7th November, 2015
Property auctions are becoming a popular way for people to move home or find a buy-to-let investment. Property lawyer Claire Simmons has some tips.
Before you go to an auction to buy a property there is a lot of groundwork that needs to be done. For example you will need to consider the area in which you wish to purchase a property, the type of property and price range.
Put simply, a property auction is a public sale by a licensed auctioneer and the property concerned is sold to the highest bidder at the reserve price.
There are a lot of places you can look for properties up for auction, such as the internet, auction catalogues, local papers and by contacting auction centres.
Once you have found the property you would like to buy, you will need to make sure you have a copy of the auction catalogue as this forms part of the contract with the Seller.
You should always make sure you have a survey carried out on the property to ensure the property is structurally sound and, as with any property you wish to buy, you should always view it more than once. If you are obtaining a mortgage offer, you should ensure that you have your mortgage offer in place prior to the auction.
In addition, you should ask to have a copy of the legal documentation relating to the property from the auction house and consult with your solicitor about the purchase to avoid any legal pitfalls.
There are two different types of property auction. One is a conditional auction and the other is an unconditional auction.
A conditional auction is where the hammer falls and, if you are the successful bidder, you pay a non-refundable reserve fee and have a time period in which to exchange contracts which is usually 28 days with a set time period in which to complete your purchase thereafter.
The reserve fee can be several thousand pounds and if you withdraw from the transaction you would lose the reserve fee paid unless the reason for being unable to proceed was due to something the seller has not supplied in respect of the legal documents.
Following the auction, your solicitor would have 28 days in which to carry out searches against the property such as the local authority search, environmental search and coal search and raise any enquiries.
If the auction is unconditional when the hammer falls, effectively contracts are exchanged and you are legally bound to purchase the property. You pay a deposit of either 5% or 10% of the purchase price on the day of the auction. It will be your responsibility to have buildings insurance in place immediately for the property and you should make sure that you have obtained a suitable quotation in place prior to the auction so that you can simply to put in place the insurance on the day after your successful bid.
The auction pack will have included a copy of the title and searches will have been provided up front so that the auction pack can be viewed prior to your commitment to purchase.
You should always contact your solicitor in plenty of time prior to the auction date to ask them to review the documents.
After the day of the auction, you will usually be given 28 days to complete the purchase of the property.
If you do not complete within this timeframe, you would lose the deposit paid and the seller could pursue you for any additional financial losses they have incurred.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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