Buy in haste, repent at leisure
Buying property at auction can be appealing but may also contain hidden dangers for the buyer.
27 February 2019
Practice Area: Real Estate
Following the financial crisis a decade ago, it has become common for properties to be sold by public auction, especially for what are commonly known as ‘distressed’ properties.Typically these are properties which have been repossessed by a bank or its receiver due to the property owner falling into arrears on a mortgage.The auction provides the opportunity for the bank to sell the property as soon as possible so as to minimise its losses.
Whilst buying at an auction can be cheaper than buying through private treaty, it can also carry considerably more risk.
Prior to the auction, the buyer should ensure that their solicitor has carried out a full due diligence on title for the property and reviewed the contract for sale as it may be too late to identify and address any issues after the hammer has fallen.Examples of queries which the solicitor may raise could include the following:
- Is VAT payable in addition to the purchase price?
- Are any bank charges or judgment mortgages registered against the property?
- Are there any inhibitions or cautions registered against the property?
- If so, will these hinder the buyer’s application to become registered owner?
- Is there unfettered access to the property?
- Is the property compliant with planning and building regulations?
- What is the level of the service charge?
- Are there service charge arrears?
- Is the management company solvent?
- Have any of the Law Society’s standard general conditions containing certain legal protections for buyers been amended or deleted?
As with the purchase of any second-hand property, the onus is on the buyer to check the property for structural defects. For this reason, it is imperative that a full structural survey is carried out in advance of the auction.
Once the nature and extent of the risks being assumed by the buyer is understood, the buyer can then factor these in when deciding at which level to pitch their bid.