Preparation is key when buying a property at auction and to protect themselves, purchasers need be aware of the essential steps they should take before the auction, on the day of the auction and after the auction. Set out below are our top tips for buyers.
1. Preparing for the Auction
The basic legal rule which applies is “caveat emptor”, i.e. buyer beware. It is essential that you carry out detailed due diligence in advance of the auction. If you are the successful bidder on the day of the auction, then you will have to sign a binding contract for sale at the auction and pay a 10% deposit. Properties sold at auction are sold unconditionally and are not sold ‘subject to contract’, ‘subject to finance’ or ‘subject to survey’.
Talk to your Solicitor
- The seller's solicitor will prepare a legal pack containing copies of the contract for sale and title documents relating to the property prior to the auction.
- You buy the property subject to the information contained in the legal pack, whether or not you have read it.
- Your solicitor will help you make an informed decision about the property following a review of the legal pack and can provide you with an estimate of the legal costs, registration fees and stamp duty involved in the purchase.
Liaise with you Accountant/Tax Advisor
- You should contact your tax advisor in advance of the auction to obtain advice on the potential tax consequences of the purchase, in particular the VAT treatment of the property.
Survey the property
- The seller is not obliged to disclose any physical defects in the property.
- You should inspect the property prior to the auction and engage a chartered surveyor to carry out a detailed survey of the property.
- If the legal pack contains maps of the property these should be provided to your surveyor to check the boundaries of the property.
Contact the Auctioneer
- Keep in touch with the auctioneer in the weeks leading up to the auction. A property can be withdrawn or sold prior to the auction date.
- Check whether you have to register to attend the auction.
- Read the auction terms and conditions.
- If you cannot attend the auction in person you may be able to bid by proxy or by telephone.
- Check the AMV (Advised Market Value). This is a guide figure.
- Bear in mind that auctioneers can take offers placed by potential buyers before the day of auction.
- You should ensure that you have organised deposit monies in advance of the auction.
- Be careful if you are obtaining loan approval for the transaction and discuss this with your solicitor. The closing date of the sale is usually 3-4 weeks after the auction, and cannot be conditional on loan approval. If there are any problems with your loan and you fail to complete the sale on time you could lose your 10% deposit or risk being charged interest on the purchase price.
2. On the Day of the Auction
- Proof of registration (if required by the auctioneer).
- Original identification (passport/drivers licence). You should check the auctioneer’s requirements in this regard.
- A blank cheque or a bank draft to enable you to pay the deposit.
- The property becomes the buyer's insurable risk from the date of the auction. You should have contact details of an insurance company/broker that you could telephone to activate an insurance policy as soon as the contract is signed.
- Details of the solicitor who will act for you if you are the successful buyer.
What to expect
- On arrival at the auction, ask the auctioneer for a copy of the addendum sheet (if any) which notes any alterations or additions to the terms of the contract for sale.
- The property will usually have a reserve price which will have been set by the seller.
- The highest bidder in excess of the reserve price is the successful buyer.
- If the reserve price is not reached, the auctioneer may withdraw the property.
If you are the successful bidder
- The buyer’s bid is not accepted until he is declared the highest bidder and the hammer falls. This marks the creation of the contract.
- Sign the Contract for Sale (in duplicate) which is a legally binding document; and
- Pay the deposit.
- You will be given one part of the contract for sale.
3. After the Auction
- The closing date of the sale is usually 3-4 weeks after the auction and you should contact your solicitor immediately to finalise matters.
- If you are obtaining loan approval you will need to ensure that you draw down the funds by the closing date.