Buying at auction – six things to consider
Karen Chapman, senior property partner at Druces LLP
Buying at auction is an effective way to accelerate the often time-consuming conveyancing process and there is always the chance you could secure a bargain. However, before you rush to the auction house, here are six things you should consider before making your bid.
- Special Conditions
The contract for the sale of a property usually comprises the Common Auction Conditions, the auctioneers’ conditions of sale, plus the seller’s special conditions of sale. These last conditions are bespoke and apply to a particular property. You should always read the legal pack but some of the points you should check are:
- The amount of the deposit: this is usually 10% of the price but can sometimes be more. You will need cleared funds for the full deposit on the day of the auction.
- VAT: check the VAT status of the property. If VAT applies, you must add 20% on to the price. VAT may also apply to the deposit.
- Date for completion: is the date for completion in line with your anticipated timeline? If you need to raise finance, will the bank’s due diligence be concluded in time?
- Additional costs: have you factored in associated costs such as search fees, auctioneers fees and professional costs? Sometimes buyers must pay for these or make a contribution towards these costs.
- If you are buying an investment: What are the provisions about arrears of rent, insurance and interim management.
- Are there any unusual conditions: for example, sometimes conditions of sale contain detailed AML and KYC provisions about the identity of buyers and source of funds.
In all of these cases, it is important to speak with your advisor and get professional advice.
- Have you done your due diligence?
Sellers will normally upload a legal pack onto the Auctioneer’s website for all registered buyers and their advisors to view. The pack should include all relevant title documents, management information, replies to pre- contract enquiries, a suite of searches, information on planning and more.
The ‘Buyer beware’ rule is particularly relevant to auction sales. This means it is up to buyers to carry out their own due diligence, satisfy themselves that the property is suitable and that they understand any risks. The seller is not obliged to inform the buyer about anything.
You should ask your advisor to review the legal pack in good time for the auction and identify any issues. Be aware that whilst you may be prepared to take view on something identified in the legal pack, your bank (if you are raising finance) may reject a property as security and decline to advance funds for the purchase.
- Have you been communicating with the seller or their representative?
Do you have specific requirements that you are looking for in a property? Are there technical questions you have to raise? More often than not, the auctioneers will be very helpful in assisting with enquiries. Also, it will be possible to make contact with the seller’s representatives, or sometimes the seller direct, to raise any specific questions.
You may be able to make a pre-auction bid and this is usually done via the auctioneers. If the offer is sufficiently attractive, a seller could be persuaded to sell to you prior to the auction. It will very often depend on how much interest the property has generated.
- Be careful what you bid for
Be serious about bidding. Once the hammer comes down, you have exchanged contracts and are contractually obliged to complete the purchase. If you fail to complete on the completion day specified in the conditions of sale, the seller may begin legal proceedings against you and/or forfeit your deposit.
- The rise of online auctions
Online or ‘one-click’ auctions are becoming increasing popular. Overseas buyers find these particularly useful and, during the current pandemic, auctioneers have been running virtual auctions. As these auctions are online, it is extremely important to check the terms and conditions as they are likely to differ from traditional ones.
- Auction Day – bring your professional advisor
Have you thought of taking your professional advisor with you to the auction? This will allow advisors to discuss any last-minute areas of interest or concern and could assist with any pre-auction bids.
How we can help
We always recommend carrying out due diligence on a property prior to making a bid and our real estate teams like ours can carry out a comprehensive review and assist you throughout the process.