Read this before you buy at auction
Buying a property at auction has many benefits, particularly as it can be a simpler option than going through the usual route of lengthy and uncertain buying procedures. However, there is risk of losing out at an auction, especially if you are not fully prepared beforehand. Here, we give a full breakdown for first-time property bidders on how to prepare for an auction and how to snap up your desired property without a hitch.
Always do your research
It’s vital to research as much as you can before entering an auction house; not only on the property you’re interested in bidding on, but also the rules and laws that revolve around property auctions. Even if this isn’t your first auction, it always pays to have a refresher as the rules and market may have changed since you last bought.
Search the area you want to live or invest in to see what properties are up for auction and speak to the auction house or an estate agent to arrange a visit. It is best to keep your mind open during these visits as restoration work may be needed, but the property could still be a good find. Be sure to take into account how much time and energy you can commit to the property if any work is needed, and any extra budget you may need to complete the works. Keep the EPC (Energy Performance Certificate) rating of the property in mind too, as this will impact ongoing living costs. If you want to rent out the property later, the EPC rating can greatly impact on any improvement spends you must make. New regulations came into force in England and Wales on 1 April 2018, which make it illegal to lease a property if the building has an EPC rating less than ‘E’.
Where possible, and depending on the condition of the property, take a builder (who is listed on the Construction Industry Council Approved Inspectors Register - CICAIR) or surveyor (who are members of the Royal Institute of Chartered Surveyors - RICS) along so you have an informed, professional insight before committing.
There are different levels of building reports with varying costs. A basic condition report will set you back around £400 to £900 and include details about any major and obvious issues (such as rot, damp, subsidence or uplift) and some practical information (such as internet speeds and any boundary issues for your solicitor to consider), but the report will be limited to what is in plain view. A more thorough survey will be considerably pricier at £500 to £2,000, but will include most of the checks beyond plain view, such as what’s behind the walls, between the flows, above ceilings and in the attic. This level of detail may be needed if you’re considering doing any major building works or if you are looking at a listed, thatched, timber framed, or very old building.
A good building inspector or surveyor should also be able to let you know if you should consider any other home inspections, such as:
- Gas (i.e. radon, methane, formaldehyde)
- Heating and air conditioning
- Lead-based paint
- Pool and spa
- Sewer or septic system
- Soil stability
- Water systems and plumbing
If it is your first time going to a property auction, attend a few beforehand to understand how they are run and get a feel of the atmosphere. Some of your fellow bidders might have a lot of experience, which could give them the upper hand on the day. By watching a couple in advance, you have a better chance of not being left behind with the bidding.
Make sure you can afford the property
As soon as the gavel goes down, you are legally liable for the property – no exceptions. You will be contractually obliged to pay 10 per cent of the purchase price immediately if your offer is accepted, with only 28 days to pay the remaining 90 per cent. If you can’t pay this, you will lose the property as well as any money you’ve already paid. On top of that, you risk having to cover the re-selling costs and, in some cases, pay any interest for as long as it takes to resell the property.
This is why you must be sure you can afford the property before making an offer. If you need a mortgage, look to either get a full valuation or, if time is short, at least an agreement in principle. This is where a lender takes basic information and your credit score to come up with a figure they would in principle be willing to lend.
Many mortgage lenders have a panel of solicitors who they recommend. Always ask the question whether you are required to use their panel of solicitors or if you can source your own. You may find that the panel of solicitors recommended could work faster with your mortgage lender because of the business relationship.
Seek legal advice
When it comes to buying property, the expression ‘the early bird gets the worm’ is certainly true. Be sure to speak to a solicitor well before the auction, particularly when you are interested in a particular property. Your solicitor can get underway with any essential background checks to give you as much information about the property as possible.
These checks will generally include looking into:
- Title searches
- Permits or zoning restrictions
- Easements – such as rights of way
- Encroachments – if a neighbour intrudes on land by, for example, putting up a structure to prevent or restrict the rightful owner’s use
- Positive covenants – an obligation to do something or spend money, such as maintaining a shared fence or driveway
- Negative covenants – restricted use of the land
- Legal guidance on the surveyor’s report – such as whether there are issues over the lot size, square footage or boundaries
- Existing neighbour disputes
- Surrounding area – investigating whether there are any plans for major road works or developments on neighbouring land that might affect you
- Warranties and protections – such as the NHBC certificate for new builds, which affords a 10 year warranty on the building’s liveability
By looking at these in advance, your solicitor can spot any potential issues early which otherwise might result in delays or hidden costs you hadn’t budgeted for. Buying a property at auction is often much quicker than a ‘normal’ property purchase, which usually takes a minimum of four to six weeks for a straightforward purchase. At auction, you will become the legal property owner once you have paid the full purchase price within the required 28 days.
Engaging a solicitor ahead of time also means you are prepped and ready to hit the ground running if you are successful at an auction. Not investing in the appropriate searches and inspections can only serve to cause major issues further down the track if you are successful, particularly if you get a property with a bad title (making it almost impossible to get a mortgage) or with major structural damage.
Finally, you need to be aware that buying at auction does come with certain risks, particularly if you don’t do your research beforehand. There is no guarantee from the seller, estate agent or auction house if you find something wrong with the property after your offer is accepted – you’re obligated to pay and there is no turning back from the purchase. An experienced solicitor can help avoid these pitfalls.
After all that research and preparation, you’re finally ready to start bidding. Make sure you have proof you can afford the 10 per cent deposit as well as two forms of identification with you, such as a passport or utility bill.
Whatever happens on the auction day, remember to keep calm and stick to your budget. The most important thing now that everything else is in place is to not to bid more than you can afford; if you are successful you must pay, regardless if you can afford it or not.
As a good rule of thumb, always expect the property to cost more than the auction’s guide price. The auction house may purposefully lower prices to increase interest and get more people to attend. It is also worthwhile bearing in mind that there may be an undisclosed reserve price on the property (the minimum amount the owner wants to accept) and that the auctioneer can take false bids up to the amount of the reserve price to try to stimulate genuine interest. Don’t worry if you haven’t matched the reserved bid as the owner may opt for the highest bidder regardless. Also don’t be disheartened if prices escalate beyond what you’re willing to spend. It is much better to rigorously stick to your budget than to get caught up in the auction excitement, wildly overspend and end up in real trouble if you can’t afford the place.
If all goes well and you get the property you wanted within your budget, then next up is to get started making those final preparations. Firstly, get home insurance as soon as possible. As you automatically become the owner, you also become responsible for any damage caused even if it’s not your fault. But most importantly, make sure you pay the remaining 90 per cent within the required 28 days to avoid defaulting and losing out altogether.
Ready? Still have questions?
It’s only natural that you’ll still have a number of questions before making such a big decision that could have costly ramifications if you don’t pay attention to detail. We have a network of conveyancing experts across England and Wales to help guide you through the process so that you can be sure of your decision. Buying at auction can be an exciting process and you shouldn’t have to get bogged down in technicalities. Let our experienced conveyancing solicitors make this a hassle-free process.