March 2018 saw auction houses reporting increased year-on-year sales within the UK residential property sector. With auction transactions appearing to be on the rise, we’ve outlined our top tips for buying a property at auction.
The potential for a bargain, the speed of the transaction, not to mention the excitement of bidding and the fall of the gavel, it’s hardly surprising that auction sales appeal to potential buyers disenchanted with the traditional conveyancing process. That being said, auction properties often come with hidden costs or complications making them a risky investment.
Do your research
It can be tempting to overlook time consuming and sometimes costly research before placing a bid at auction, especially when there is no certainty of success and there is a bargain to be had. Potential buyers should note that the principle of ‘caveat emptor’ (“buyer beware”) applies equally to auction transactions as it does to traditional ones.
Once contracts are signed on the day of the auction, you will be obliged to complete the purchase and accept the property in its current physical condition even if there are existing defects that you were not aware of. You will not be able to negotiate on price or seek compensation if issues are later discovered and withdrawal from the transaction will result in the loss of your deposit.
With that in mind, it is key that you:
- View the property – do not rely solely on the sale particulars;
- Attend the viewing with a surveyor – this is particularly relevant when purchasing an older property;
- If the property requires renovation attend the viewing with a builder/architect; and
- Review the contract pack and carry out additional searches if necessary.
Instruct a solicitor
You are buying the property subject to all the documentation and all terms of the contract whether or not you have read or understood them. It’s advisable that you instruct a solicitor to review the contract pack and advise you before making a legal commitment. Your solicitor will be able to highlight any covenants or restrictions which potentially impact the value of the property.
It’s also worth noting that due to the short timeframe between the auction and completion, it’s worth instructing your solicitor sooner rather than later as failure to complete by the specified date can result in the purchase falling through and loss of your deposit.
When making a purchase at auction you will be required to pay the deposit (usually 10% of the purchase price) on the day. Successful bidders who are unable to pay the deposit run the risk of being sued by the seller. Such actions are regularly settled in the seller’s favour.
The remaining purchase monies will need to be paid by the date specified in the contract. This is usually 20-30 days from the date of the auction. If you are unable to meet this deadline you will be in breach of contract and could lose your deposit.
Do not assume that you will be able to arrange finance between exchange and completion. If you require the assistance of a mortgage, this should be arranged in principle before the auction.
Account for fees
Many buyers are left disappointed when they come to realise the fees associated with their purchase negates the ‘bargain’ they’ve secured.
Pay particular care to the fees set out in the contract and who is responsible for them before making a bid. At auction, in addition to their own costs, the buyer can be required to contribute to or even pay the costs of the auctioneer and the seller. These costs are often calculated as a percentage of the purchase price and can far exceed what you would expect to pay on a traditional purchase.
All costs are payable on completion and failure to account for them could result in a failure to complete.
Don’t forget insurance
Finally, from signing the contract on the day of the auction, the property is your insurable risk. You will be liable for any damage to the property from this time and you will be obliged to complete the purchase even in the event that the property suffers substantial damage. It’s advisable to arrange your insurance before the day of the auction so it can be put in place on the same day.
For further information please get in touch with our Residential Conveyancing team.
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