Is buying property at auction right for you?
Buying property at auction can be a thrilling and potentially rewarding experience. However, it is important to be aware of the legal implications, rules and regulations, and possible risks involved in such a purchase.
Understanding property auctions
Firstly, it is important to note that purchasing property at auction is a legally binding agreement. This means that once the hammer falls, the winning bidder is legally obliged to complete the purchase. It is therefore essential that you do your due diligence of the property before making a bid. This should include a detailed inspection of the property as well as instructing a surveyor to undertake a survey, and also reviewing the legal pack or instructing your solicitor do so in good time before the auction.
What is the legal pack?
The legal pack will contain important information such as a copy of the title register and plan (or copy unregistered title deeds) and lease (if leasehold), search results, property questionnaires completed by the seller and copy planning permission or building regulations that apply to the property. Instructing a solicitor to review the legal pack and provide you with their professional opinion on any potential issues or concerns is advisable. You can then be informed of any potential issues when considering your bid. For example, if the property is leasehold but with a short remaining lease term, the property may not be mortgageable and it may be necessary to extend the lease, at additional cost to you, before you can sell or raise finance against it.
Any enquiries you or your solicitor may have regarding the property should be raised of the seller or seller’s solicitor prior to the auction as they are unlikely to be willing to assist with such following exchange and will have no obligation to do so. Similarly, any additional searches you may require should be undertaken prior to the auction.
Property auction process
When attending an auction, arriving early and registering your interest with the auctioneer is essential. You will be required to provide proof of identity and, in most cases, a deposit in order to bid. The deposit is typically 10% of the purchase price and must be paid immediately if you are the winning bidder.
The balance of the purchase price will be payable on completion and the completion date will be noted in the legal pack. It is often around twenty working days after the auction and cannot be changed without the consent of the seller which is unlikely to be forthcoming.
As such, your finance should already be in place as there will be insufficient time to arrange high street lending.
It is important to set a budget before attending the auction and stick to it. Auctions can be fast-paced and emotionally charged, so getting carried away and overbidding is easy. Also, remember that there may be additional costs on top of the purchase price, such as legal fees (yours and, depending upon the special conditions of sale, the sellers), Stamp Duty Land Tax, Land Registry and auction fees.
Should I buy property at auction?
The main benefit of buying property at auction is the potential to secure a bargain. However, it is important to be aware that there are risks and properties are sometimes placed in auctions as they have hidden defects or are subject to restrictions that could affect the property value or use and sellers are hopeful that such defects will not be picked up by novice or uninformed buyers.
It is important to approach with caution and fully understand the legal implications, rules and regulations, and any risks involved. By doing your research and seeking professional advice, you can increase your chances of a successful and stress-free purchase.
“We have been instructed to act on behalf of clients who have already bought at auction but who need us to assist with the completion process and it has not always been a positive outcome for clients if they have not undertaken their due diligence beforehand. We have seen clients purchase land locked land with no rights of access as well as land with the intention of development where development will be impossible.
Not every auction purchase is unsuccessful, but care needs to be taken.
Please also ensure that sufficient notice is given to your legal adviser to review the legal pack. Some packs can be quite extensive, and your solicitor may well not have the time to properly review the pack or to review it at all if given to them at the last minute.”