Not too long ago, my colleague Jay unpacked the implications of not fulfilling an auction purchase agreement. Today, we venture into the less explored terrain of fraudulent transactions in the property auction world. This thorny issue has led to thousands of pounds being squandered on legal fees for transactions that were never realistically viable. Our goal is to shed light on this, detailing the intricate process of such transactions, and hopefully, providing a way to navigate this issue.

For any potential bidder, the starting point is always the guide price. A common misconception held by many is that the guide price is a reflection of the probable sale value of the property. However, this isn’t quite accurate. The guide price simply dictates that the reserve should be within 10% of that guide price, or within the given range if the guide price is set as such. It bears no relation to the property’s actual value. While there should be some relation to the reserve, we often come across transactions that throw up red flags.

Let me illustrate this with a recent transaction we were involved in. We sold a property on behalf of a client which was bought after a vigorous bidding war by a trader. This trader, in turn, swiftly entered the property into a subsequent auction. He only offered part of the title being sold and gave it a low guide price. While this might seem deceptive, it’s not unlawful. The property eventually sold for almost double the guide price. The trader also stipulated clauses in the special conditions that the buyer would shoulder the cost of planning and other related costs, despite the fact that these were already covered, and the trader had no involvement in them.

But things took a peculiar turn. Within a span of two weeks, the property was yet again on the auction block, this time at an even lower guide price. It ultimately sold for considerably less than it had just a fortnight before. This series of events raised some legitimate questions. Did the property really sell in the second auction? Did the buyer fail to pay the deposit resulting in contract rescission? Or did a new buyer list the property in the third auction, accepting a 25% loss within two weeks of
contract exchange?