Buying property at auction can be a thrilling and potentially rewarding experience. However, it is important to be aware of the legal implications, rules and regulations, and possible risks involved in such a purchase. In this article, we will explore the key considerations for anyone looking to buy property at an auction in the UK.
Understanding property auctions
Firstly, it is important to note that purchasing property at auction is a legally binding agreement. This means that once the hammer falls, the winning bidder is legally obliged to complete the purchase. Therefore, it is essential that you thoroughly research the property before making a bid. This should include a detailed inspection of the property, checking for issues or defects, and obtaining a copy of the legal pack.
What is the legal pack?
The legal pack will contain important information such as title deeds, searches, and any planning permission or building regulations that apply to the property. Instructing a solicitor or conveyancer to review the legal pack BEFORE the auction and provide you with their professional opinion on any potential issues or concerns is advisable.
Property law and auctions
It is also important to be aware of the UK’s rules and regulations surrounding property auctions. These will vary depending on the auctioneer and the type of auction being held. Typically, auctions are governed by the Auctioneers and Valuers Association (AVA) and the National Association of Valuers and Auctioneers (NAVA). These bodies set standards for auctioneers and provide guidance on best practices.
Property auction process
When attending an auction, arriving early and registering your interest with the auctioneer is essential. You will be required to provide proof of identity and, in most cases, a deposit in order to bid. The deposit is typically 10% of the purchase price and must be paid immediately if you are the winning bidder.
It is important to set a budget before attending the auction and stick to it. Auctions can be fast-paced and emotionally charged, so getting carried away and overbidding is easy. Also, remember that there may be additional costs on top of the purchase price, such as legal fees, stamp duty, and auction fees.
You normally have 28 days to complete the matter once you have won a bid at a property in an auction, depending on the contract. This means that if you intend to complete the purchase with the assistance of a mortgage, time will be a major concern.
Your lender will usually need to carry out a survey of the property to ensure that the amount of purchase price reflects the value of the property. There are also other requirements from the lender, and they will all need to be satisfied prior to the completion date.
You should be aware that should you fail to complete on the completion date, interest (depending on the contract) will usually become payable and if you continue failing to complete the seller can rescind the contract and forfeit your deposit or even enforce completion.
You should also be aware that each lender has their own requirements on the property. For example, if you are buying a tenant in situ, your lender might not accept that tenancy agreement. As you have already exchanged contracts at this point, you will be forced to complete the purchase with other means of finance or risk losing the 10% deposit you paid on exchange or in less common cases forced to complete the purchase.
Should I buy property at auction?
The main benefit of buying property at auction is the potential to secure a bargain. However, it is important to be aware that risks are also involved. For example, the property may have hidden defects or be subject to restrictions that could affect its value or your ability to use it as intended.
If you have entered into a contract (i.e. winning the bid) without first obtaining legal advice on the property, you will be obligated to complete it even if you become aware of disclosed defects at a later stage, this includes small title defects (e.g. historic restrictions on the use of the property) to the financial burden on the property.
It is important to approach it with caution and fully understand the legal implications, rules and regulations, and any risks involved. By doing your research and seeking professional advice, you can increase your chances of a successful and stress-free purchase.
This is not legal advice; it is intended to provide information of general interest about current legal issues.