Are you thinking of buying a property at auction? In many cases, you could get a good deal, and buy a property for less than what you would have to pay if it was sold on the open market, especially if the property is unusual or may require some work, or needs to be sold quickly. Before you decide to bid for a property, however, it is vital that you consider first the potential risks and issues you may encounter with buying a property at auction.

It is important to know that there are two types of auctions, known as ‘traditional’ and ‘modern’. Modern auctions provide fixed completion timescales of either 28 or 56 days from receipt of the draft contract from the seller’s solicitors. This means you can plan your move more easily and it gives you more time to exchange and pay your deposit, increasing the likelihood that the sale may fall through. It should also be noted that the auction fee, usually around 3-4% of the purchase price, is paid by the buyer separately, i.e. in addition to the 10% deposit.

Whereas with traditional auctions (unconditional sales) still offer the most security to sellers. Once the hammer falls, a legal contract is formed, and the buyer is obliged to pay a non-refundable 10% deposit immediately. Completion usually takes place within 28 days. The buyers are legally committed to the purchase and cannot pull out of the transaction. It also offers a real speedy conclusion to the property sale. With traditional auctions, the auctioneer’s fees are deducted from the buyer’s 10% deposit, resulting in the seller receiving less than the full 10% deposit.

We have, unfortunately, seen a number of occasions where a buyer has approached us after the auction and where legal advice was not sought in good time – meaning that there has been a significant problem.  First, not all properties will be assets, some properties can actually be liabilities and in worst-case scenarios be unsaleable and unmortgageable.  Not all title defects can be remedied with indemnity policies either.

My advice would be to first physically inspect the property yourself and arrange a survey so that you have professional advice on the condition of the property and know in advance if there are issues or difficulties. We would suggest that you ask why the property is being sold at auction rather than the open market. Could there be a reason why, such as the property having such a serious defect meaning that it can’t be sold in the usual way?

I would also advise a buyer to read the auction pack in full and take legal advice from a qualified lawyer with experience in auction purchases before bidding. This would of course incur initial legal costs but these costs are not comparable to the massive costs you might later incur in buying a property which is a liability.

Buying a property could be the biggest investment of your life. Paying a good lawyer to give you sound legal advice on the auction pack before bidding is not only wise but could also teach you what pitfalls to look out for, not just on this purchase, but also on future auction purchases. Taking good legal advice now could be an investment that may pay YOU to take. If you would like my professional help with your auction matter, then please feel free to contact me, Carla Eagleson, at 01803 407 621 or carlaeagleson@wbw.co.uk and I will be happy to assist.

WBW Solicitors has offices in Axminster, Bovey Tracey, Brixham, Chard, Exeter, Exmouth, Honiton, Launceston, Newton Abbot, Paignton, Seaton, Sidmouth, and Torquay.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.