A-Z of Self Build Guides Buying Land: Guide To The Pitfalls

Date Published:

09/06/2009

Buying land at auction or by tender?

Buying Land At Auction Or By Tender

Going Once... Do Thorough Checks First
Buying a plot at an auction is not for the faint-hearted – it is a highly legal process, whereby at the fall of the hammer, the highest bidder is deemed to have accepted all the terms and conditions of the sale; the highest bidder is legally binding themselves to the purchase, and the vendor to sell, in same way as an exchange of a legal contract.

Failure to complete will result in the purchaser (the highest bidder) being charged interest at a pre-determined rate – typically 4-5% above the bank base rate – and if the purchaser backs out of the sale altogether, they can be sued by the vendor for re-marketing costs and any discrepancy in value

. This legal framework is the reason why most reputable auction houses include on the particulars within the terms and conditions most of the questions that a purchaser’s solicitor would ask and copies of the searches. However, it is up to the interested buyers to fully assess the plot; it is not recommended to buy a plot solely based on what you read or view in the auction particulars. You should give your solicitors a chance to look at the details and leave enough time before the auction for them to make any enquiries and confirm additional details they feel necessary.

Going Twice... Keep An Eye On The Price

Many auction details will include a guideline price for the plot, although experience has shown that this can often be very misleading. The guide price is often used simply to attract more interest, and typically, it is set at about two-thirds of the eventual selling price. Some auctions will also set a reserve price, which doesn’t have to be disclosed to the interested buyers. Unless the bids reach that figure, the auctioneer can choose to withdraw the item for auction. In the auction room, it can be very easy to get carried away, once in a bidding war. Once you have assessed each plot, set yourself a maximum ceiling price for each one, which you will not, or cannot afford to, go above.

The Tender Process

In contrast to the legally-binding auction process, the tender process is an alternative way to buy your plot, but it does not come with the same legal framework. Various forms of tender exist – open tender, closed tender, formal, and informal tender – but are all basically the same process whereby offers are solicited in writing for a plot or property. The conditions of sale are set by the selling agents or vendors themselves, so each tender is different.

The details for a tender sale are very similar to the auction particulars, save the fact that renders require bids to be submitted in writing by a certain date. However, because the tender process is not legally binding, vendors reserve the right not to accept the highest offer, or indeed, any offer at all. Whereas in an auction, the fall of the hammer has very distinct legal implications and binds both the buyer and the seller, success by virtue of being the highest bidder in a tender process does not guarantee that you’ll be able to buy the property or plot.

With no legal requirement for the vendor to accept the highest offer, this can be a one-way street for budding self builders. There is a suspicion that the system is open to manipulation and abuse and is notoriously unpopular with purchasers, with some comparing it to entering an auction room blindfolded and with earplugs. Bidders will never know if they were outbid by just a £1, and those who proceed with buying the item will never know if they paid way over the odds for it. The best advice for tenders is to put in an offer at a price that you are comfortable with, plus a little bit extra.

For More On Self Building And Buying Land

Self Build Advice
Top Tips On Finding And Buying Land
Planning Permission Tips For Self Builders
What Makes A Good Building Plot?