Buying Properties at Auction
Are you tempted to pick up a bargain property through an auction?
Buying a property at auction can seem like a great idea. Not only can property auctions reduce buying times, but they can also sometimes save you thousands of pounds.
However, you should beware that property auctions are not without risk and many buyers have been stung by jumping in without due diligence.
How do property auctions work?
Many people understandably ponder how to buy a property at auction, especially if they have no prior experience with the process.
If you are interested in buying a property through an auction, then you will need to act quickly. There will usually be a few weeks between a house being listed for sale and the auction date. If you prepare well, you are more likely to be successful. The main thing to do is your homework about the property and auction process, because, once the hammer falls, it will be considered a legally binding contract.
Typically, an auction house will publish a catalogue around a month before a property, giving you a chance to assess whether an auction property for sale would be right for you and would present a useful investment opportunity.
It is always sensible to try and take a builder with you to view the property before the auction and consider having a survey carried out to identify any potential problems with the property’s structure or physical features.
What should you do before buying houses at auction?
Before buying a property at auction, make sure to do your research and request the legal pack for the property you are interested in as soon as possible. The legal pack should contain the Contract, Title Documents and some searches.
It can pay dividends to get a Conveyancing Solicitor to scrutinise the legal paperwork before the auction. They can identify any omissions or issues with the legal title, undertake any further searches which may be required and chase any missing information.
They will identify how the property can be used, check whether any necessary planning and building regulations consents are in place for alterations and extension to the property, check whether there are any enforcement notices in place which would affect you after you buy and check for any unusual easements which the property may be subject to.
Depending on what your intended use of the property is, you may want to check in advance whether any planning consent would be required i.e. if you intend to use the property for the running of a business or trade, often a change of use can be required. This is where it pays to have a legal advisor checking the legal pack for you, as they will be able to advise in advance whether any planning permissions would be required for your needs.
If you only hire the assistance of a Solicitor once the “hammer has fallen” and various issues are identified, which result in you withdrawing from the transaction, then you will forfeit the entire deposit paid, as well as being liable for any costs and damages for breach of contract.
Getting a Solicitor to review the legal pack before the auction will cost you, and admittedly this is a cost you will lose if you end up not purchasing the Property, however a few hundred pounds in legal advice could save you thousands in the long run (not to mention a lot of stress!).
What are the risks to buying a property at auction?
Buying a property at auction is an inherently risky process. Some of the potential risks to the process include:
- You will be legally bound to the property once the bid is won
- You will not be able to recoup a deposit and will be liable for the seller’s costs if you pull out after exchange
- Auction properties are likely to come with a various faults or issues – a thorough check is essential
- There is a chance you will not be able to make money on every auction purchase
How to finance buying a property at auction
Remember that the guide price set by an auction house is just that. The property could sell for sustainably more than the guide price. It is important to carry out thorough research on the local property market so that you know before the auction what a fair price for the property would be.
Make sure that your finances are in place, as you will need to pay 10% of the purchase price straight away, with the remaining 90% due on completion, which may be as soon as 28 days from the date of the auction.
Buying property at an auction with a mortgage
If you successfully bid for an auction property for sale, you will have a number of days to exchange and complete.
Where you intend to buy property at an auction with a mortgage, it is advisable to have a mortgage agreement in principle organised in advance.
Speak to our Conveyancing Solicitors to discuss buying a property at auction
The best advice therefore that we can give to anybody considering buying through a property auction is to carry out your due diligence before you bid.
For further advice about your situation, our expert residential property solicitors will be happy to lend a listening ear. You can contact Butcher & Barlow at: enquires@butcher-barlow.co.uk