Buying a house at auction can produce a great result… but you need to do your homework and make sure you fully understand everything in the legal pack before auction day looms and you start bidding.
That’s the warning from Jai Najran, a solicitor at Clark Brookes Turner Cary, the law firm with offices in West Bromwich and Stratford-upon-Avon.
Mr Najran is an expert on the auction legal process and can be regularly found attending local auctions.
His comments come as more people than ever are turning to auctions in search of a bargain.
Mr Najran said issues to look out for might include the vendor inserting into the fine print of the auction pack contract, a charge for expenses, administration costs or legal fees which will increase the final purchase figure by several thousands of pounds.
And he cautioned about leasehold properties which seemed cheap but actually had significant service charges or ground rents applying.
There is also the risk of unwitting association with mortgage fraud, perhaps where the vendor had recently bought the property and was selling it on quick – most lenders are now stipulating that a person has to be in possession of the property for at least six months if they are going to make a mortgage available to the purchaser.
Mr Najran said:
“You need to be aware of all the potential pitfalls and catches – the other side of the coin at auctions – and ensure that you fully understand what is in the legal pack supplied before auction day.”
Typically, auctions feature a wide variety of properties including residential, commercial, investments and land.
The main attraction is that you avoid the time and cost of the conventional house buying process. No need to worry about the deal falling down at the 11th hour.
Prices are usually cheaper albeit re-development and refurbishment may be required.
But a deal is struck there and then – when the hammer falls, and if your’s is the highest bid, then you are the owner.
Mr Najran said:
“Auctions are often packed but can be daunting for the first timer.
There are certain processes in advance which you need to be very specific about. For example, request a catalogue or go online and read it carefully and have a solicitor review the auction legal pack for you.
Make sure you view any property you are interested in, check that the catalogue description is correct and do thorough research. I have experienced people buying unseen and then asking me what condition it is in!
Carry out the usual property/land searches and carefully read the conditions printed in the catalogue.
Always get legal or professional advice from a solicitor and, in appropriate cases, a chartered surveyor. Arrange to have a house survey and a valuation done and to get the results before the auction.
Also, given auction properties can be in a poor state, maybe take a builder or an architect with you to find out what can be done to the property, and how much it is likely to cost.
Make financial arrangements to ensure you have a ten per cent deposit ready for payment on auction day, when the contracts are signed and access to the remaining 90 per cent, usually within 28 days.
If you can’t complete within this time you may lose your deposit so, if you need a mortgage, make sure you get one agreed in principle with your mortgage lender beforehand.
Be clear that buying at auction is a binding commitment and carries the same legal implications as a signed contract by private treaty. So set a price limit and don’t get carried away during the bidding. Buying on a hunch can be very dangerous.
Understand too that, if you’re outbid, you lose not only the house but the expenses of a survey and solicitor.
Finally, if you are bidding on a property and it fails to meet its reserve price, this doesn’t necessarily mean it is the end of the matter.
The auctioneers can still act as agents and are able to do a deal between yourselves and the vendors, if a price can be agreed afterwards.
Likewise, it is common for a deal to be tied up prior to auction, so it may be worthwhile checking this possibility out with the auctioneers.”