Buying a property at auction differs from the standard conveyancing process and the potential risks and gains should be assessed equally; especially as you'll be contractually bound to buy the auction property after you win the bid.
Prior to the auction day you'll be provided limited information about the property being sold. The auction house will normally have compiled a legal pack which could include the following:
Watch out when buying leaseholds at auction!
A common mistake is to buy a leasehold property at auction without finding out the lease term first. Leasehold properties with short leases (under 80 years) may not be able to be mortgaged (read more about How to extend a lease on a leasehold flat
The information is normally limited and should be reviewed by a solicitor before you make an offer. Conveyancing solicitors will be happy to prepare a pre-auction report based on this information, and any other that they can obtain, prior to you attending the auction house. This costs much less than the conveyancing for a full purchase, and if you do buy the property the cost of the report can be deducted from the full costs.
Legally binding once the hammer falls
Unlike with standard conveyancing, where you can take as much time as you like before you confirm you are happy to exchange contracts, an auction property is legally binding at the point the hammer comes down. You'll have to pay your auction fees, 10% deposit and complete the purchase in 28 days (the normal agreed time frame).
You never truly know why a property is being sold at auction. Was it that the seller needed a fast sale? Does the property have a structural defect that can't be fixed? Is the lease short and the freeholder won't extend? Is the council looking to enforce the removal of an extension with no planning permission? (read more about What hazards to look for when buying a home
The challenge is that if there is an issue post-auction, you could be buying a property that isn't able to be sold on the open market, or your mortgage lender won't lend you the money because of the issue. This exposes you to losing your 10% deposit and the legal costs of the seller.
5 Things to do before you go to auction
1. Set yourself a bidding limit
Setting a bidding limit for what the property is worth is the most important thing to do. You should first review the property prices for sold and under offer properties in the local area to your property; preferably on the same street - one street along (even at the end of the street) can have a serious affect on the price of a property. The prices you see will in theory be what your property would sell for in a good condition, which means you need to have a figure in mind for renovating the property into a similar condition.
Auction properties are often in a poor condition and require work to bring up to current market value. This cost needs to be factored into your bid limit along with the purchase costs including stamp duty, land registration Etc. (read What are the cost of buying an Auction Property
2. Order property searches
Property searches contain essential information about the property including planning permission, building control sign off, contaminated land risk, flood risk and ground stability information (read more about - Property Searches for auction properties
). Mortgage lenders won't lend money unless you have certain property searches - See what searches your mortgage lender requires here: Council for Mortgage Lender Handbook
The costs of searches depends on the local authority and water board. They can take up to 3 weeks to come back so make sure you get them ordered ASAP.
3. Get a mortgage in principle
With only 28 days between exchange and completion, you won't have much time to organise your finances. The process of getting a mortgage can take weeks to organise from mortgage in principle to mortgage valuation to mortgage offer. You need to have a mortgage in principle before you go to auction.
Mortgage lenders may not lend you the money!
You may think that the poor condition of the property is ok, however your mortgage lender may not. If there is a defect, such as subsidence or rising damp, then your mortgage lender may refuse to give you a mortgage offer. This is equally the case the dwelling is a concrete-built property.
4. Check the structure of the property
Access for auction properties is limited and the time allowed for inspections is short. You'll need to get a RICS surveyor booked for the specific time available to inspect the property to ascertain if there are any potential defects affecting the property. As we have seen above, there are some structural defects that can make the property unmortgageable.
We have local RICS surveyors based throughout England with next day availability. If you need an auction survey please call us on 0333 344 3234.
5. Instruct a solicitor to review the legal pack
Although limited in detail, you should instruct an auction property solicitor to review what legal paperwork is available. The information the seller provides could have hidden restrictions or legal issues that could be spotted before you make your bid. Our solicitors charge a fixed fee for completing this legal review and they'll provide a report that'll inform you of the risks of buying the auction property based on the information available.
Can I pull out after I win the bid?
Yes you can, however it'll be very costly. You would forfeit the 10% deposit you paid at auction and you'll be liable for any of the seller's costs. If you have won at auction and need to pull out then read this article - Can I Pull out after I exchange contracts?
When buying at auction there are no guarantees. If you buy at auction you do so caveat emptor (literally 'let the buyer beware'), which means that if there's something wrong with the property, you probably won’t have any comeback against the seller or the auctioneers.
You might have a remedy if there were misrepresentations in the auction catalogue or legal pack, however this is a complicated area of law. You could be faced with the prospect of possibly expensive litigation, which is best avoided.
If you need auction conveyancing specialist solicitors, then call our team on 0333 344 3234 or email on firstname.lastname@example.org