Buying a property at auction is a fantastic way to bag a bargain. There are other advantages too. It is fast, transparent and since it isn’t for the faint-hearted, it cuts out many of the competitors that you would be bidding against on the open market.
Like all ‘too good to be true’ deals, there are downsides to purchasing at a property auction. Auctions are often full of unmortgageable, unregistrable and title defective properties. You also need to bear in mind that you will need to have your 10% deposit ready to hand over on the day of the auction if your bid is successful. Contracts become legally binding the moment the hammer falls.
You need to be particularly cautious if you plan to pay for the property with a mortgage. Standard property auction terms usually give you 28 days to pay the balance and arranging a mortgage within that time frame can be tricky. If you miss the deadline for completion, you may have to pay penalties as you would on a conventional purchase. You may even forfeit the full 10% deposit, so check contract terms carefully prior to the auction. You should always make sure you have an Agreement in Principle with your chosen lender before placing a bid, and you should also compare conveyancing quotes before you go to auction so that you can get the ball rolling immediately if you win.
WHY IS THERE A 28 DAY COMPLETION DEADLINE?
The average property purchase takes at least 6 weeks from sale agreed to exchange of contracts. During that time, either party can pull out, change the price or drag out the process. The 28 day completion clause in auction property contracts protects both buyer and seller from all of those possibilities and ensures a swift, problem free transaction. The compensation for the inconvenience is the (often) lower purchase price. When you compare conveyancing quotes, keep in mind that choosing a fast, experienced property solicitor through Bhogal & Co. Solicitors can help you meet that deadline and avoid financial penalties. You should also bear in mind that whilst online conveyancing firms offer low prices, they may not have the expertise or speed needed to get you through the full conveyancing process in good time.
WHAT IS THE SELLER’S LEGAL PACK?
The Sellers Legal Pack is similar to the Draft Contracts Pack in a standard transaction. The biggest difference is that the auction pack will usually contain much more information than a standard contract pack. We at Bhogal & Co. Solicitors act for sellers too. If you are a seller thinking of taking your property to auction or if you are an auctioneer looking for bulk compilation of legal packs then we can help.
GOING TO A PROPERTY AUCTION?
Bid with confidence once you have carried out a legal check on the property you are buying. As most of the properties going on to be sold in auctions have unmarketable titles, auction properties can be a legal mine field. Our property solicitors offer great value pre-auction title checks upon which you can bid with confidence.
Our personal recommendation of how to approach an auction is as follows
- Be as well informed and definite as possible as to what you are looking for;
- Would you prefer a Freehold House or a Leasehold Flat
- Would you be willing to take on a project (naturally costing you money and time while the Property does not generate any income in the interim); or would you be more comfortable with a Property that is all ready, in good shape and ready to go from day one?
- Are you looking for a Property to live in or as an investment?
- If it is an investment, do you want to look for Properties with tenants currently occupying the Property or vacant opportunities where you can bring in your own managing agents and subsequent tenants you see fit?
- Do you have sufficient funding in place? Though this might sound both pedantic and slightly redundant, unfortunately and statistically, almost one in twenty of the instructions we receive require additional borrowing to be arranged post Auction but prior to completion by way of a Bridging Loan or other means.
Though the above to-do list is not meant to be exhaustive, we hope this should act as a very basic check list you need to follow. You will also soon see that, following the above list will easily and quite quickly screen a number of Properties. More often than not, our seasoned Property Investors who regularly both purchase and sell Properties at Auction tend to end up with a shortlist of circa 5 or so Properties which they will then progress on to the next stage of screening; Pre Auction Conveyancing and title checks.
What does an Auction Pack usually contain?
As we have explained, Auctioneers always publish (albeit limited in the information) an Auction Pack usually on their website prior to the Auction. Though there are no set guidelines as to what details should be contained within an Auction Pack, you would usually find the following items –
- Standard Auction Conditions of Sale
- Title deeds (usually the basic title registers)
- Any other miscellaneous documents the sellers might or might not hold
Unfortunately the above is almost always what is supplied as default and you a potential Buyer is expected to rely on the above (since you will not be able to contact and engage with the Sellers Solicitors directly). This is where the pre Auction conveyancing checks and your Conveyancing Solicitors come into play.
Upon your instruction to us, we will appoint an expert Auction Property Conveyancing Solicitor. What your appointed Solicitor will then do as a quick summary are the following –
- Review all the documents
- Contact the Seller’s Solicitors to obtain any missing/incomplete documents which would otherwise not be picked up by someone without conveyancing experience.
- Agree provisions in correspondence as your legal counsel and the Seller’s Solicitors which can then be later relied upon
- Work out exactly what any additional costs you as the Buyer will be liable to pay on completion (remember it is not uncommon for the Purchaser to pay for Auctioneer’s costs, Seller’s legal costs, other hidden fees (sometimes as much as 3% of the purchase price).
- Prepare and formally forward you a report outlining all the technical findings with confirmation if the Property is safe to buy or not.
Naturally, it is quite challenging to cover all aspects of what a Conveyancing Solicitor would, at the point of Pre Auction Conveyancing checks as each Property must be considered on a case by case basis.