Purchasing a property at auction can be an exciting opportunity, often presenting buyers with the chance to secure a bargain. However, it’s crucial to understand the process and potential risks involved before raising your paddle.
Unlike traditional property purchases, when the auctioneer’s hammer falls, contracts are immediately exchanged, legally binding the buyer to complete on a set date—typically with a non-refundable 10% deposit of the purchase price payable upfront.
If the buyer fails to complete on time, they risk losing their deposit and potentially facing legal action. To avoid costly surprises, thorough preparation is essential. This guide outlines key considerations when buying at auction, from understanding the legal pack to checking property conditions.
Why are properties sold at Auction?
Properties may be listed for auction for various reasons, including:
- Repossession sales
- Properties requiring renovation
- Unique or unconventional properties that may struggle to sell on the open market
- Sellers looking for a fast, guaranteed sale
While these can present great opportunities, buyers must conduct due diligence before bidding.
The Importance of the Legal Pack
A legal pack is prepared for every auction property, containing crucial information about the sale. It is highly recommended that buyers instruct a legal professional to review this pack to identify any potential red flags. Key documents typically included are:
- Contract of Sale: This sets out the terms of the purchase. Some contracts require buyers to cover part or all of the seller’s legal fees, so it’s important to check for any additional costs.
- Title Documentation: This includes the Land Registry title register and plan, detailing ownership, mortgages, restrictions, rights, and covenants. Ensure there are no clauses that could limit your intended use of the property.
- Property Information & Searches: These may include seller-completed forms, a Fittings and Contents Form, and local authority or drainage searches. However, some essential reports, such as environmental or mining surveys, may be missing, and buyers should consider obtaining additional searches as needed.
Key Considerations for Leasehold Properties
If the property is leasehold, extra caution is required. Common issues that could impact mortgageability and resale value include:
- Short lease terms (typically under 80 years) which may make the property unacceptable to lenders.
- Escalating ground rent that increases periodically and could become unaffordable.
- High service charges that could significantly impact ongoing costs.
- Restrictive covenants limiting how the property can be used.
Ready to start bidding?
Buying at auction isn’t as straightforward as it may seem. Beyond inspecting the property itself, buyers must ensure the legal title and contract conditions align with their expectations. Seeking professional legal advice can help avoid costly pitfalls.
If you’re considering purchasing or selling a property at auction, our team is here to help. Contact Grace Robinson on grace.robinson@swinburnemaddison.co.uk or call 0191 384 2441 for expert guidance.
