When it comes to buying a house at auction it is a case of buyer beware.
But with interest rates remaining largely unchanged, more and more people are turning to property as a long term investment and source of a future pension, rather than putting their money into a bank or building society.
This, coupled with a rise in the rental market due to the difficulty for young buyers to secure a mortgage, is making snapping up a ‘bargain’ at auction an altogether more attractive prospect.
But is it possible to really grab a bargain? Ian Naylor, a partner here at Bowcock & Pursaill offers his advice to buyers braving the hammer.
Ian says: “The same rules apply before you buy at auction as with a more traditional house purchase and doing your research is key, because once the hammer falls at auction that is a legally binding contract.
“It really does pay dividends to do your research and get a pair of legal eyes to go through the paperwork. Most firms will negotiate a staged price for scrutinising the pack and then for completion of the purchase afterwards. They can give you a report which means you know what you’re letting yourself in for when you go into the auction room.”
Before you buy an auction property
- Do your research and request an auction pack for the property you are interested in as soon as possible. Within that you should find the contract and title documents and all the searches you would expect, such as a local search and a mining report. If a particular search is missing you need to ask why.
- It’s a good idea to get a conveyancing solicitor to scrutinise the auction pack for you as soon as possible so they can identify any omissions and have enough time to chase missing reports and information.
- Check the contract for matters such as a restrictive covenant. The selling agents can add provisions such as the purchaser has to pay the agent fee and legal costs.
- Once you have settled on a property you are interested in check the prices which properties are selling for in that area and visit the property.
- If it’s not a new property which still has guarantees in place, try and take a builder with you to look over the property. If it’s an older building it may be worth getting a surveyor to look at it.
- With commercial and rental property beware of a provision in the agreement where on completion the purchaser is liable to pay any arrears in rent.
- Remember, a guide price is just that. If several people are interested in a property it may no longer prove such a bargain. A skilful auctioneer will aim to push buyers along and soon add several £1,000 to the cost.
What you’ll need at the auction
- If your purchase is successful, you will need to produce identification for money laundering checks which include your passport or photo driving licence and a utility bill.
- Make sure your finances are in order as you will need to pay 10 per cent straight away then you’ll only have a month to pay the remaining 90 per cent.
- If the money isn’t available within that time the seller has a right to charge interest for a short period, and if the balance is still not paid then they can keep your deposit and sell the property elsewhere. There is also a legal case where the seller can claim for other damages from you if the sale falling through causes them to incur other costs.
- Once the sale completes you then have another month to pay any stamp duty, if applicable, and get the property registered with the Land Registry.
What to watch out for
- Don’t get carried away in the bidding process and pay more than you intended for a property.
- Make sure you know what you’re buying and consider investing in a homebuyers report, as there are cases where a property has been condemned after sale.
- Remember that you can put in an offer before the auction goes ahead, and if a property doesn’t reach its guide price it’s still possible the seller may sell to the highest bidder so consider approaching the auctioneer or agent afterwards.
- Once your bid is successful responsibility for the property is yours, so consider having building insurance in place right away to protect it from fire, theft or flooding.
For more information about buying an auction property and advice, contact our property team on 01538 399199.