Buying a Property at an Auction - What are the Risks?
Buying a home at auction may seem like a brilliant idea. There are lots of opportunities to buy a property for a lot less than you would pay for it on the open market and you can avoid gazumping.
But there are some risks and some considerations that you should take into account before you jump into buying a property at auction. If you are planning to buy your home at an auction, we recommend the following:
Do Your Research
Once you have the auction catalogue, shortlist the properties you’re interested in and then arrange a viewing. One of the risks of buying at auction is that you don’t even bother to view the property because you lose out on the property you wanted and really want to buy.
This can be really risky as you just don’t know what you’re buying. Horror stories of condemned properties that owners have to pay to demolish are rife, so make sure you view any properties you’re going to bid on. Take a builder with you so they can give you a rough guide of how much it’ll cost to do up the property. After all, if it needs completely gutting and will cost much more than you have to spend, it’s probably not the right property for you.
Survey, or Not?
Whether you’re a tradesperson with a good eye or you’re a complete novice buying your first property at auction, you should carefully consider getting a survey completed on the property you’re looking to buy. Although as survey can cost from £600 to £1,000, depending on the type, the money you may have to pay out if you don’t get a survey done could be so much more. One thing to think about is that you won’t get this money back if you decide not to buy the property at auction if you’re outbid or the property is withdrawn from the auction.
Look at Prices in the Area, not the Guide Price
Guide prices are just that – a guide. Most of the time properties go for way more than their guide price, particularly if they are in a sought after area. A much better way for you to see roughly how much a property will sell for is by looking at Zoopla and/or Right Move to see what properties are selling for in the area. You could also talk to local estate agents for their views on what the property is worth. After all, one of the risks of buying at auction is that you’ll get carried away and pay more than the property is actually worth.
Get a Conveyancing Solicitor to Check Legal Pack
When you buy a property at auction, there’s always the risk that there is something hidden in the legal pack that could cost you a lot of money to put right. Covenants or loopholes can make the purchase much more complex or even risk not completing, which can have massive financial implications for you.
Get one of our Conveyancing Solicitors to review the legal pack for you before the auction so you are completely clear what you are buying, with no hidden “money pit” surprises.
Get Your Finances Straight
When you buy a property at auction, you have to pay 10% of the purchase price straight away. Make sure you have the funds in place to do this. You only have a month to pay the rest of the money. If you are using a mortgage, you must have a mortgage in principle arranged, so it can proceed in time to meet the deadline.
If you don’t meet these timescales, you’ll lose the property and lose your 10% deposit too. On top of that, you’ll also have to cover the costs to resell the property and any shortfall between the price you agreed to pay and the final selling price. You could even be charged interest every day.
Don’t go into an auction without being aware of the possible risks, but when you go in fully prepared and ready, hopefully, you can get the property you want at a bargain price.
Simpson Millar Solicitors are a national law firm with over 500 staff and offices in Bristol, Cardiff, Lancaster, Leeds, Liverpool, London, Manchester and Southport.