
A3.4 Unless stated otherwise, each lot is subject to a reserve price (which may be fixed just before the lot is offered for sale). If no bid equals or exceeds that reserve price, the lot will
be withdrawn from the auction.
A3.5 Where there is a reserve price, the seller may bid (or ask us or another agent to bid on the seller’s behalf) up to the reserve price but may not make a bid equal to or exceeding the reserve price.
Talk me through the auction process
In terms of a property auction, the process would be as follows;
- Pre-Auction Preparation
-Appraisal, preparation of catalogues, reserve prices , seller AML, preparation of legal packs. - Auction Day
-Bidder registration, the auction itself. - Post-Auction process
-Payment of deposit (often 10%), contracts exchanged, arrangements for completion.
- If not sold, arrangements for re-marketing.
-Any post-auction queries to be dealt with.
What benefits are there to selling at auction rather than by another method?
-Speed of sale. Contracts exchanged at fall of hammer, and completion shortly after.
-Clear market value
-No chance of gazumping or gazundering.
-Good for properties in poor condition.
-Good for unusual or niche properties that may otherwise be hard to sell.
What money laundering risks are you exposed to during auction?
-Real estate sales are at higher risk of money laundering due to their high value.
-Large sums of cash changing hands.
-Possibility of inadequate AML/KYC checks.
-With online auctions there are concerns for the limited bidder information. Understanding exactly who is bidding can be difficult to ascertain.
How can you mitigate risks of money laundering at auctions?
-Adhere to strict AML and bidder registration checks.
-At our farm dispersal auctions, we only accept cash payments up to £100.
-Monitoring of large or unusual transactions: Any unusually large transactions should raise red flags and prompt further investigation.
What due diligence should be carried out pre-auction?
-Identity verification
-Source of funding checks
-Enhanced Due Diligence for higher risk clients (e.g. PEP’s)
-Due diligence for the property details
-Ensuring legal packs are accurate
-Establishing reserve prices
-Risk assessment
Describe the information you collated for one of the Lots intended for auction?
As an example, one of the lots intended for auction was a Massey 135 tractor.
For this lot, I gathered information including
-Registration plate
-Mileage
-Date of first registration
-Any known defects (e.g. runner or non-runner).
-V5, logbook and key check.
I then carried out some research to establish a suitable reserve value, and discussed this with the client.
