Buying Property At Auction – How To Get It Right
Anyone can buy a property at an auction, whether you are a private buyer making a buy-to-let investment, newcomers to the property market who are purchasing their first home or if you are a professional investor.
An auction not only gives you the opportunity to buy property at a competitive price that is below the market rate, it also offers the certainty of the purchase completing – there is no chance of any ‘gazzumping’ with an auction buy.
If you see a property you’d like but cannot make the auction you’ll probably be able to bid using ‘proxy’ bidding on the telephone or even online. You can also avoid the delays of private treaty purchases, the type of transactions that conveyancers usually deal with. The auction process is a lot quicker than private treaty transactions as completion is usually 28 days from the auction.
However, there are a number of pitfalls to be aware of before going ahead. Firstly, the principle, ‘buyer beware’ applies to purchases at auction. This means that even if there are problems affecting the property you will still have to complete otherwise you run the risk of withdrawing from the purchase and forfeiting your deposit. Buying at auction means that the buyer purchases at his or her own risk.
The seller will have prepared a legal pack consisting of the contractual special conditions which the sale will be subject to, together with other items which will assist the buyer in a due diligence exercise. The legal pack will be available from the date that the auction catalogue is published and there will be ample time to obtain a copy.
If you do not check the legal pack before the auction you could find some nasty surprises after your bid has been successful. You may find that the purchase is not such a bargain after all.
You should get your solicitor to check the legal pack before the auction so they can report any major concerns or possible problems to you so that you are best informed before committing to buy. You’ll also need to let your solicitor know what you plan to do with the property after the purchase – develop, extend, change the use or sell-on.
It is easy to get caught up in the moment of an auction when placing your bids, resulting in you making a mistake where you either bid above your budget or miss the opportunity to bid altogether.
If you have not made arrangements for funding before the auction then it may be difficult or virtually impossible, within the usual 28 day period between exchange and completion, to obtain a mortgage on the property. If you have other property, upon which additional funding can be secured, then make arrangements with your financial adviser in regards to that funding ahead of the auction.
Always do your homework. Primarily, check the legal pack and undertake enquiries and searches against the property before the auction. The four key points to buying at auction are:
1. Risk – Binding Contract.
The moment the hammer falls signifies a binding contract. Withdrawing from a bad bid means losing your 10% deposit and being liable for damages.
Consider the reserve and what your budget will allow – you don’t want to over or under bid. Get your finances in order before the auction. You will need funds to cover not only the purchase price but also legal fees, valuation and survey fees, buildings insurance (from the date of the auction), stamp duty, renovation or improvement costs. .
3. Auction day – Be Prepared.
Take your identity documents, your cheque book/ bank details with you and ensure that you have sufficient funds to pay 10% of the price.
Remember, if you cannot make the auction you’ll be able to bid by ‘proxy’ over the telephone or on-line.
4. Mailing list.
Get on the auction mailing list so that you don’t miss future auction dates.
If you want to know more about Buying at Auction contact Harshinder Hundal in our Commercial Property Team on 01582 870870 or email email@example.com