Buying and selling farmland: Auction v private treaty

Historically, large numbers of estates and farms were sold at auction. Although still popular in some areas of the UK – the south west and Welsh borders in particular – recent years have seen a shift toward selling via an agent by private treaty.

With fees for either route typically between 1.5% and 2% of the final sale price, the decision on whether to use an agent or auction is more than purely financial.

See also: Farmland – why it pays to know who owns what

What you are selling or buying, the need for flexibility over negotiations, timescale and legal requirements all play a part.

Historically, large numbers of estates and farms were sold at auction. Although still popular in some areas of the UK – the South West and Welsh borders in particular – recent years have seen a shift toward selling via an agent by private treaty.

Simon Gooderman
Director, Cheffins

With fees for either route typically between 1.5% and 2% of the final sale price, the decision on whether to use an agent or auction is more than purely financial.

What you are selling or buying, the need for flexibility over negotiations, timescale and legal requirements all play a part.

Selling or buying at auction

Pros Auctions tend to be better suited for buildings and blocks of land of up to 150 acres – less so for farms with residential property, unless they need substantial renovation.

For both the seller and buyer the open bidding process can be an advantage – the buyer can see how much others are willing to pay (unlike a sealed bid) while the spirit of competition could help drive up the price for the seller.

It also helps flush out buyers who might otherwise sit on the fence.

With the contract exchanged on the day, it ensures for a quick transaction. If buyers pull out, they lose their 10% deposit and can even be sued if the land is subsequently sold at a lower price.

This also tends to lead to less involvement from lawyers and lower legal fees.

Also, all documentation is available in advance, so buyers know exactly what they’re getting.

The transparency of the bidding means auctions are also a good way to demonstrate best price has been achieved.

This is often useful for trustees, executors or charities or as a way of resolving disputes – for example, where joint owners each want to buy the land.

Cons For both the seller and the buyer there is no negotiation over terms such as overage clauses, holdover or early entry (unless this is mutually agreed after the auction), and the public bidding process means there is no confidentiality.

There is also no guarantee the land will be sold, which, with legal fees paid up front, could mean money spent with no return. The seller also has no control over who purchases the land.

For the buyer, one of the biggest considerations is finance. A 10% deposit must be paid at the sale, and with a fixed completion date money must be in place beforehand.

There is also often limited time to raise any queries before auction day.

Title deeds, Land Registry information and replies to pre-contract enquiries should all be at the auction and two weeks beforehand, along with environmental and land searches that include details of any contamination or environmentally protected sites.

You would also expect to see a copy of the final contract as it will show any restrictions on the land, such as “no building” covenants.

Selling or buying by private treaty

Pros Private treaty tends to be a better approach for larger plots with residential property. There is greater ability to negotiate over practical arrangements, while it allows finances to be kept confidential.

There is also control over who you sell to, which could be important in certain circumstances, such as selling land adjacent to your retained property.

The private treaty approach also allows for greater negotiation on behalf of the buyer – both in terms of price, timing and conditions like overage or development clauses.

You are not committed until you sign on the dotted line so it helps if you need to get finances together. The flexibility over timing can also be beneficial for tax reasons.

For example, if investing to benefit from capital gains tax rollover relief following the sale of development land, there may be a need to ensure vacant possession and agree other practical arrangements to obtain the relief.

There is also an ability to negotiate over the boundaries of the land – at auction you buy what is under the hammer, but through private treaty there is more room for manoeuvre.

Cons The main frustration for both parties is usually the lengthy selling process. Even once you have agreed terms it can take a long time for all legal agreements to be in place.

Selling by auction is likely to take about four weeks to complete, from the time you start to market the property and, if you are buying, you will exchange contracts the day of the auction.

In comparison, selling by private treaty typically takes eight to 12 weeks from marketing, although there is always the risk that the buyer may seek to renegotiate the price or any other term.