February 2013
We act for a number of clients buying properties at auction each year and for the most part these transactions proceed without nasty surprises.
However, before you turn up to the auction room with grand designs on hunting for a bargain there are a number of differences between buying a house at auction and buying one in a private sale. These include the following:
- Once the hammer hits the bench, contracts are exchanged and you will be expected to pay a ten percent deposit there and then. A legally binding contract will be made and you will therefore commit yourself to the purchase immediately.
- In a private sale, you will have had several weeks to obtain a mortgage offer and for your solicitor to check the legal title and other paperwork and raise any enquiries of the sellers solicitor before committing yourself to a contract and paying any deposit. You have plenty of time to investigate matters properly and to change your mind about proceeding if necessary.
- In a private sale you have the opportunity to renegotiate on the price if expensive works are revealed by a survey. At auction there is a temptation to get carried away and bid for a property which you have not thoroughly inspected and for which you have not had a survey. It is important to remember that you must inspect the property and satisfy yourself as to its condition in either case before committing yourself legally to its purchase.
- At auction there is a legal pack, which you should instruct solicitor to check thoroughly before proceeding. If the investigations reveal defects, you may save yourself in the long run. If they reveal that the purchase is worthwhile you might be able to negotiate pre-auction to buy the property. You should also make sure that you have your funding in place and dont forget that if you are reliant upon a mortgage lender they may not necessarily lend against certain types of property. If you cannot secure the funding in time (usually 20 working days) then you stand to lose the deposit paid and you may also be liable to the seller for damages for breach of contract.
- In a private sale, the Standard Conditions of Sale usually apply to property contracts whereas at auction, the common auction conditions apply. Do not be tempted to think that you are familiar with purchasing property privately – at auction the rules are different. even if you agree a price before auction, the auctionneers will usually bind you into a contract bearing the auction conditions and you will be expected to pay the deposit in advance.
- It is best to instruct a solicitor to look over the auction pack and advise on both the auction conditions and any special conditions which are imposed by the seller. Unlike in a private sale, at auction you do not get the chance to negotiate individual clauses in the contract and often the seller will include the cost of searches and other costs.
Below is a picture of a property bought in Babbacombe in a stunning location.
Hilltop location of auction property with uninterrupted sea views
The locals knew that the cliff had been slowly washed away for years and that the builder who owned it had been refused permission to develop because it was too dangerously situated near the edge of the cliff.
However a retired police officer bought it at auction in February 2010 successfully bidding £154,500 over the telephone without having a survey and 6 days later it looked like this:
Beyond the edge of reason
As you can see, half of it fell down the cliff in a landslide and was washed away in the sea.
After a legal battle the seller was granted a legal charge over the buyer’s home by the Court to secure payment for the auction property together with interest at 8%.
This case serves to highlight the need to properly carry out all prudent investigations before committing yourself to the purchase of a property.
Important Note:
The above information is for general guidance and in part forms the opinion of the author. It is based on the law as at the date this article was written. It should not be relied upon in part or in whole as a substitute for independent legal advice.
If you are considering purchasing a property at auction then please contact the writer, Adam Corcoran, who will be pleased to advise you in light of your personal circumstances. We cannot accept any liability to third parties for the incorrect interpretation or application of the information contained in this document. If you require further advice please contact Adam Corcoran above who will be able to assist you.
