25 Sep Going, Going, GONE! -A guide to selling at auction.
I’m sure we’ve all watched with a degree of fascination and awe, television programs showing people buying and selling properties at auction. Usually a film crew following them from the auction room, through to the first inspecting of their new purchase, and then on to their progress to renovate the property over the following weeks, including showing what they’ve spent, what it’s worth and the huge profits that can be made if you get it right.
The programs usually focus on the potential horror stories, because it makes better viewing. The guy who bought a property without viewing it first or doing any investigation, and then finds that the condition is much worse than he though.
The woman who thought she could renovate a property in her spare time, whilst still holding down a full time job and looking after kids, without appreciating how time consuming property renovations are.
And there’s always at least one person who has completely underestimated how long something is going to take and/or how much it is all going to cost. Usually because they don’t take into account things that you might think are obvious, such as the fact that the mortgage has to be paid in the meantime, even if the property isn’t ready to let yet so you’ve got no rental income.
Nevertheless, most of the people in the programmes make it look quite exciting, and many end up making a reasonable profit, even if they are not experienced in property or development.
So if you are tempted to pop along to your local auction, to see if you can make some money as well as become a TV star, what should you expect and what are the legal issues?
Well we can’t tell you much about plumbing or electrics, but we can give you some guidance on how the legal process works.
In many respects the legalities of buying at auction are much the same as if you were buying a property the conventional way through an estate agent. The vendor offers the property for sale, you put in an offer, in the form of a bid at the auction. If your bid is the highest one, you then exchange contracts, and then we complete. All the normal steps are taken, such as making sure that any old mortgages or charges have to be paid off and removed, and the land registry have to be notified of the details of the new owner.
However, in practice, the process of buying at auction is quite different and MUCH faster. With a conventional sale, you put in your offer, it’s accepted and THEN we do the searches. If you are buying through auction, at the point you put in your offer/make your bid, you have to have done all the checks on the property that you decide are necessary (or we advise you are necessary!), because if your bid is accepted, then when the hammer comes down, you’ve exchanged contracts, whether you’ve done your checks or not.
This is what our Pre-Auction title checking service is there for. Contact our team on 0800 799 9892 to find out how we can help.
Also, with an auction, the processes and timetable is pre-set. With normal transactions, everything is open to negotiation, including the timetable, which means that at the outset, although we can give you an approximate idea of how long things will take, in reality it could be faster or slower. If you are buying at auction, any your bid is the winning one, you have committed yourself to the transaction, with a set amount of time to complete. So don’t place a bid unless you are certain that you want to go through with the whole process.
We would also suggest that you carry out a physical inspection of the property before the auction, because afterwards it’s too late. Even if you are buying for cash, we would always encourage you to consider having a survey carried out too.
As the process means that all the preparation and enquiries have to be done before you turn up at the auction house, the vendor will have put together what is called an auction pack, which will set out all of the information available on the property, such as the searches and obvious information, as well as the contract.
If you’re considering buying a property at auction, we’d highly recommend that you get a copy of the pack as soon as possible, and get a solicitor to review the pack for you as early as possible to highlight not just what the pack tells you, but what it doesn’t tell you. For example, they should highlight what might be missing regarding legal issues, such as anything regarding title defects. Properties at auction are “sold as seen” so if there is anything wrong with it, you can’t complain about it afterwards.
Your only exception to this would be if the Vendor had given false information. So if they’ve provided a search on the property, and they’ve edited it, that would probably be misrepresentation and you would have the right to take action if the missing information would have discouraged you from making the purchase.
If the Vendor hadn’t provided the search at all, you are buying it without the search and you either accept that you are taking a risk, or you have the search done yourself before the auction, although sometimes there isn’t enough time.
Once you turn up at the auction and bid, if your bid is accepted, you must pay the deposit (usually 10%) immediately – that means before you even leave the auction room. You are also likely to have to pay a buyer’s premium. This is a commission payable to the auction house, the details of which should be on their website or information about the property. So we would recommend that you check this out before you place a bid, as the property may cost you more than you realise.
You will then have a set period of time (usually 28 days) in which to complete, which is done in much the same way as completion on a standard transaction. If you fail to complete, the consequences are the same as they would be in a normal purchase. Unless you have a very good reason for refusing to complete, such as material non disclosure about the property by the Vendor, you will forfeit your deposit, and the Vendor has the right to claim any further damages for breach of contract. For this reason, you need to make sure you have your finance in place, or you are certain that you can organise it in the time between the auction and completion. Inability to raise a mortgage will not justify you not completing.
So whilst buying through an auction can be cheaper, and is almost certainly faster, it does also come with more risk. As the saying goes, you get what you pay for – so if it’s cheaper, there is often a reason for that! The reason why buying through estate agents usually takes longer is because this enables us to do thorough and detailed checks and searches on the property. Having a solicitor do the checks on the auction pack will obviously reduce the risks, but it will never eliminate them.
Contact our specialist auction conveyancing team today using our Contact Form or by telephoning 0800 799 9892 if you are considering selling or buying at auction.
Disclaimer – our articles are designed to give you guidance and information. There is no substitute for proper direct advice, particularly as everyone’s circumstances are different. If anything in this article may affect you, please contact us for advice that is specific to your circumstances.