Buying a Property At Auction
The process of buying a property at auction differs greatly from the process of buying a property on the open market. Legal work and surveys must be completed before the auction, and finances must be in order. If you are the highest bidder and you win the auction, you will be asked to sign a contract and pay a deposit immediately.
Buying a house at auction: what you need to know
When purchasing a property at auction, you need to know that the highest bidder must sign a contract, providing the bid exceeds the reserve price.
As the highest bidder, your contracts will be exchanged immediately, followed by the closing date. The legal ownership of the property can then be transferred very quickly.
As a buyer, you are not able to back out, so it is quite a daunting prospect. The purchase agreement is legally binding once the gavel falls. In addition to signing the contract, you will also need to:
- Put down a 10% deposit at the auction
- Obtain insurance for buildings
- Pay the remaining balance by the closing date, typically 28 days after the auction
Preparation for the auction
It's therefore important to know for sure that you want to purchase the property and can afford it before you submit your bid. Taking this into account, there is quite a bit of preparation to do before the auction.
Obtain legal advice
As a first step, you should inspect the property and make sure that it meets your needs. Purchasing an auction home requires the assistance of a solicitor who specialises in auction conveyancing. A property solicitor must request the legal pack from the auctioneer. The information provided will identify any potential issues with regard to the title, planning permissions, and hidden covenants. In addition, you will gain a better understanding of what you are buying, especially in regard to the sale terms and conditions.
Obtain a report from a surveyor
A surveyor and/or structural engineer should assess the property while your solicitor works on the conveyancing. It is absolutely crucial that you know about all defects before you purchase since the seller is not legally obligated to disclose them to you. In the event that you end up buying the property at auction, you will have to accept it as-is. There is no legal recourse for you if you later discover any defects. You would be expected to have detected these issues before purchasing, according to the seller or auctioneer.
Your finances should be secured
The last step is to secure the necessary financing. It will be necessary for you to pay a 10% deposit immediately if you are the highest bidder. There is no way to estimate the exact cost of this. Considering this is an auction, you can't predict the sale price in advance. A guide price is provided by auctioneers, but a competitive bidding process could generate a much higher price. In order to complete the process, you need a substantial amount of cash on hand.
The remaining balance must be paid by the closing date indicated in the contract. Usually, this takes between four and five weeks. The remaining money will need to be found quickly, either in cash, as a mortgage or another kind of loan. Therefore, you need your money/mortgage/loan ready before the auction.
There are also other costs to consider, such as Stamp Duty, Building Insurance, and Legal Fees and Outlays.
Sellers may withdraw from a sale if they are unable to pay the remaining balance by the closing date. In this case, you will lose your 10% deposit. It is also possible for you to be liable for the seller's losses in the future, such as the cost of reselling the property. This is why it is crucial that you have finance in place before you make a bid.
