Guide to Buying a Property at Auction
If ever the expression “Buyer Beware” was apt, it would be when someone is buying a property at auction.
Most people understand how an auction works up to the point when the hammer falls and the highest bidder gets the property. At that point, you won’t have signed the contract to buy the property, but you have effectively – and legally – agreed to buy the property.
The successful bidder will then be invited the auction clerk’s table, asked to sign the contract and pay the deposit either by cheque or bank transfer. The completion date will then be set. This is usually 28 days, but can be earlier if the contract provides for it.
For free initial advice get in touch with our Conveyancing Solicitors.
Things to Consider before Bidding on a Property
Do your Homework on the Property
It’s likely at the beginning that you’ve seen an auction catalogue merely with a brief description of the property. What you really want to see is what is known as the “auction pack“ - a list of documents normally containing the contract and its terms, evidence of the seller’s title to the property and recent searches.
Always get your Conveyancer to check over the documents for you. They will no doubt charge you but the consequences of not doing this can be financially horrific. Imagine going to a car auction and buying an expensive car when you know absolutely nothing about motors.
Most people wouldn’t dream of doing this. So why would you spend even more money on a property that might have problems?
Sellers sometimes load the contract with fees that you wouldn’t normally pay. If you’re buying a property which has an existing tenant, you need to be even more vigilant. Rent arrears can be claimed back by the seller which means that, at legal completion, you have to pay the tenant’s rent arrears and it may well be that the tenant isn’t in a position to pay the arrears.
Great caution needs to be taken with a tenanted property and you should get legal advice before any commitment to purchase is made.
What is the Condition of the Property?
It isn’t just legal problems that you need to concern yourself about. The state and condition of the property can also lead to financial disaster. If you were buying a property in the usual way, it’s more than likely, in fact almost inevitable, that you’ll have a survey carried out.
If anything major is discovered, you have the opportunity to abandon the purchase. But at auction, when the hammer falls, you have bought it whether the property is falling down or not. If it’s a tenanted property, you may have to make some immediate repairs just to comply with Landlord and Tenant legislation.
The rule of thumb must always be to have the property looked at. A lot of people who bid at auction are in the trade and know what to look for, but a novice with no experience in that regard is dicing with danger.
Be Prepared to Insure the Property
Most auction contracts will require you to insure the property from exchange of contracts, so make sure you’re in a position to do so.
Has the Property been Vandalised?
As near to the auction time as is logistically possible, check the property out in case it has suffered from vandalism.
Ultimately, the golden rule before buying a property at auction is do your homework and get legal advice. By doing the proper checks and speaking with the proper experts before committing, you can avoid many of the common pitfalls that come with buying a property at auction.
How an Auction Works
The idea of an auction is to open up the sale of the property to the general public by allowing the property to be open to bids from the auction floor or online. This will also include telephone bids, where one of the staff has a bidder on the phone line and relays the bids as the auction proceeds.
Generally, however, most bids will be made in the auction room and when no more bids are forthcoming, and provided the property has reached its reserved price, then the hammer falls and the highest bidder gets the property.
Simpson Millar Solicitors are a national law firm with over 500 staff and offices in Billingham, Bristol, Cardiff, Catterick, Lancaster, Leeds, Liverpool, London and Manchester.