Buying An Auction Property – Things To Consider

Chris Huntingford
Buying Auction Property

Buying a house at an auction can be an exciting but also potentially risky endeavour. Below, we have outlined the process of purchasing a house at an auction and the common associated risks.

The process

The process of buying a house at an auction can vary slightly depending on the auction house and specific circumstances, but here’s a general outline of the steps involved:

Research:

  • The process usually starts with identifying auction houses in your area or online platforms that hold property auctions.
  • Review auction catalogues or listings to find properties that match your criteria.
  • Conduct thorough research on the properties you’re interested in, including visiting them if possible, checking their legal status, and estimating renovation costs if needed.

Financing:

  • Arrange your finances beforehand. Ascertain your budget, including the maximum bid you’re willing to make and any additional funds required for deposit, fees, and renovations.
  • If you plan to use a mortgage, it is advisable to get pre-approval from a lender. Some auction houses may require proof of financing before allowing you to bid.

Legal due diligence:

  • Obtain a legal pack for each property you’re interested in. This pack typically contains essential documents such as title deeds, searches, and any relevant legal information.
  • Review the legal pack carefully or have a conveyancer/solicitor do so on your behalf. Look for any issues affecting the property’s value or your ability to purchase it. Further information on this and the service we provide can be found below.

Attend pre-auction viewing:

  • If it is an option, attend any pre-auction viewings offered by the auction house to inspect the properties firsthand. Take note of the condition and any potential renovation needs.

Registration:

  • Register with the auction house before the auction day. This typically involves providing personal details, identification, and proof of funds.

Auction day:

  • Arrive early on the auction day to familiarise yourself with the room and the relevant procedures. This includes signing in and getting your bidder’s number.
  • If you are attending the auction online, you can participate in the bidding process through the auction platform’s website.
  • Listen carefully to the auctioneer’s instructions.
  • When the property you’re interested in comes up for auction, bid confidently within your predetermined budget.

Winning the bid:

  • If you’re the highest bidder and the property meets its reserve price (if any), you’ll be required to pay a deposit immediately (usually around 10% of the purchase price) and sign the contract for sale.

Post-auction:

  • Instruct your legal team and finalise any finance requirements as soon as possible after the auction has taken place.
  • You will need to complete the purchase within the specified timeframe, usually around 28 days. This includes paying the remaining balance of the purchase price, along with any additional fees such as the auctioneer’s commission and legal fees, transferring ownership of the property and completing any necessary paperwork.

Possession:

    • Once the purchase is complete, you’ll gain possession of the property. You can now begin any necessary renovations or move in if it’s ready for occupancy.
    • Bear in mind any ongoing responsibilities such as property maintenance, insurance, and taxes.

It’s essential to thoroughly understand the auction process and seek professional advice if needed, especially regarding legal matters and financing. Buying a property at auction can be a rewarding investment opportunity, but it requires careful planning and due diligence.

The common risks associated with buying a house at an auction

Buying a property at auction can offer great opportunities, but it also comes with certain risks. Here are some common risks associated with auction properties:

  • Limited inspection time – Buyers often have limited time to inspect auction properties before bidding. This can increase the risk of overlooking potential issues such as structural defects, pest infestations, flood history or other hidden problems.
  • Legal issues – Auction properties may come with legal and financial complications, such as
    • Defective Legal Title
    • Short lease term/defective lease
    • Onerous contracts
    • Unfinanceable
    • Uninsurable
    • Ongoing disputes
    • Failed Investor strategy
    • Local Authority enforcement

Buyers need to conduct thorough due diligence to identify and address any potential issues before purchasing.

  • Competition – Auctions can be highly competitive, with multiple bidders vying for the same property. This can drive up the price and lead to buyers paying more than they initially intended.
  • No guarantees – Auction properties are typically sold “as is,” meaning they may come with undisclosed defects or issues. Unlike ‘traditional’ real estate transactions, buyers may not have the opportunity to negotiate repairs or contingencies.
  • Unpredictable market conditions – The property market can be unpredictable, and economic factors can affect property values. Buyers should carefully consider market conditions and potential future trends before purchasing at auction.
  • Seller’s reserve – Sellers may set a reserve price, which is the minimum price they are willing to accept for the property. If the bidding does not reach the reserve price, the property may not be sold at auction, leaving buyers empty-handed.
  • Overpayment – The excitement of bidding at auction can sometimes lead buyers to overpay for a property, especially if they get caught up in a bidding war. Buyers need to set a maximum bid and stick to it to avoid overextending themselves financially.
  • Renovation costs – Some auction properties may require significant renovations or repairs, which can add to the overall cost of the purchase. Buyers should factor in these potential expenses when budgeting for an auction property.
  • Lack of financing – As we have stated above, buyers must have financing arranged before bidding at auction. If they cannot secure financing within the specified timeframe, they may lose their deposit and the opportunity to purchase the property.

Auction Legal Packs

As we have alluded to previously, to mitigate the risks associated with auction properties, buyers should get advice on the legal documentation – the contract and special conditions, the title documents (deeds), property searches (Local Authority search as a minimum), standard information from the seller, and EPC.

A review of the legal documentation will provide:

  • A detailed summary of the risks;
  • Detailed advice on the legal title;
  • An explanation of the contract and any hidden conditions;
  • An examination of the information provided by the seller; and
  • Advice on your financial position.

At Nelsons, we can provide you with a pre-auction legal report for a fixed fee. Contact us to find out more.

Buying Auction PropertyHow we can help

Chris Huntingford is a Partner, Solicitor and Licensed Conveyancer, and heads our Residential Property team. Chris advises on a wide range of matters, including house sales and purchases, auction property purchases, remortgages, transfers of equity and right-to-buy purchases.

For further information regarding the subject discussed in this article, please contact one of our conveyancing solicitors in Derby, Leicester and Nottingham on 0800 024 1976 or via our online enquiry form.

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