Buying a property at auction
Having been qualified for more years that I care to admit, I have attended my fair share of auctions, either for clients with a property they are hoping to buy, or more usually on behalf of the sellers.
I always look forward to the next auction. You just never really know what to expect! Will the property sell, or not? Will it go for more than expected? Will it make its reserve? Who will buy it? Will there be any dramas this time? Each auction will have its moments. Certainly property auctions seem to be enjoying record attendances currently.
So why do sellers choose auctions? Reasons can vary, from the highly sought after property to the 'problem' property. A property may have lots of interest and an auction may be the route to securing the best price. On the other hand a property may be failing to sell in the general market, due to poor condition, structural or legal problems, and putting it in an auction may attract an investment buyer looking for a bargain. A seller may just be looking for a quick sale.
The advantage to a seller is that a sale at auction means contracts are then exchanged for that property, and the seller knows that the deal is done and completion will take place (usually) in 4 weeks time.
So why do buyers choose auctions? Many buyers will be regulars, and purchasing for investment purposes. They will have looked at the property and decided their interest level and financial limit in advance. They will also usually be cash buyers or have a pre agreed line of credit. The none-regular buyer however will have found themselves determined on the purchase of a particular property, and having to possibly compete for this.
Auctioneers will have an 'auction pack' for each property or 'lot'. Most are now available online or electronically. This will usually include the contract, title information, and usually relevant legal searches. Most auctioneers adopt standard form auction conditions, and these, albeit quite lengthy, set out in a user friendly format the conditions for the conduct of the auction, and sale conditions, general and special.
A buyer who is successful in bidding for a property at auction is then bound to go ahead and buy that property on the agreed completion date. A buyer who fails to do so will generally lose the deposit of 10% of the agreed purchase price paid at the auction.
Although standard form auction conditions are adopted, these often include a requirement for a buyer to make payments in addition to the agreed purchase price. Usually there is an auctioneer's fee, and often a condition requiring payment of the seller's costs and/or search fees. The requirements can vary considerably regionally.
Any buyer should, prior to the auction, ensure that advice has been taken on the legal pack from a conveyancer, and undertaken a survey. If a mortgage is required an offer of mortgage (not just an offer in principle) should be obtained prior to the auction.
The below is the warning to buyers from the RICS common auction conditions:
- A prudent buyer will, before bidding for a lot at an auction:
- Take professional advice from a conveyancer and, inappropriate cases, a chartered surveyor and an accountant;
- Read the conditions;
- Inspect the lot;
- Carry out usual searches and make usual enquiries;
- Check the content of all available leases and other documents relating to the lot;
- Check that what is said about the lot in the catalogue is accurate;
- Have finance available for the deposit and purchase price;
- Check whether VAT registration and election is advisable;
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Email Susan Ellis at firstname.lastname@example.org or Theo Vitagliano at email@example.com