Guide to buying and selling property at auction
Buying and selling at auction can have many advantages. There is no risk of the other side suddenly changing their mind or becoming part of a long chain of transactions where you are waiting for everybody else to be ready, for example.
There are, however, a number of risks involved in doing so. Once the hammer falls you have entered into a legally binding contract and cannot change your mind. It’s essential therefore that you’ve investigated the property thoroughly beforehand.
If you are considering buying or selling a property at auction you would be welcome to contact any of our local offices for advice.
Make sure that you’ve carried out a detailed inspection, preferably with professional advice well in advance. Auctions are a good way for sellers to unload properties in poor condition. Ensure that you have a good idea of the cost of carrying out any remedial work that may be necessary and have factored that in to your calculations. If it looks too good to be true – it probably is.
Make sure that you have obtained a copy of the ‘Legal Pack’ and take it to your solicitor in plenty of time and ask them to prepare a report in plain English giving you all of the relevant information about the legal title to the property. This is the ‘pre-contract’ investigation which your solicitor normally carries out on your behalf.
Remember that it’s too late to change your mind after the auction when you discover that the local authority didn’t give planning permission for the rear extension, that the neighbour has a right of way through your garden, or there are covenants on the property which mean you can’t use it for your planned purpose!
Depending on the size of the pack this investigation may be quite expensive – don’t be tempted to save money and take a chance. Remember how much you are going to be paying for the property and what the other costs involved are going to be.
Be careful on the day to ensure that there are no changes to the information previously supplied. Sometimes searches are not available until the last moment. Your solicitor can warn you of the risks.
If you already own or have an interest in another property remember you may have to pay an additional 3% Stamp Duty Land Tax.
At some auctions you may have to pay an administration fee to the auctioneer.
Check whether you have to register when you arrive at the auction if you intend to bid.
Are you responsible for insuring the property from the day of the auction?
Have a limit beyond which you will not go. There is a risk that you may get caught up in the excitement of the auction and be tempted by the auctioneer, “Not to lose the property just for another £1,000”.
Remember that guide prices are often set low to entice people to attend the auction. The final selling price is often very much more.
You will have to pay a 10% deposit on the day. Check the auction conditions to see how this can be paid. A personal cheque may not be acceptable.
Completion of the purchase usually takes place 20 working days after the auction but may be sooner. Make sure that you will have the remainder of money available. If you need to borrow that money time will be very short. Ensure that you have an agreement from a lender to loan the money subject only to survey. Remember the condition of the property may mean that a bank will not lend against it.
If you fail to complete the purchase you could lose your deposit and be sued for other losses sustained by the seller.
Is buying at auction right for you?
It can be time consuming doing all your research and auctions are pretty nerve racking but you might just end up getting yourself a bargain in the process. You’ll need your wits about you and it’s always a good idea to take as much advice as possible, including from your solicitor who will need to work quickly on your behalf. We are experienced in this area so do give us a call if you would like to talk through your plans.