I am always struck by a mixture of emotions when a client tells me they have been “successful” at a property auction without telling me first:
- Terror on behalf of my client, that I am going to look at the documentation and see just why the property would not sell on the open market; and
- Relief that the client has unwittingly de-risked the transaction for me!
Why Properties End Up at Auction
Auctions are a great way to get a bargain, if you are lucky and somebody just needs to offload a decent property quickly. But all too often, the dangers are overlooked.
You should always ask yourself, “Why is this property in an auction and not for sale on the open market?” Often, the simple answer to that question is that there is something wrong with the property which makes it unattractive for a conventional buyer.
The Legal and Financial Risks of Buying at Auction
In the course of normal due diligence, issues would usually be uncovered and dealt with prior to any exchange of contracts (legal commitment), with the option to tweak the purchase price, if necessary, at the same time and perhaps oblige the seller to purchase an indemnity policy.
But at auction, you are contractually obliged to purchase the property from the moment the hammer falls. If problems are later spotted, they are your problems, not the seller’s.
And potential problems are numerous. For instance:
- title defects,
- planning breaches,
- no rights of access,
- easements benefitting neighbouring land,
- contaminated land,
- asbestos presence,
- short lease,
- history of flooding, etc.
This list is not exhaustive!
And don’t forget the issues you could face if the property is occupied, but the tenancy documentation is lacking/incorrect and perhaps the proper letting procedures have not been adhered to. You could face fines and/or tenants you cannot remove.
You are also likely to discover that you are responsible for the seller’s costs, often including the fees of the seller’s lawyer and auctioneer, plus the cost of the searches contained in the auction pack, on top of the agreed price…
If the seller was a lender, you could also experience issues getting physical access to the property.
Completion Pressure and the Consequences of Getting It Wrong
Oh, and you probably have only 10-20 days to complete your purchase. This can be a disaster if you anticipate securing mortgage finance but are unable to satisfy your lender within that timeframe or if you are struggling to find solicitors who are able to facilitate drawdown and completion for you at such a late stage.
Not completing on time could mean that you:
- forfeit your deposit,
- are held liable for interest and losses, and/or
- can be sued for specific performance.
All too easily, your “bargain” purchase could become a long-term liability that you are unable to resell or mortgage.
The Bottom Line
The bottom line is that buying at auction without prior legal advice is not just risky, but heavily weighted in favour of the seller.
Obtaining legal advice prior to the auction will not slow anything down (but please don’t tell me about it on the day before the auction is due to take place!) and might just save you thousands of pounds, not to mention huge amounts of stress, in the long-term.
If you have any queries, please do contact our Commercial or Residential Property teams on 0345 646 0406 or fill in our online enquiry form and we will be in touch.