Buying a property at auction can be exciting and potentially profitable and appeals to a wide spectrum of purchasers hoping to bag a bargain and cut out the traditional and sometimes lengthy conveyancing process. It is conceived as a faster way to dispose of property and is a relatively simple process. However, it is not risk-free, as once your bid is accepted and the hammer falls, you are contractually bound to complete the purchase no matter what.
Many properties at auction are unusual and have title defects that prevent them being sold on the open market. Therefore, on the fall of the hammer, you may end up with a property with title issues which could affect its value, for example, no rights of access to the property and affect your ability to mortgage it or prevent or restrict future resale. It is unwise to bid for a property without knowing what you are letting yourself in for.
The key is to be prepared, "buyer beware" and do your due diligence beforehand on the property that you are interested in.
It is essential that you physically inspect the property and it is advisable to have a builder or surveyor assess the property to give you an idea of the cost of any necessary repairs which you should factor into your budget. You must also have your finance in place prior to the auction. A 10% deposit is usually paid at the auction with the remaining 90% being paid within 28 days of the auction or as stipulated on the contract. If you are obtaining a mortgage, you must have a mortgage in principle in place prior to the auction. It is also prudent to instruct an experienced solicitor to carry out due diligence on the legal pack and title to mitigate the risks by identifying any title issues such as awkward covenants or restrictions contained within the deeds or any boundary issues which may be problematic. They can review the contract as well and identify any hidden conditions of sale which may include paying the vendor's fees.
There is usually not much time between the advertisement of the auction and the auction itself, therefore, time is of the essence to instruct a solicitor as soon as possible so that they can carry out meaningful enquiries on your behalf. Check the addendum sheet with the auctioneer on the day of the property to see if any information has changed.
If you buy at auction without getting professional advice and you find something wrong with the property post completion, there is unlikely to be any come-back against the vendor or the auctioneers. You may have a remedy if there has been mis-description in the auction catalogue. However, this area of law is complex and may lead to costly litigation.
It is also advisable to stick to a budget on the day of the auction as it can be easy to get carried away with the bidding for a property that you have potentially already invested a lot of money in by instructing a surveyor and solicitor. However, if you fail to complete the purchase due to difficulties with finance for example, the vendor will retain the deposit and has the right to take further legal action such as suing for consequential loss if the property is eventually sold for a lower amount. You will also be liable for the auctioneer's fees.
You buy the property subject to all documents and terms of contract whether you have read them or not. Therefore, get professional advice first and avoid being left with a property which is a burden not a bargain.
Janeen McKay is a solicitor in the Property Department of the Newtownards office of Worthingtons Solicitors and can be contacted on 02891811538