22/10/2024

How to buy a property at auction

Buying a property at auction can be a great way to bag a bargain, but for the uninitiated it can also be a nerve-racking experience.

The positives of buying at auction are that you can complete your purchase quickly, usually within a month of agreeing to buy and it is sometimes possible to get a great deal.

However, this is very different to the usual house buying process and you should be alert to any problems that the property might have that could make it difficult to sell on the open market or to mortgage if you need to raise finance.

As a solicitor specialising in property transactions, I aim to shed light on the intricacies of auction property transactions and the crucial legal steps required to ensure a smooth process for buyers and sellers alike.

Understanding the auction process

Auctions provide a platform for buyers to secure properties at potentially favourable prices, while sellers can achieve a quick and efficient sale. However, the speed and competitive nature of auctions necessitate a thorough understanding of the process.

Auction properties are sold ‘unconditionally,’ meaning the successful bidder is committed to the purchase without the opportunity for further negotiation. This makes it essential that you do your homework. If you are a buyer, you need to be armed with as much information about the property you are interested in as possible, while sellers must make sure they have prepared a comprehensive auction pack, addressing any issues that might affect the sale.

Can you get a mortgage for an auction property?

It is possible to get a mortgage for an auction property, but lenders will want to be certain that the property is ‘mortgageable’. In other words, that it is in good condition and has a good and marketable legal title with no defects. Practically, this usually means having a working bathroom and kitchen and being free from any structural defects and any type of rot. Legally, it means the legal title is not defective and can be re-sold without issue.

If you’re thinking of buying a property at auction and you need to borrow money to do so, it is sensible to check whether you can get a mortgage for your chosen purchase before bidding on it.

5 essential legal steps when buying or selling auction properties

1. Pre-auction due diligence

Due diligence is the process of carrying out a thorough investigation and reviewing all legal information, prior to committing to a purchase. Solicitors play a pivotal role in the pre-auction phase. For potential buyers, this involves conducting comprehensive due diligence on the property’s legal status, potential encumbrances, and any outstanding issues. Sellers, on the other hand, may engage solicitors to ensure all legal documentation is in order before listing the property.

2. Legal pack review

Auction properties come with a legal pack containing essential documents such as title deeds, searches, and relevant agreements. Solicitors carefully review these packs to identify any potential legal pitfalls or concerns. This step is crucial for buyers to make informed decisions about the property they are bidding on. It is important to instruct a solicitor to review your auction pack at the earliest opportunity. All too often, people come to us the day of, or day before, an auction, leaving too little time for the pack to be thoroughly reviewed.

3. Bidding and winning

Should a buyer emerge victorious at auction, their solicitor takes charge of the legal aspects of completing the sale. This includes liaising with the auction house, transferring funds and ensuring all legal requirements are met promptly within the specific timescales provided for in the auction contract – this is often 20 working days.

4. Seller’s obligations

Sellers benefit from legal guidance in preparing the legal pack, ensuring all necessary documents are included. Solicitors assist in addressing any pre-existing issues that might affect the sale and facilitating a smooth transition of ownership.

5. Post-acquisition matters

After the auction, your solicitor continues to play a crucial role, overseeing the post-acquisition legalities such as transferring ownership, updating the Land Registry and resolving any outstanding matters.

Top tips on buying a property at auction

If you are considering bidding at auction my top tips would be to:

• monitor auctions in advance so you understand the process,
• get a qualified solicitor to check through the auction pack prior to the auction so you’re not caught out,
• stick to your budget, and
• have your solicitor and finance prepared and ready to go in advance of the auction.

Once you have legally committed to buying at auction, the process usually completes within a month, otherwise you run the risk of incurring financial penalties and losing the 10% deposit you paid at auction to secure the property.

Advice on buying and selling an auction property

Buying and selling auction properties presents unique challenges that require a keen understanding of legal nuances. Engaging a solicitor early in the process is not just advisable, it is essential for navigating the complexities and ensuring a successful transaction.

For further advice and guidance on how to buy and sell property through the auction property market, speak to our experienced conveyancing and property solicitors by phoning 01782 205000 / 0161 929 8494 or emailing enquiry@beswicks.com. We’d be happy to help.