Building Legal Solutions
Auctions - a good way to buy a property?
- AuthorHarvey Gibbs
I regularly receive calls from clients who are interested in a property they have seen which is to be sold by way of an auction. Occasionally the first we hear about it is when our client telephones to say that they were the successful bidder at an auction the previous day (which is not to be recommended without taking proper advice beforehand)!
To those who are not familiar with the process the thought of buying a property at an auction conjures up all sorts of images about what it entails, and it will not be for every buyer. However, for those who are suited to an auction purchase it can be a way of avoiding the dreaded chain of transactions and provides the successful bidder with the certainty of a legally binding completion date once the hammer falls.
A common perception is that if a property is being sold at an auction there must be something wrong with it. Of course, it may be that in some cases that there are unusual features about the property that render it more appropriate for an auction sale, but there may be other reasons why the seller has decided to take the property to auction. For example, the seller may feel that a better price might be gained than a sale by way of private treaty.
Given that a legally binding contract arises once the hammer falls, and that the completion date will be fixed, it is crucial that the necessary due diligence is carried out prior to the auction. Furthermore, the finance should be in place – you should not bid unless you know that you will have the funds to complete. All of this will come with some cost which will effectively be wasted if you are not the successful bidder.
If you are thinking of buying a property at an auction, then as a minimum the following steps should be taken beforehand:
A professional survey should be carried out so that you are aware of the condition of the property. A decision can then be made as to the maximum bid that you are prepared to make, or whether you are going to make a bid at all. Bear in mind that the property will be sold as it stands and that there will be no comeback against the seller if you find any defects following the auction.
Instruct a conveyancer to review the legal title. Usually, the seller’s conveyancers will have prepared a “Legal Pack”, which will be lodged with the auction house in good time prior to the auction. Typically, the pack will include a copy of the seller’s title, relevant searches and any other relevant documents. The conveyancer will then advise whether there are any title issues with the property which again will influence your decision about whether to bid for the property.
Also instruct your conveyancer to review the auction conditions.
Ensure that you have the finance in place to buy the property if you are the successful bidder. If you will need a mortgage you must make your application and receive a written mortgage offer from the lender before the date of the auction. You and your conveyancer will also need to check whether the written offer is subject to any conditions that will need to be satisfied prior to completion.
Check the auctioneer’s identity document requirements, as the auctioneers must comply with the Money Laundering Regulations, and ensure that you have the necessary documentation to hand at the auction.
Check that you can get buildings insurance for the property and line it up so that it can be activated immediately if your bid is successful. This is because under the terms of the sale contract you will be responsible for the property from the point that the hammer falls.
If, having taken the above steps you are satisfied that you wish to bid for the property, then you can proceed to the auction.
If you are the successful bidder a legally binding contract arises as soon as the hammer falls. A deposit of 10% of the purchase price is payable immediately, and the 90% balance is payable on completion, which is usually 14 – 28 days after the date of the auction. If you fail to complete the purchase, you will at the very least lose the 10% deposit.
Under some auction conditions the successful bidder might have to pay a fee, often known as a Buyer’s Premium, to the auction house in addition to the price of the property. It is also a usual requirement for the buyer to repay the seller for the cost of the searches that were included in the Legal Pack.
It is always possible that the property might not sell at the auction, because the reserve price has not been met. In that event it is worth speaking to the auctioneer or their office afterwards to explore the possibility of negotiating a sale with the seller.
To summarise, purchasing a property at auction can be a good move provided that you have done your homework and taken all proper advice!
For advice about buying a property at auction, please contact me on 02476 999399 or another member of the Feldon Dunsmore team.
Author: Harvey Gibbs
26 March 2021