Auctions are an increasingly popular way of buying and selling property. While there are many advantages, it is not wholly without risk. The unwary can fall foul of legal and financial traps which reduce the return on their investment. The worst case scenario is where you are left with land or a property which you cannot sell or raise finance on.
Legal advice should be sought before committing to a sale or purchase at auction. However, below are some frequently asked questions and some useful links to heighten your awareness of the risks.
It is wise to define your “ideal” investment according to specific criteria before you view the auction catalogue. Are you looking for a property in disrepair to renovate? Is geographic location a deciding factor? Would you prefer a tenanted property which will give you an income?
You should always try to inspect the property/land before the auction and watch for:
The auction is conducted in accordance with the Common Auction Conditions and Special Conditions of Sale. The auction pack may contain special conditions which vary the common conditions but will always include evidence of the seller’s legal title. You should instruct a solicitor to review the auction pack and alert you to any title deficiencies which could affect the resale of and ability to raise finance on the property in the future.
You should instruct a solicitor to undertake a local authority, drainage, environmental and chancel repair search. All enquiries and investigations should be made before you bid as the contract is binding once the hammer falls.
Check on the day of the auction that the lot is still being offered for sale. It may have been withdrawn or sold prior to auction. Listen carefully to announcements made at the auction as there may be last minute changes to special conditions of title information which will affect your decision to purchase.
Assuming your bid is successful, you should insure the property from the date of the auction.
You should take funds to the auction to pay a 10% deposit in the event that your bid is successful. There is a minimum deposit of £1500. Ensure you have finances available to complete within 28 days of the auction. Check what legal fees and disbursements may be due on top of purchase price as these will be payable in full on completion.
Give careful consideration to the timing of your sale and take advice from your tax adviser or accountant before deciding. Pick an auctioneer with experience of selling properties of the same type and location as your property. Take professional advice from the auctioneer or a valuer before setting the reserve price. This is the lowest price you will accept for the property and is not disclosed to prospective purchasers. They will be advised of the guide price. An Energy Performance Certificate (EPC) will need to be provided to the auctioneer.
Instruct a solicitor well in advance of the auction date to examine the legal title and resolve any issues such as the removal of redundant notices and restrictions which could deter prospective purchasers. The solicitor will also prepare the legal pack containing special conditions, planning permissions and searches. You can increase your net sale proceeds by asking your solicitor to draft a special condition requiring the purchaser to bear your legal costs and disbursements in connection with the sale.
If the property is tenanted, ask your managing agent to provide you with copies of the tenancies and rent payment schedules. Your solicitor will need to include these in the legal pack. Consideration should also be given to the ability to transfer any tenancy deposit to the purchaser following completion.
It is essential that you take advice from a solicitor before entering in to auction. Notices must be served on tenants in a specific format adhering to statutory timescales. Failure to do so is a criminal offence and incorrect service of notice could mean that you have to withdraw the property from the auction and delay the sale.