Auctions are undoubtedly an exciting place to be. A place where sellers want to quickly get rid of their properties, and buyers are on the lookout for that hidden gem. Commercial Property solicitor, Thomas Whistler gives us his top tips on how to avoid the pitfalls of buying at auction.
Whether you are searching for a house to live in or renovate, or a plot of land to develop, auction houses all over the country will have dozens of properties vying for your attention. However, you should be careful about being lured into bidding for what can seem like a great find because once you win the bid and the hammer falls, you are locked into buying and are legally obliged to purchase no matter whether you’re ready or not!
I’ve worked in property law since 2013, and these are the tips that I always give my clients when they are considering buying at auction.
Viewing the property before buying at auction
With everything being able to be done virtually nowadays (including having the auction pack online as well as the bidding process itself) and because of time pressure, you may decide not to visit the property you want to buy, but it is much safer to err on the side of caution and make time to go and inspect the property because it can give you some valuable insight into the property. Pictures online never do it justice, and by going there and taking in not only the state and condition of the property, but also the general locale, it will give you an idea of how much its worth, the interest it might generate at auction, and what your budget should be for bidding. If time permits, you should always get a survey done before bidding. Remember, at auction once the hammer falls you are locked in to buy the property in its current state and condition.
Check the legal pack
The auction house will upload a legal pack which would at the bare minimum include the auction contract, special conditions, and a copy of the legal title. You can download these from the auction website or ask for a full pack from the auction house. You should review all the paperwork to make sure you are buying the correct property, and it’s suited for what you intend to do with it. Even if the property looks perfect, it might have restrictions against its use, building works or any development on it. You might find that after you completed the purchase, you can’t do what you intended for the property in the first place. You should also get legal advice on an auction pack as early as possible. You need to identify problems relating to documents missing from a pack as much as the documents in the pack. At Amphlett Lissimore, we can review the legal pack before the auction day. Please feel free to contact us for a quick conversation to discuss.
Before heading into an auction, you should have plans on how you are going to fund your purchase. As you are legally bound to buy the property on the hammer fall, you will usually have 20 working days to complete. You will also be required to pay the deposit directly to the auction house on the day of auction. Although this may seem like a long time, if you are using mortgage finance you will find that delays from the lender and/or their solicitor may push this down to the wire, and sometimes even cause you to complete late, incurring penalties and late fees. You should already have a decision in principle in place to avoid wasting time applying for a mortgage after the auction. If you don’t get your funds in time, the risk is that you will lose the deposit already paid on auction day.
This can be something that a lot of people overlook, particularly given that you may have already paid fees to the auction house to even bid. A lot of sellers will usually push their selling costs on to the buyers, such as their selling fees, legal fees, and property searches. These fees are usually set out in the legal pack, tucked away in the small print. You must pay these on completion on top of the purchase price .As part of our legal pack review, we will also point out to you what fees are payable on completion.
Once you have everything arranged and ready to start bidding on auction day, be careful of overbidding! You might get swept up on the excitement and enter increasingly higher bids to secure the property. Once a bid is entered, it is valid and provided no other person bids before the hammer, then the price will be set. Overbidding your budget is an easy way to lose your deposit if you don’t have any way to make up the difference. Setting a budget is also important, including having a figure in mind as to how much the property is approximately worth. If you have carried out a survey, some surveyors may also provide an estimate as the value or you can do your own research into the property history and the local market. The legal title will also usually have the last sold price and reveal some background when the seller bought it. Not only should you keep in mind the value of the property, but you must also be wary of fees which you might have to pay such as stamp duty land tax that are dependent on the final sale price.
Don’t forget that as part of the buying at auction process you have legally exchanged contracts. Usually when this happens, the seller is not obligated to insure the property and the risk of the building being damaged or destroyed falls on you even before you complete the purchase. You should always make sure the building has adequate insurance, if not by the seller, then you should take out a policy yourself as soon as possible. If the property is damaged or destroyed, you will not be entitled to a reduction in price nor a refund of your deposit, and you will still be legally bound to complete the purchase for the full price. If the property is just vacant land, then you may still wish to consider getting public liability insurance. Even an illegal trespasser can potentially sue if they have an accident…
In conclusion, do your homework before buying land or property at auction. If you do then you will be confident on auction day that you are purchasing the right lot for the right price for the right purpose.
Need a legal pack reviewed?
At Amphlett Lissimore, our commercial property solicitors can help to ensure you know the ins and outs of buying at auction before you decide to bid for it. We will provide you with a detailed report based on the legal pack, searches, and any special conditions the auction may have. If you would like to learn more about our auction transaction services, please contact the commercial property team on 020 8771 5254.