The majority of residential property transactions are deals which are put together by an estate agent on the open market.
In such scenarios there may be a price negotiation between the buyer and the seller but almost always this will come down to an appropriate price for a property based on prices for similar properties in similar locations. Until the point of exchange of contracts, both parties can also walk away from the deal if they are not happy with the price upon further reflection.
The process is somewhat different with transactions conducted by auction. The seller will have control over the original list price, and often also provides a ‘reserve price’ to the auctioneer, such that if the final bid does not exceed the reserve price the property does not actually sell. Once the auction begins, however, the process becomes all about the potential buyers who bid in increasing amounts on the property with the highest bid ‘winning’ the property. If you have spotted a bargain that no-one else has then you can potentially obtain a property at a much lower value than it would achieve on the open market. This makes auction purchases a lucrative source for purchasing a property. That said, there are a number of potential pitfalls where having a good lawyer and surveyor will make a real difference.
Some points that are worth taking note of when considering a purchase by auction:
- Do not rush in to an auction purchase. If you have the highest bid on a property, you have to pay 10% of the purchase price there and then at the auction, so you want to be absolutely certain that the property is worth what you are paying for it. Once the hammer comes down, you cannot back out of the deal without losing the deposit. You must usually complete the deal, paying the remainder of the purchase price, within 4 weeks of the date of the auction.
- Pay for a solicitor to review the auction pack. This will be available in good time prior to the auction and we can highlight any particular legal issues with the property which you might not have realised affect it. This can include:
- limitations on planning/development at the property,
- absence of necessary rights of access
- ongoing obligations such as service charges
- other financial payments due under the auction contract – i.e. payments of auctioneers fees and seller’s legal fees.
- Paying for a surveyor to view the property in question prior to the auction will reveal any physical defects in the property which could affect how much you are willing to pay for it.
The cost of a solicitor is likely to be a fraction of the potential loss you could make by committing to a purchase fraught with unknown problems.
We at Hewitsons have experience of dealing with both auction sales and purchases so can prepare auction packs for our selling clients or review existing auction packs for our buying clients, together with dealing with the legalities following the auction.
For more information on the items raised in this article please contact Bradley Armorgie by clicking here