A guide to buying a property at auction

Acquiring a property is among the most significant investments you'll ever make, which can understandably feel overwhelming. Opting for property auctions provides a different approach to the conventional house-buying method and may lead to favourable deals. However, this route can be intricate and riddled with uncertainties.

Auctions have become a more common method for property transactions. Despite their numerous benefits, there are risks involved. Those unaware may encounter legal and financial pitfalls that diminish their investment returns. The most severe outcome is being stuck with unsellable land or property, unable to secure financing.

Before finalising a sale or purchase at an auction, it is advisable to seek legal counsel. This guide is designed to provide you with a comprehensive overview of the key aspects of purchasing property through auctions in the UK.

How does the property auction buying process work?

Research 

The initial step involves locating an auction that features properties of interest to you. This can be achieved through websites, newspapers, or by directly contacting real estate agents. Upon identifying an auction, obtain a catalogue and carefully examine the properties available.

The auction catalogue will include essential information about each lot, along with any pertinent additional details like whether the property is being sold with an existing tenancy agreement.

Take note of the guide price assigned to each lot in the auction catalogue, as it reflects the seller's expected price. Keep in mind that a property may not necessarily be sold at the guide price.

To determine the appropriate price for a property, it is advisable to conduct market research by examining the prices of similar properties recently sold or currently listed for sale. Seeking insights from local estate agents can provide valuable information on market trends and the potential selling price of a specific property. 

Due diligence

Purchasing properties at auction without a full survey can lead to expensive errors. Before the auction, it is advisable to hire a surveyor to assess the property's physical condition. The surveyor can pinpoint and detail any significant problems, allowing you to assess risks and potential repair expenses before making a bid. A surveyor might also be able to provide you with a guide on the price/value of the property.

You should hire a solicitor to guide you on the legal pack, auction conditions, and any tax consequences related to your intended purchase BEFORE you place a bid at auction.

Typically, you can download the complete legal pack from the auction house's website or request it from the seller's solicitors. This pack includes crucial details like title information, search results, responses to enquiries, and other pertinent property information. It's crucial for your solicitor to review this pack well in advance of the auction. Just like any purchase, the principle of caveat emptor (let the buyer beware) holds true, placing the responsibility on the buyer to conduct a thorough investigation and address any concerns with the seller before committing to the transaction, specifically before placing a bid at the auction.

If you depend on mortgage finance, it is essential to verify that the information in the legal pack aligns with the lender's criteria.

Arranging finances 

Prior to attending the auction, it is essential to organise your finances. This includes preparing a deposit, typically 10% of the property's value, and having a clear plan for funding the remaining 90%.

The remaining purchase amount typically needs to be settled within 20 days after the auction. It's crucial to ensure you can secure the funds on time. If you are depending on mortgage financing, make sure to have your mortgage offer ready before the auction.

Additionally, it's important to consider any legal fees and disbursements that may be required in addition to the purchase price, as these will need to be settled in full upon completion. Keep in mind that if your bid is successful, you are obligated to purchase the property. You will be asked to pay additional fees for the seller:

• Refund the seller their search fees
• Refund the seller their legal fees
• Refund the seller their auction fees
• Refund the seller further disbursements

Please ensure that you have a full mortgage offer in place and issued before you bid at auction.

On the day 

Arrive early on the auction day to review any recent updates or modifications to the published catalogue or legal pack.

Make sure to understand the bidding process as it can vary among auction houses. Registration with the auction house might be required before placing a bid.

Bidding can take place in person, over the phone, or online, based on the auctioneer's guidelines. Upon winning the bid, you will be required to make the deposit payment promptly.

The winning bidder must sign the memorandum of sale, confirming the sale terms and providing the deposit. Subsequently, the memorandum will be forwarded to your solicitor, and you will be obligated to finalise the purchase within the designated timeframe. In case a lot does not meet the reserve price, it could be beneficial to directly contact the seller to explore potential sale agreements.

After the auction 

After the hammer falls, the property becomes yours. Usually, you will have 28 days to finalise the purchase by settling the remaining balance. Failure to do so could lead to forfeiting your deposit and facing extra penalties.

Is a solicitor necessary for purchasing a house at an auction?

To purchase a house at an auction, legal services and the assistance of a solicitor are essential. Interestingly, your solicitor's role will be even more crucial compared to when buying through an estate agent. This is due to the extensive legal checks that must be completed before placing a bid. Therefore, both before and after the auction, you will heavily depend on your solicitor for residential conveyancing needs.

When buying a property conventionally via an estate agent, the legal processes occur after the seller accepts your offer. This benefits you as the buyer because if any issues are discovered by your solicitor, you can withdraw from the purchase without incurring any expenses. However, the process changes when purchasing a house at an auction.

If you win the bid for a property at an auction, you are entering a legally binding agreement to purchase the house and are required to make a substantial deposit right away. Typically, the deposit is 10% of the buying price, though it might be slightly lower if you are purchasing through the modern method of auction.

If you choose not to purchase the property later and opt to withdraw, you risk forfeiting the entire deposit you've already made. On the other hand, proceeding with the purchase despite any identified issues might entail additional expenses for necessary repairs. This underscores the significance of having reliable property solicitors on your side to conduct thorough legal assessments before making any commitments.

What are the potential issues that a solicitor can assist you in avoiding during an auction?

Before an auction, when a solicitor conducts a pre-auction legal report on your behalf, they perform various checks. These checks safeguard you from potential issues that may arise if you purchase a property at auction without proper due diligence. Here are some examples:

• Title checks: Ensure you have complete legal ownership of the property.
• Enforcement notices: These may impact you post-purchase.
• Easements: Verify no one has unusual rights of way over the property.
• Encroachments: Confirm neighbouring land does not intrude on yours.
• Positive covenants: Establish obligations to undertake specific actions (e.g., contribute to road or wall maintenance).
• Negative covenants: Restrict property usage.
• Local area assessment: Check for potential construction of major roads or developments near the property.
• Tenancy checks: Identify existing tenancies and ensure tenants are paying rent without disputes.
• A property is generally only sent to auction for one of a few reasons:

1. The title might be defective and the seller hopes that the auction pack has not been reviewed prior to sale
2. The property might be structurally defective and again the seller hopes that a full review has not been carried out prior to sale
3. The seller might be in financial difficulty and is looking for a quick sale
4. The property might be in Probate

It would be unusual for a property to be sent to auction without any difficulty behind the scenes so you should carry out investigations to discover the reason why prior to auction.

These issues can result in significant challenges for the buyer. Remember, if you discover significant flaws in a house after winning the auction, it's too late to withdraw from the sale. There may be no recourse against the auction house or the seller. Consumer laws that safeguard buyers from faulty products do not extend to property purchases.

How can Hegarty help? 

When it comes to buying or selling a house and requiring experienced property solicitors, Think Hegarty. Reach out to our approachable legal team to learn about the auction property conveyancing procedure and discover how we can assist you.