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Property auctions: opportunities vs pitfalls
Over recent years, property auctions have become increasingly popular with thousands of inquisitive, often inexperienced buyers, attracted by the lure of bargain prices and quick sales...
W
hile buying at auction can produce spectacular results for a prudent buyer, in the absence of proper
preparation and caution, it can mean equally spectacular pitfalls once the gavel is struck. Here we outline just some of the potential dangers of buying at auction and ways to minimise the risks.
Finance arrangements Once the hammer goes down there is a legal commitment between the buyer and seller and therefore anyone seeking to purchase a property with the assistance of a mortgage should aim to secure funding before raising their bidding hand. If the auctioneer is following the RICS Common Auction Conditions, completion will be 20 working days after the auction leaving very little time to secure a mortgage offer. A failure to secure funding in time can lead to the buyer’s deposit (often 10 per cent of the purchase price) being lost in addition to the potential of having to compensate the seller for any losses incurred as a result. A prospective buyer should always make a tough choice as to their highest price they are willing to pay at auction beforehand and then apply for a mortgage based on that maximum bid. A lender may be less inclined to extend your loan following a bidding war. Those who do not hold a solid mortgage offer would be well advised to engage the services of a professional surveyor to assess the property before attending at auction.
Title Prior to auction, a buyer should obtain specific information relating to the lot (or lots) they are contemplating bidding for. From the seller’s solicitor they will need the legal pack, which contains documents such as title information, searches and leasehold documents and any special conditions of sale. It is vital to analyse the title to the property in order to ascertain whether the property is subject to encumbrances or restrictions
that may affect the intended use or oblige the buyer to undertake work or make payments to third parties. Covenants may also be attached to the property that can relate to rights of way or maintenance of ground and or other buildings. While reading through the legal pack carefully to identify any potential problems with the title to the property is vital, having a solicitor carry out investigative work before the auction may save a significant amount of money in the long term.
Searches Solicitors can perform the searches upon the property that identify potential problems such as the ones mentioned above. Although some of the more common searches are often contained within the pack, other equally important searches such as water, drainage, planning and environmental searches may not. One example is the existence of a section 106 planning agreement under the Town and Country Planning Act 1990 whereby an unwary buyer may be required to abide by onerous conditions set by the local authority in carrying out a proposed development on the property.
Contract On the fall of the gavel, if the buyer has failed to properly inspect the contract and its conditions, they will have agreed to terms that they have not had sight of which can have devastating consequences. A prudent buyer will have considered any special conditions contained within the contract prior to bidding for the property in order to check for any adverse inclusions.
Conclusion The principle that should be kept
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in mind at every property auction is ‘buyer beware’. HardingEvans Solicitors delivers advice on auction packs on both residential and commercial properties. Our solicitors also attend auctions with clients at their request. We also assist with the completion of purchases bought at auction, and our dispute resolution department are on hand for any one unfortunate enough to have fallen into any of the pitfalls of buying at auction.
Sam Strong is a Senior Solicitor with HardingEvans Solicitors and specialises in Commercial Property matters. Contact Sam on 01633 244233 or email
strongs@hevans.com.
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