Buying a residential property at auction – preparation before you bid

How does an auction purchase work?

At a traditional property auction, the fall of the auctioneer’s hammer will usually create a legally binding contract. You will normally need to pay a deposit, commonly 10% of the price, but it can sometimes be more and complete the purchase within the period stated in the auction documents. This is often around 20 working days following the auction, but it may be shorter.

Online auctions can operate slightly differently. Some use the traditional exchange process, while others use a reservation model, sometimes called the ‘modern method of auction’. Under this method, the successful bidder may pay a substantial, often non-refundable, reservation fee and have a longer period in which to exchange contracts.

You should therefore check the auction method and terms carefully. Do not assume that every online auction follows the same process.

Why does preparation matter?

In a conventional residential purchase, your solicitor usually investigates the property before contracts are exchanged. At auction, those investigations should take place before you bid.

The seller will normally provide an auction legal pack containing documents such as the title, contract, searches, property information and any lease. The pack may also include special conditions that change the standard auction terms or require the buyer to pay additional costs.

For example, a successful bidder may discover that they are required to pay the seller’s legal fees, search costs or any auction administration charges. These sums can significantly increase the overall cost and may also affect the Stamp Duty Land Tax calculation.

A legal pack is not a guarantee that everything is satisfactory. Documents may be missing, out of date or added shortly before the auction. It is highly advisable to ask your solicitor to review the final version before you bid.

Key legal and practical risks

The title may contain restrictions affecting how you can use, alter or sell the property. There may also be rights benefiting other properties, planning issues, missing building regulations approvals or obligations to make further payments to a previous owner.

For leasehold properties, you should understand the remaining lease term, ground rent, service charges, planned major works and any arrears. The auction conditions may make you responsible for sums that relate to a period before completion.

The physical condition is equally important. Auction properties are generally sold as seen, and the seller may provide limited information. A survey can identify issues such as structural movement, damp or roof defects that are not apparent during a viewing.

You should also confirm how you are funding the purchase in advance. If your mortgage valuation is lower than expected, or the lender will not accept a title defect, you may still be required to complete. Failure to do so could result in the loss of your deposit, interest and further claims by the seller.

Finally, check when responsibility for insuring the property passes to you. Under some auction conditions, you may need buildings insurance from the moment the contract becomes binding.

Opportunities for prepared buyers

Auction purchases can provide greater certainty and speed compared to an ordinary transaction. They may also give buyers access to renovation projects, tenanted investments and properties that require legal or practical issues to be resolved.

Those opportunities need to be assessed against the cost and risk involved. Setting a firm bidding limit should take account of repairs, taxes, professional fees, additional auction charges and financing costs, rather than focusing only on the guide price.

Important points

• Ask a solicitor to review the legal pack before bidding.

• Arrange a survey and inspect the property where possible.

• Confirm your finance and completion funds in advance.

• Check the deposit, completion deadline and additional charges.

• Investigate lease terms, service charges and major works (if applicable).

• Read any updated documents before the auction begins.

Budget for Stamp Duty Land Tax and immediate insurance.

How VWV can help

Early advice can help you identify problems, understand the true cost and decide whether to proceed.

If you are considering an auction purchase, contact Sarah Lawal in our Residential Conveyancing team before bidding so that the legal pack, auction conditions and completion requirements can be reviewed in good time.