What Happens if You Can’t Complete After Winning an Auction?
Property auctions are formal sales processes, and if you’re the winning bidder but cannot complete the purchase, you’ll be in breach of a legally binding contract, which can have serious repercussions.
Non-completing buyers will usually lose their deposit, typically around 10% of the agreed purchase price. They could be pursued by the seller to cover other costs incurred as a result, such as their losses and legal fees.
This is why anyone considering participating in a real estate auction should know how they will fund a prospective purchase and understand that auction sales complete faster than other methods.
Key takeaways
- Buyers at property auctions enter into legally binding agreements and are contractually obligated to pay once the hammer falls or the online auction ends – there is no statutory cooling-off period during which they can change their minds.
- The cost of non-completion can be steep, with buyers losing their deposit, and potentially being liable for interest, resale costs, damages and losses.
- Auction buyers must be prepared with secure finance and access to legal packs before placing a bid or incurring financial risk
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What Does a Legally Binding Property Auction Purchase Mean?
When we say a real estate auction transaction is binding, it means a contract forms as soon as the auction ends, and both parties have committed to buying or selling the property at the agreed price:
The buyer has confirmed they will purchase the property at the stated value
Contracts need to be signed immediately
Deposits are payable there and then, usually with the balance due within 20 days
The normal payment process works as follows:
On the Auction Day | On the Completion Date | |
Payable Amount | Deposit | Remaining balance and fees |
Value or Basis | Usually 10% | 90% |
Deadline | Immediately | Usually 20 days |
What Happens if the Buyer at a Property Auction Can’t Pay the Deposit?
If, on the day of an auction, a buyer enters the highest bid but cannot remit the deposit, they will be in breach of contract from this point onward. The seller and/or the auctioneer may decide to take legal action, and the buyer remains liable for the deposit.
This is, however, a very unlikely scenario, because experienced auctioneers require all participating buyers to register their details beforehand, and to review the terms they are agreeing to by placing a bid.
Contracts are enforceable straight away, and not paying the deposit won’t cancel the transaction; instead, it could make the buyer responsible for additional costs.
What About if a Property Auction Buyer Can’t Complete?
Generally, the buyer pays the 10% deposit there and then, with the balance due in four weeks. The outcomes of being unable to complete may depend on the specifics, but often:
The buyer will be issued a legal document called a Notice to Complete
They may be allowed ten working days to finalise the transaction
Interest incurred during that period will usually be payable by the buyer
At the end of the ten days, if the buyer still hasn’t paid the balance and completed the purchase, their deposit will be lost, the contract will be terminated, and the seller can relist the property in another auction – and the buyer could be expected to cover the expenses the seller incurs in doing so, along with any other losses
Which Costs Could Non-Completing Property Auction Buyers Be Liable For?
Failing to complete can become extremely costly, and depending on how the seller or auctioneer decides to proceed, the buyer might be required to pay:
Auction fees for the failed sale and the new auction
Legal fees incurred by the seller
Marketing costs incurred by the auctioneer
Mortgage interest costs
Council tax and utilities for the period they should have been the responsible owner
Insurance charges
Daily interest accrued on all the above expenses
Along with any other expenses or losses
In some cases, if the property is relisted at a subsequent auction and sold for a lower price, the original buyer may be required to pay the difference to the seller as compensation.
Clive Emson’s legal adviser says, ‘Non-completion after a property auction is serious, and the seller may even have a right to claim losses incurred due to depreciation, where the property market has shifted, and their land or property becomes worth less due to the delayed sale.’
What Should a Buyer Do if They’re Worried About Not Being Able to Complete an Auction Property Purchase?
Buyers who find themselves in difficulty, or whose financial circumstances have changed quickly since the date of an auction, should seek help immediately, and are advised to:
Contact their solicitor to ensure they understand the legal implications
Organise short-term financing, such as a bridging loan, while waiting for longer-term funding to become available
Explore the possibility of negotiating with the seller if there is a clear reason they cannot complete on time – sellers may be willing to grant an extension
The most common mistake is not having financing secured before an auction, or that funding has been delayed, but it’s also possible for buyers to be caught out due to the competitive nature of the auction setting. Having a clear strategy and setting maximum bidding thresholds should avoid any such issues.
Frequently Asked Questions
How Long Do Buyers at Property Auctions Have to Complete?
The norm is for the buyer to pay a 10% deposit on the day, and the balance and any fees payable within 28 days. In some situations, they might be able to extend the completion deadline, but this depends on whether the seller is willing to accept the extension, since they have no obligation to do so.
Why Can a Seller at a Property Auction Sue a Buyer for Non-Completion?
Property actions result in a formal, enforceable agreement between the buyer and the seller. If the buyer backs out, the seller has the right to take legal action to recover all losses and expenses, including the cost of relisting their property in another auction and any difference between the sale price they achieve and the price they would have achieved had the buyer not backed out.
About the Author
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