I’m writing this on the longest day of the year – the Summer Solstice –…
We’ve all seen those property programmes like Homes Under the Hammer where some fortunate house buyer snaps up a bargain at auction or a wreck of a place sells despite all the odds but if you have never been to an auction before how does it work? Boys & Maughan auction expert Laura Cobb explains how to prepare and some of the risks to bear in mind.
Buying and selling at auction can have many advantages. There is much lessrisk of the other side suddenly changing their mind, for example, or becoming part of a long chain of transactions where you are waiting for everybody else to be ready.
However, 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.
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 which are either in poor conditionor subject to significant tenant arrears which may be passed on to you and for which you may have to reimburse the vendor on completion. You need to 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.
Also 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 cannotuse it for your planned purpose.
Depending on the size of the pack, this investigation may be quite expensive. However, 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 and then ask yourself if you are 100% sure what you are buying. If the answer is no then why risk wasting so much money without first obtaining a full solicitor’s report? You wouldn’t buy a car without a thorough check of its condition and history and your proposed purchase should be no different.
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. It is very important that you see the Local Authority Search at the very least as this will advise you of past planning permissions, building regulation approval, charges, contamination notices and many other key potential issues of which you should be aware before you raise your hand.Your solicitor can warn you of the risks of proceeding without this search.
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 and stick to it. 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 you have checked the special conditions of the contract which will stipulate when completion must take place. Further, make sure you will have the remainder of the completion 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 and in this scenario you will still have to find the funds to complete your purchase if you are to avoid being in breach of contract.
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 can open your eyes as to exactly what you are proposing to purchase before you commit.
Laura Cobb is a solicitor at Boys & Maughan Solicitors in Margate. Email Laura at firstname.lastname@example.org or call 01843 234000.