Top 5 things to consider when buying at auction

Buying property at auction can be an attractive proposition as there is a chance you may find yourself a bargain. Furthermore, you are likely to complete your purchase a lot quicker than via the traditional conveyancing route. However, buying at auction has its own challenges. You should ensure to take extra precautions prior to placing your bids to avoid disappointment once the hammer falls. Below we set out five things that you should consider before buying a property at auction.

Research and budget constrains

It is important to ensure you are clear on what you intend to do with a property if you happen to be successful at the auction, and the type of sites which will be conducive to this. Once you know what your use for a property or land will be you can then start to consider the lots that you may wish to bid on.

We recommend visiting the area your chosen lot is located in, studying the local property market to see what the usual price range is (this is useful when it comes to gauging what to bid, but also knowing what you may be able to fetch in the future) and consulting local agents to take advantage of their knowledge. This will help you form an informed view whether the property in question is likely to be the type of investment you think it to be.

Legal packs

The auction packs provide key information about the lot and your legal obligations. We, therefore, strongly recommend that you seek advice from a solicitor in respect of the auction pack and all the legal documents within it for your chosen lot.

We recommend speaking to a solicitor at the earliest opportunity so that any clarifications you wish to seek or enquiries you may wish to raise (whether in respect of the property itself or any information revealed within the documents forming the legal pack) can be sought from the seller or its solicitor with enough time for you to make an informed decision on your chosen lot.

It is important that you are fully aware of any legal issues and obligations affecting the property. Review of legal pack may uncover hidden fees, or that you would not be able use the property for your required use, or you may not actually be able to implement the planning consent which the lot has a benefit of (and which attracted you to the lot in the first place) for example due to any restrictive covenants affecting the lot. Such things may result in significant losses. If you are successful at auction, you will be contractually bound to purchase the property. Being aware of the potential issues with the property will help you decide what you are willing to bid for it (if anything).

Surveys and inspections

Whether you are making a purchase at auction or following the traditional conveyancing route, we would always strongly recommend to inspect your chosen lot yourself and instruct any necessary professional surveys. The surveys you request may differ depending on your intended use for the lot, but it is always important to have an understanding of the property/land you are looking to purchase, even if you intend to completely redevelop it.

It is important to keep in mind the reasons why people tend to sell properties at auction. Although this can be simply because the seller is looking for a quick sale, this can also be a way to dispose of ‘problem properties’ which otherwise may make them challenging to sell. It is, therefore, important to gather as much information about your chosen lot as possible to help avoid any unwelcome issues being uncovered following auction.

Insurance

If successful at auction, the lot will be at your risk and will become your responsibility as soon as the hammer falls. It is important to speak with your insurance broker and obtain a quote for building insurance for your chosen lot prior to auction, making sure that insurance is available for the lot at reasonable cost and on reasonable terms.

Whether or not the seller continues to insure the property following the auction, we strongly recommend that you put your own building insurance in place as soon as possible following the auction.

Finance

It is important to have the necessary funds and financing arrangements in place before making any bids at auction. If you have a winning bid, you will be required to pay a deposit and any auctioneers’ fees on the day of auction. Completion is usually 20 working days from the date of auction and you will be required to pay balance of the purchase price (along with any fees stated in the auction contract) on completion date. If your funds are not ready and in order in time, this is likely to have financial implications. You may find yourself paying the seller any additional fees the seller may incur as a result. A failure to complete may mean that you will use the deposit already paid and you may also be required to pay a compensation to the seller.

As soon as the hammer falls and you have a winning bid, you are contractually bound to purchase the property. To avoid disappointment and having to spend funds which you had not anticipated, it is important carry out all the necessary due diligence on your chosen lot and the area it is located in before you make a bid.

If you have any questions about the topics raised in this article, please get in touch.