Solicitors specialising in buying a property at auction
Buying land or property at auction is becoming increasingly popular. In fact, recent figures, dated December 2022, showed a huge level of property sold annually at auction – a colossal £4,463.7M of which most ( £3,353M) involved the conveyancing of residential property. And those figures represented an increase of 7.3% over the previous 12 months.
Selling a property at auction can make sense – especially if you’re looking for a swift sale or if the property is a little unusual. Those of our conveyancing solicitors who specialise in auction sales note that it is a particularly popular medium for property sales arising out of the probate process.
For a free no strings attached Auction Conveyancing fee quote, call our team now on FREEPHONE 0800 1404544.
What are Advantages and disadvantages of buying property at auction?
The advantages of selling a property at auction are considerable. The main ones to point out are:
· Speed of sale – one of the most frustrating aspects of selling a property the traditional way is the amount of time it can take for contracts to be exchanged and completion to occur. Because ‘exchange’ happens when the auctioneer brings the gravel down for the final time, the buyer does not have an opportunity to delay the process by asking endless questions. In most cases, completion occurs one month after the auction.
· Certainty – Wth a property auction, there is no possibility of being gazumped, a situation where another buyer comes in with a higher offer which is accepted by the seller, or the buyer pulling out of the sale as contracts exchange upon the fall of the hammer.
· Price – often properties sell for more at auction than they would using the traditional method.
· Online auctions – the Covid-19 pandemic resulted in a rise in digital property auctions. A digital property auction is where sellers and buyers are provided with an online bidding platform as opposed to the more traditional auction, which is known as a “ballroom auction”. This allows buyers from overseas to purchase properties without having to physically be in the UK to attend the auction or nominate a person to do the bidding on their behalf.
And the disadvantages of buying property at auction?
As well as pros, there are a number of potential cons when coming to buy at a property auction:
- If you’re careful and you have a solicitor review the auction pack in advance and a surveyor to have a good look at the property, those costs remain whether not your bid is successful. So you can face wasted legal and survey costs.
- And bear in mind it’s not unusual to be faced with less information about an auction property then you would have in a traditional conveyancing purchase. Repossessions and probate sales (where the seller will know little about the property) are commonly sold at auction
- If you want to avoid the possibility of wasted legal and surveying costs, you could do without both. But this is very risky. Unless you really understand the legal aspects of conveyancing, you risk not understanding what you have bought. And if you do without a survey, you may end up owning a building with serious structural issues or other problems that could make selling hard in the future, not to mention being worth less than you expected
- Once your bid is successful, you are legally obliged to purchase and you can’t pull out without losing money.
- If you’re not careful you can get carried away with the excitement of the property auction atmosphere– and end up going over your budget
- You have to be certain that you have money available either cash or a definite mortgage. If not, then the normally short period between auction and completion (often 28 days) may make it impossible for you to find alternative finance at the last minute – and that means you can’t complete which in turn means you’re going to lose money
And if you’re selling, then the biggest disadvantage is probably that cost to the seller if the auction doesn’t produce a successful bid – as the vendor is likely to be required to pay the auctioneer’s fees regardless of whether or not the property sells.
Why the increase in property sold by bid?
The state of the economy, and the property market in particular is the biggest driver. But in the long term, among the factors affecting auction sales are a combination of an increase in social mobility coupled with much higher levels of home ownership means more and more people inheriting property from relatives living miles away. In such circumstances, it can prove very difficult for the owner to organise a local house sale and in particular to show any property to prospective purchasers – so selling the property swiftly in this way often fits the bill.
And buying a property at auction can not only prove to be a great opportunity to pick up a bargain – but it also means that you don’t need to worry about the kind of delays you can end up with in conveyancing chains.
Looking to buy property at auction – to live in yourself or for a buy to let? We have the experience you need. Our specialist auction conveyancing solicitors deal with buying properties at auction both locally throughout Wiltshire, Hampshire and Dorset, and nationally throughout England and Wales from our offices in Salisbury, Fordingbridge and Andover.
How does a property auction work?
The 1st thing to know is very important. Whether you’re buying your dream home or investing in a buy to let property – the property auction conveyancing process is very different.
Unlike buying property in the conventional way, buying property at auction can be fast and highly competitive. You’re in the process of bidding directly against other prospective purchasers, and a bidding war can see that price escalate very quickly indeed.
So, if you aren’t familiar with auction sales, do be aware that the whole auction process, from preparation and viewing the property to the legal aspects of the sale itself, is quite different from the normal conveyancing transaction. And that’s why you need a conveyancing solicitor with plenty of property auction experience – and you need to instruct them well before the auction itself.
In particular, you really need to make sure you have properly viewed the auction property properly in advance, and have done all of your due diligence [including having gone through the legal pack with your solicitor]. Why? Because if yours is the highest bid at or above the stated reserve price, you actually exchange contracts on the fall of the auctioneer’s hammer. So you need to know exactly the kind of property you have bought.
Preparing to buy a property at auction
However, if you are looking to buy at auction, do make sure that you do your homework in advance. In particular, you may want to consider the following steps:
1. Do your preparation
- Identify what sort of property and which area you are interested in. Talk to local estate agents and local people discover if the area has any problems. Check out the address on Google – what you find out may surprise you.
- Make sure that you don’t overlook the property’s faults.
- Study the catalogue to see what the reserve prices are and compare with the eventual auctioned price
- Get your auction conveyancing solicitor to look at the legal pack in advance [see below]
- Before you even consider bidding on a property make sure that you understand the auction process. Attend an auction or two. Get used to the unique bidding atmosphere.
2. View the property yourself
Once you have found a property that you are interested in buying, get in touch with the auctioneers to set up a viewing.
3. Have the property surveyed and valued
This is probably the main disadvantage of buying property at auction. Surprisingly not everyone does this, on the basis that if they don’t end up buying the property the price of the survey will be wasted – but it is always sensible to get a proper survey done, even if it means that you spend perhaps £1000 on a property which you will never own.
• Visit the property accompanied by a RICS surveyor who will provide you with an idea of any potential problems, the value of similar properties in the area and the cost of any renovation work
• You are arranging a mortgage through a bank, building society or other mainstream lender, you will probably have to pay for a “Valuation Report”. Do not rely on it. This kind of Valuation Report is not a full structural survey – it’s just a limited valuation for lending purposes to reassure your mortgage provider that they can recoup their money if you default on the loan
You’ve found a property you like – what’s next?
1. Sort out your finances in advance
- Amazingly many people simply fail to arrange their finances before turning up at a property auction.
- Always make sure you get a mortgage agreed in advance – at least in principle.
- If you are considering purchasing a buy-to-let property at auction, be aware that most mortgage companies only lend on buy-to-let loan properties if they are ready to rent out to prospective tenants – which might be a problem if you are planning to buy a property that needs weeks of renovation.
- Many properties sold at auction will require modernisation or at least some redecoration – bear that cost in mind when deciding on your budget.
- Don’t forget to bear in mind both stamp duty and the auctioneers’ fees.
2. Set yourself a bidding limit
- Study the auction catalogues to see what the reserve prices are and compare with the eventual auctioned price
- Bear in mind that the guide price of auctioned properties is often set artificially low in order to ramp up interest. So do your own research as to the real market value of the property – and base your bid on that price. Decide on the maximum price you are prepared to pay.
- Don’t let the excitement of the auction atmosphere tempt you to exceed any budget or bidding limit you set yourself prior to the auction itself!
When is a purchaser legally bound to buy a property sold at auction?
When the gravel falls! You must, therefore, have visited the property and have a full survey done before auction day. In addition, have your solicitor check over the legal pack prepared by the seller. This will contain information about the title and property searches.
If you do change your mind, you will lose your 10% deposit which must be paid on the day of the auction. You will also be required to pay any applicable auction fees
You’ve won the bid – what’s next?
• Once the auction is over, the auctioneers will send a signed memorandum of sale to the seller’s legal advisors. They will then contact the buyer’s solicitor and arrange a completion date, which is often expressed as a number of days following the auction.
• Expect to pay a deposit of 10% to secure the property to the Auctioneer or the Seller’s Representative. Take two forms of identification with you. You will be expected to provider your own Auction Conveyancing Solicitor’s details. The seller’s solicitor will contact the auctioneer and arrange for the deposit (and any interest) paid by the buyer to be transferred to the seller’s bank account. The auctioneers will normally deduct their fee before transferring the sum.
• Ensure that you have secured a mortgage and are ready to complete within 28 days. It’s often sensible to make sure you also have sufficient cash in reserve in case the lender insists on hanging on to part of the loan monies until specified work is carried out at the property
• Contact your mortgage company to ensure that you have secured funds in place and do not run the risk of forfeiting your deposit
• You are legally bound to purchase the property and you must exchange on the same day
• The date for completion will be set. The Auctioneer will usually give the completion date before bidding starts. Completion is often set for 28 days time – though can be sooner or later. Do listen to what the Auctioneer says before you start to bid
• Failure to complete on time will cost you interest on the completion monies that are due to the seller
Your Solicitor and the Property Auction Conveyancing Process
Buying or selling a house at an auction is quite different from the normal conveyancing transaction. So, don’t forget that you need to make sure that your solicitor has plenty of experience in representing clients in property auction sales and purchases. Many don’t.
As a result, prior to the auction, you will need to make sure that your auction solicitor has time to have a good look at the legal pack.
In particular, your solicitor will need to sure that you are aware of any particular sale conditions and any potential problem issues.
If you and your solicitor don’t your homework in advance, you risk ending up purchasing a property with major flaws – perhaps a house that never had planning permission in the 1st place, or a flat with really expensive ground rent and management charges, or other onerous conditions.
Our specialist property auction solicitors have the experience to enable you to make your winning bid with confidence. And if you’re thinking of using a short-term loan to buy the property, the team have plenty of experience of bridging finance conveyancing as well.
What does an auction legal pack contain?
The crucial thing to understand is that the property auction conveyancing process is quite different. In particular, much of the work that your conveyancing solicitor would do before exchange of contracts is contained in the legal pack. So if you don’t know what you’re doing and you don’t properly review the legal pack, it’s a bit like instructing your solicitors only after you’ve exchanged contracts and you are legally bound to purchase the property in question. And that could be very dangerous indeed.
Each and every property which is offered for sale at auction will involve a legal pack. You can usually download these from the auction house website.
The legal pack contains documents relating to the auctioned property and will have been prepared by the vendor’s solicitors and often made available about 3 or 4 weeks before the actual auction. However, there is no legal requirement for the seller to provide a comprehensive pack.
The legal pack usually includes;
- office copy entries from the Land Registry – or if not registered, the title deeds
- results of any conveyancing searches
- special conditions of sale
- property information form
- the fixtures and fittings form
- a management information pack and the lease itself [if the property is leasehold]
- any existing tenancy agreements
- any existing or lapsed planning permission
- an EPC
Properties are often sold at auction because they will not struggle to sell on the open market – perhaps because of legal problems. The Legal Pack should reveal details of any legal problems affecting the property.
It is therefore vital that you check these documents and unless you are extremely confident in your ability to fully understand the whole property auction conveyancing process, get your solicitor to review the pack before the auction. Some people do choose to rely on their own inspection of the legal pack – but do be aware that they can be both confusing and complicated. They often contain hundreds of pages of complicated legal documents.
Our strong advice is that unless you are 100% happy with the legal documentation pack – do NOT put in a bid. Or at least don’t put in that bid before you’ve made further enquiries and received specialist legal advice. Why? Because getting it wrong can be very expensive.
A legal pack usually remains valid for 6 months.
NB It’s particularly important to make show sure you know exactly what you’re bidding for when it comes to repossessed property. That’s because the vendors (operating on behalf of the mortgage company) will normally have limited knowledge about the property and any defects or structural problems it may have.
Click here to read more about Repossession Conveyancing
Property Auction Conveyancing – Watch out for Additional Costs
Don’t forget that even if you have won the bid, that bid price is not the only cost you’re going to have to pay.
Make sure you budget for the following additional fees and taxes, which can often add up to an additional 10% or more to the overall purchase price;
- Stamp Duty
- Purchaser’s Admin Charges
Most auctioneers levy an additional administration fee on the buyer which is often due to be paid on exchange of contracts – this is a payment quite separate to the deposit. This fee is usually a fixed amount a fixed amount and not a percentage of the hammer price
- Purchaser’s Premium
While most auctioneers do not charge the successful bidder a buyer’s premium (a percentage of the bid price) as well, some auction houses do take property on the basis that although the vendor will not have to pay a fee to the auctioneer, the successful purchaser will be charged a percentage premium fee instead.
This kind of fee should be clearly set out in the auctioneer’s catalogue.
- Special Conditions of Sale
Always make sure your auction solicitor has carefully explained to you any additional conditions in the legal pack. These may include;
- local authority search fees
- a contribution to the seller’s own legal costs, which could be a fixed fee
- an overage or “claw back” clause – a sum that may be payable in addition to the original sale price following the completion of a specified condition e.g. an uplift on the original sale price where planning permission for residential homes is subsequently granted
What types of properties are suited to auction sales?
- Unusual properties are hard to put a value on.
- Properties that require significant renovation work.
- Properties sold via a mortgagee sale.
- Tenanted properties, including those that are subject to the tenants’ right of first refusal under the Landlord and Tenant Act 1987.
- Where the seller has a mix of properties of low and medium quality. Low reserve prices set on the poorer quality homes may encourage people to also bid on the better-quality properties with higher reserves.
- Properties that require planning consent for their use
What is an auction catalogue?
The seller’s conveyancing solicitor will prepare an auction catalogue that contains the particulars of each property (also known as ‘lot’). The information contained in the catalogue includes:
· The address and a description of the property.
· The energy performance indicator.
· Details of any leases related to the property.
· The property’s guide price.
· The seller’s solicitor’s details.
Case law has illustrated that if the catalogue contains inaccurate information the seller may be liable to the buyer for damages. Therefore, it is imperative to instruct an experienced solicitor when selling your property via auction.
Can I make an offer prior to auction?
Yes, you can – although it really depends on both the auction house and on the vendor as to whether or not they will accept any offer before the auction itself.
This strategy works best when you think that the guide price has been set too low and you sniff a bargain. Usually your offer will need to be at least at or above the guide price. Do bear in mind, if you do have an offer made prior to auction accepted, you will probably be under considerable pressure to exchange contacts very quickly – probably before the auction itself which may leave you very little time.
So, if you are thinking of using this strategy to buy a property, you really need to have done all your legal and physical due diligence before making the offer.
Can you represent me buying using the ‘Modern Method of Auction’?
Yes, that’s not a problem. We do that regularly.
The ‘Modern Method of Auction’ is often referred to as a conditional auction. It is noticeably different from the traditional method of auction.
Under the modern online method of auction, the successful bidder must pay a reservation fee to the agents to reserve the property. The critical thing here to note is that fee is non-refundable.
Click here to read more about the Modern Method of Auction
How are money laundering checks done when selling a property at auction?
Auctioneers must have appropriate systems in place to identify and report suspicious activity and are required to report suspicions of money laundering as soon as possible to the National Crime Agency, regardless of whether they go ahead with the sale and purchase of the property. The seller’s conveyancing solicitor must warn their client that they will need to consider compliance with the auctioneer’s money laundering requirements when choosing to sell their property at auction.
Call our Property Auction Conveyancing Solicitors today for a FREE no obligation quote
Buying or selling a house, flat or land in an auction is undoubtedly more exciting than the conventional sale and purchase method. Having our expert solicitors advise you throughout the process will ensure that you not only enjoy the auction itself but that your sale or purchase is a stress-free experience.
When it comes to the sale or purchase of residential property at auction, we will proactively alert you to any potential problems and then diligently work through the steps required to find solutions. You can trust that we have the legal knowledge and talent to move the transaction forward regardless of any obstacles.
Whether you are local to our our Salisbury, Fordingbridge, Andover or Amesbury offices, or you are based elsewhere in England and Wales, we can help you – we regularly help clients nationwide with auction conveyancing, taking instructions by phone, email and video call.
We also have a dedicated specialist team acting for property investors nationwide. Click here for more information