What are the pitfalls of buying at auction?
Jan 12, 2016
Many people see programs on television showing residential property auctions. They may think that what they see on TV shows the reality of a property auction and offers them a real opportunity to buy a property at a knockdown price. But is that the truth?
There is no doubt that there are some benefits to buying from an auction, but there are also some real pitfalls that can have a big impact on you and your property purchase.
There may be a valid reason for the property being at auction such as it being a repossession property that the lender wants to sell quickly, but you should know exactly why the property is there at the auction. As the responsibility is on you as the buyer, there are some unscrupulous sellers who could put a property with real issues in an auction. Also, check out the title deeds to ensure there are not any issues with those.
Never buy a property without viewing it, inside and out first. This is not something you would do when buying in the usual manner, so never consider this as normal when buying at auction. Pay for a survey on the property so you are fully aware of any issues with the property and get a builder to give a rough estimate for the necessary work. Not doing this before the auction could leave you in a serious financial situation, with a property that is worth nothing or that you are unable to sell.
Don’t ignore the legal pack – it is there for a reason and allows your solicitor to complete all the necessary leg work required when you are buying a property. Make sure you complete this step prior to auction day as your solicitor will flag any potential issues so you know exactly what you are buying.
These are all costs that you can’t recoup if you don’t move ahead with the purchase, but better to lose £1,000 than a couple of hundred thousand.
If you don’t set yourself a limit on what you will pay for the property on the day, you could risk paying more than you can afford. Especially if you get carried away with the atmosphere and excitement. Factor in the usual additional costs such as conveyancing fees, mortgage fees and stamp duty costs.
Once you are at the auction and you are waiting for the property of your choice to come up, check the addendum sheet. This details any changes made to the property or its legal pack since the auction catalogue was produced. These amendments could result in you changing your mind about the purchase, or the property may even have been withdrawn from the auction.
Remember, when you buy at auction you exchange contracts immediately and pay 10% of the purchase price as a deposit. Once this happens you become legally responsible for the property and you should arrange building insurance immediately for the property. You are legally bound to complete the purchase you have to complete within four weeks. With these tight timescales, you will need to have the funds in place or a mortgage agreed in principle or else you may fail to complete within the four-week period, in which case you will lose your deposit.
You can see that the sheer speed and uncertainty of the auction process can create some pitfalls to buying at auction, but get proper advice from professionals and do your research and buying at auction could work out.
For more information about buying a property at auction or for details of our residential conveyancing services, please contact Annalee Harland on 01264 325819, by emailing firstname.lastname@example.org, or through our online enquiry form. Annalee will be happy to assist you with your query.
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