PROPERTY JOURNAL

Good practice in real estate auctions

Auctioneers must be aware of the standards they are held to, whether in the auction room or online

Author:

Paul Bagust

11 September 2020

With the growth in online bidding resulting from the COVID-19 crisis, where up to 300 lots can be offered in one auction, it might be timely to remind auctioneers – and through them, their buyers and sellers – of the professional standards and guidance given by RICS to its members who hold auctions. While this guidance was written with physical room auctions in mind, the guidance applies equally to all forms of auctions

Auctioneers selling real estate (incorporating Common Auction Conditions), RICS professional statement, England and Wales 7th edition, March 2018 can be downloaded free of charge.

RICS members must conduct business in an honest, fair, transparent and professional manner. If a client wishes you to act in a way that offends these codes then you have an obligation to explain to the client why you cannot act for them.

Complying with legislation

Auctioneers have to follow a number of statutory regulations including the Estate Agents Act 1979 which requires them, among other things, to disclose any personal interest in the property. ‘Personal interest' is defined widely and includes any interest owned by a family member or any other relative.

It is also mandatory to comply with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 which includes registration with HMRC.

RICS members must comply with the Consumer Protection from Unfair Trading Regulations 2008 (CPR) and Business Protection from Unfair Trading Regulations 2008. These apply to practices before, during and after a contract is made. The CPRs contain a general prohibition of unfair commercial practices They also prohibit 31 specific commercial practices and specifically ban using ‘bait advertising’ techniques.

Guide prices issued by the auctioneer

A guide price is usually first published when the auction marketing starts. The guide price can either be a single figure or a range of figures. A buyer can then decide whether to pursue a possible purchase.

An auctioneer usually provides a definition of the guide price. This can be the seller’s minimum acceptable price, which also represents the reserve if this has been fixed. The reserve price is the price below which the auctioneer cannot sell at auction. The reserve price can be fixed by the seller nearer the day of the auction in the light of interest shown during the marketing period.

The auctioneer should be aware of the seller’s minimum price expectations at the start of the instruction. If it is a range then the guide price should not be lower than the bottom of the range. If the definition is the seller’s minimum acceptable price then if there is any change in this after marketing has begun, the previously published price guide may become misleading. In these circumstances, the guide price should be changed to reflect this immediately.

"The auctioneer should be aware of the seller’s minimum price expectations at the start of the instruction"

Additional payments

If a payment, in addition to the usual deposit is to be imposed by the seller, for example a seller’s buyer’s premium, contribution to the seller’s agents or solicitor’s fees and costs, then notice should be given to prospective buyers as soon as marketing commences or as soon as the auctioneer is made aware of them.

All additional charges should be clearly included in the special conditions of sale so that the buyer can calculate the full cost of purchase. If the special conditions have been published without the additional charges then these should be clearly noted in the addendum.

If payment in addition to the usual deposit is to be imposed by the auctioneer on the buyer in the form of a buyer’s premium and/or administration charge, this should be clearly stated in the particulars at the outset of marketing so that the buyer can calculate the extra costs of purchase.

If it is a conditional sale the buyer should be clearly informed in the special conditions and the particulars what monies the seller and/or auctioneer will retain if the contract does not proceed to completion.

Accurate and true results

Where a lot fails to reach the reserve price or is ‘bought in’ by the seller, auctioneers should:

state that it has not been sold
not bring the hammer down
not use inappropriate phraseology giving the impression that the bidding is at or above the reserve price prior to withdrawing the lot as unsold.

Published results must be accurate and should not include VAT. When a property is sold before or after auction, it is usual not to publish the sale price without the consent of the seller and the buyer.

When a sale is subject to conditions or is called ‘a conditional sale’ the conditions should be clearly stated in the results and cannot be shown as sold until the conditions have been satisfied, the sale completed and the final sale price recorded.

"All additional charges should be clearly included in the special conditions of sale"

RICS Common Auction Conditions

RICS’ Common Auction Conditions (CAC) are designed for real estate auctions, to set a consistent practice across the industry. They have been published to make the conditions of the auction and contract as clear as possible for the benefit of bidders, buyers and sellers.

RICS owns the copyright in all editions of the CAC, but permits the free use of the 4th edition if the auctioneer, among other things:

reproduces all compulsory sections of the CAC without variation and in full. Auctioneers can only make changes by way of the extra conduct conditions or extra general conditions as stated
acknowledges that the CAC are reproduced with the consent of the RICS
refers to the conditions as the Common Auction Conditions (4th edition).

RICS reserves the right to withdraw its licence to use this and any previous edition of the CAC.

Auctioneers should have a good understanding of them, including the following conditions:

The Auction Conduct Conditions, which govern the relationship between the auctioneer and anyone who participates in the auction. They apply wherever the property is located, and cannot be changed without the auctioneer’s agreement.
The Sale Conditions, which apply only to property in England and Wales, and govern the agreement between each seller and buyer. They include general conditions of sale and template forms of special conditions of sale, tenancy and arrears schedules and a sale memorandum. They must not be used if other standard conditions apply.

Be aware of any changes the seller’s solicitor has made in the special conditions of sale.

Paul Bagust is global property standards director at RICS

pbagust@rics.org

Related competencies include: Auctioneering, Ethics, rules of conduct and professionalism