If you are planning to bid on a property at auction, you need to be aware of the traps for the unwary.
We are increasingly being asked to act for clients on the purchase and sale of properties at auction, as well as to review auction packs before an auction date. We can advise you on a case by case basis on the details that are revealed by auction packs, but here are some of the key points that you need to consider when buying at auction.
It is important to know that contracts are deemed to have exchanged upon the fall of the hammer. Therefore, if you are the successful bidder at the auction you will be contractually bound to buy the property, whether or not you have reviewed the auction pack!
You will usually find a set of ‘special conditions’ which form part of the auction pack. It is often the case that any unusual terms relating to the transaction are set out here. The special conditions will usually contain details of any leases or rent arrears that affect the property. They should also set out any additional payments that have to be paid at completion, in particular, auctioneer’s fees, buyer’s fees and the reimbursement of search fees. You should establish the amount of these additional costs before deciding what your maximum bid is going to be.
Depending on the terms of the auction pack, you may need to deal with VAT registration and the submission of an option to tax between exchange and completion. Watch out for short completion dates (see below) which may not give you adequate time to get your VAT paperwork back. This should be factored into any bid that you make.
It can be easy to see what is included in the auction pack, but perhaps more difficult is working out what (if anything) is missing! It can be the case that sellers do not provide any searches in the auction pack, or they may include minimal searches only.
You should think about the searches that you would usually expect to see if you were buying the property by way of private purchase, and decide with your solicitor whether or not additional searches should be carried out. The risk is clearly that you would incur costs that would be wasted if you were not the successful bidder. However, you will buy the property subject to matters that would have been revealed if full searches had been made and so in many circumstances it will be worth making this investment.
The auction pack will state when completion of the purchase is going to take place. If you are the successful bidder you need to make sure that you will have sufficient time to get everything in place ready for completion. If you are going to use bank funding to assist with the purchase, this may take a while and so you need to bear this in mind before you bid.
If you are thinking of purchasing a property at auction and would like assistance in reviewing an auction pack, then please get in contact with a member of the Real Estate team at Gateley Plc.