Buying a property at auction follows a legal process, but it is quite different to a purchase through an estate agent or solicitor. Here is what you need to know before you bid.
How buying at auction differs from a conventional purchase
With a conventional sale, you put in your offer, it’s accepted, and then we carry out searches, investigate title and raise enquiries with the Seller’s solicitors.
When buying at auction, you must make sure you have carried out all the checks on the property that you decide are necessary before you bid. If your bid is accepted, you are obliged to exchange legally binding contracts, whether you have carried out those checks or not.
With non-auction transactions, matters are open to negotiation up to the point contracts are exchanged. There is no fixed time for exchange of contracts, which is when the completion date is then set. When buying at auction, you create a legally binding contract on the day of the auction with a set time to complete. Generally, this is 28 days.
We always recommend that you inspect the property prior to auction and have a survey carried out.
The auction legal pack
The Seller is obliged to provide an auction pack for potential buyers. This will include a Local Search, Water Search, title information for the property and the contract conditions.
You should obtain a copy of the pack as soon as possible and ask a solicitor to review it. A solicitor can check the title is satisfactory or advise you of any defects, missing documents or other legal issues. We can also check the search results do not contain any adverse entries.
Properties are “sold as seen” at auction. If pre-contract checks are not carried out, you could potentially buy a property with serious title or other defects, or with a tenant in situ when you thought the property was being sold with vacant possession.
Deposits and reservation fees
If you successfully purchase a property at auction, you must pay the deposit immediately. This is usually between 5% and 10% of the purchase price.
It is also highly likely that you will have to pay a reservation fee. Details should be provided by the auction house prior to the auction. Reservation fees are usually considerable and should be taken into account when deciding on your maximum budget.
What happens if you fail to complete
If you fail to complete on the agreed completion date, the consequences are the same as they would be in a normal purchase. Unless you have a very good reason for refusing to complete, such as material non-disclosure about the property by the Seller, you will forfeit your deposit. The Seller will also have the right to claim any further damages for breach of contract.
For this reason, you need to make sure you have your finances in place prior to the auction date.
In summary, buying a property at auction can be quicker and may in some instances be cheaper, but there are risks involved.
If you have any questions about this subject or any other aspect of buying or selling a property, contact us through our website or call our Conveyancing Team, and we’ll be happy to help you.