If you’re clued up on how auctions work, then you could pick up a real bargain when a house you’re interested in goes under the hammer. There are some key differences in the conveyancing process when you decide to go down the auction route though, when compared to a regular house purchase.
The biggest difference is that as soon as you’re successful with a bid on a property at auction, you enter into a legally binding contract when the hammer falls. When you’re not buying at auction, this only becomes the case once written contracts have been drawn up and exchanged.
With a regular property purchase, you should instruct a conveyancing solicitor when you intend to place an offer. However, if you’re buying at auction, it’s always a good idea to give the legal documentation to a conveyancer to check prior to bidding. If you have an auction pack on the house you’re interested in, they can take a look at everything in this for you, although the timescales may be quite tight and fees will be payable whether or not you decide to proceed with the purchase.
Whereas with a regular purchase, where your conveyancer will organise things such as the searches and obtain certain documentation, every house that’s sold at auction should have these things in an auction pack. This includes documents such as the title deeds, special conditions of sale, outstanding liabilities and local authority and water & drainage searches. If they don’t have all of these documents, it’s likely that strict contract clauses have been written in to exclude any liability. As you’re entering into the legal contract effectively at the offer stage, it’s important that you don’t jump into an auction without professional advice in regards to these documents.
Another key difference with buying at auction is that you must have the funds required in place before you agree your purchase. So if you don’t have the full amount available, you’ll need to secure your mortgage in principle prior to the auction. The risk comes in that once you have ‘bought’ the property at the auction, you may not be able to actually secure the mortgage you wanted within the set timescales, or your lender may not be willing to lend on the property you have chosen. Securing another mortgage before the deadlines are up can be expensive and stressful.
With regards to your deposit, you’ll have to pay a sum that’s usually 10% of the sale price to the auctioneers immediately after the sale, compared to doing this at exchange of contracts with a normal purchase. You will stand to lose this if you don’t go on to complete within the specified timescale (usually 28 days), this is why it’s so important to have a conveyancer look at the auction pack and any conditions of sale prior to agreeing to buy a property.
Even though you’ll still have to pay for a pre-auction report if you don’t end up buying the property, this could save you a lot of hassle if any major problems are highlighted. Another cost that you can consider paying upfront to avoid expenses later down the line is search indemnity insurance, as it’s not always possible to have all of the searches done before you commit to buying a new home.
When you’re successful at auction, you usually have four weeks to complete your purchase. This is different to a regular purchase in that a strict deadline is set that could see you lose your deposit if you fail to meet it. It’s also another reason why you should have a conveyancer on board before you go to auction, as they’ll be able to get the ball rolling with the legal documentation straight away and maximise the time you have.
If you are purchasing your first home, take a look at our first time buyers guide for even more handy information on what steps you can expect to take throughout the process.
Disclaimer: The article above is only a rough guide to give you some idea of the process involved in property auctions and conveyancing.