Is it wise to purchase at an auction?
In the recent past as a result of the financial crisis there was a trend for distressed properties being listed at property auctions as a way for the lender to shift hard to sell properties or problem properties.
If you are thinking about buying at an auction here are some golden rules to follow so you are not left with a “white elephant” …..because if you stick your hand up and the gavel goes down…..it’s your property and its problems can become your headache!
Do your homework
In a normal purchase your solicitor and surveyor will be able to carry out due diligence in relation to the title and the state and condition of the premises before you commit to the purchase. However, at an auction the premises are sold as seen and if you buy you take all the problems with it. You may not have time or the opportunity to have a surveyor inspect the premises. Most auction houses have dedicated websites where the property legal pack can be downloaded. It is imperative however, that you instruct your solicitor in good time (not the eve of the auction!) to review these documents so that you are aware of any anomalies and potential problems.
View the premises
If there is an open viewing by the auction house make sure you take advantage of this. It will give you an idea of the state and condition of the premises and whether there are any discrepancies in the catalogue description or maps.
Have your finance in place
Most auction sales will require a deposit to be paid on the day of the sale (typically 10%) and the timeframe for completion will be set anywhere between 7 and 28 days. You will be legally bound to purchase on the set completion date irrespective of whether you have funds to pay so you will need to have the finance in place before you bid on the premises. It may be difficult to obtain mortgage finance on the premises after the auction due to a number of factors such as the timescale mentioned above and whether a lender will actually accept what you have bought as security due to its condition.
In essence, without prior due diligence carried out by your solicitor an auction purchase would be wholly unwise. Yes, there may be bargains to be had at auctions benefiting from faster completions and no gazumping. However, these perceived advantages need to be considered in light of the tight timescales, binding contract and perhaps the premises having been listed by the lender as a last resort to sell their “white elephant”.
Edwards and Co Property Team can assist in review of pre-auction packs and advise you of any issues prior to an auction…..forewarned is forearmed! Contact David Sturgess or Cathy Warnock if you have any queries.