16 April 2014 by

Going once…going twice… gone, to the nervous looking chap in the back row!

A bid for a property at auction is accepted upon the fall of the auctioneer’s hammer.  It is at this point that contracts are exchanged and both parties become contractually bound to proceed with the purchase.

This is not the equivalent of having your offer accepted by an estate agent for the purchase of a property where there are usually a number of weeks before exchange of contracts.  During that time, your lawyer will consider and amend the sale contract as well as investigate the title and search results for the property.  At the same time, your surveyor will ensure the property is structurally sound and your mortgage company will issue your mortgage offer.  It is only when all of these tasks are complete that your lawyer will advise that it is safe to exchange contracts.

It is therefore vital that, prior to the auction, you consider the following:

Auction pack: The auctioneers will hold a pack of information relating to the property which would usually contain the special conditions of sale (which form part of the contract), title documents and search results.  These should be passed to a lawyer prior to the auction to review to ensure the title is not defective and to summarise for you any rights and obligations which could affect your ownership. Your lawyer will highlight any issues which may crop up on a future sale of the property and will ensure there are no matters which would prevent your mortgage lender from releasing the mortgage funds on completion.

Survey: Your survey should be carried out and the survey report produced prior to the auction date so that you are fully informed of the state and condition of the property and any costs you may need to incur to remedy any defects.  Once the hammer has fallen, you have to purchase the property as it stands; there is no recourse to the seller.

Deposit: After successfully bidding for a property at auction, you will immediately have to pay your 10% deposit to the auctioneer, usually by cheque.  You must make sure that you have these funds available on the day of the auction.

Funding: You must ensure that you will have the necessary funds available to complete the purchase on the contractual completion date.  If you require a mortgage to finance the completion, ideally you should arrange for your mortgage offer to be produced and the mortgage conditions checked prior to the auction date to ensure the mortgage funds will be available on completion.  Often it is impractical to have a formal mortgage offer in place prior to the auction, and in that situation you must at the very least ensure that you have an agreement in principle in place with your lender so you know exactly how much you can borrow.  You should also check how long the lender takes to carry out their valuation of the property and to issue the formal mortgage offer in order to ascertain whether it is possible for this to be done within the period between exchange (i.e. the auction) and completion, which is usually four weeks.

Of course, all of the above will incur expense on your part, expense which will be wasted in the event that you are not successful at the auction.  However, in the event that your offer is accepted, you will be safe in the knowledge that you know exactly what you are buying and how you are going to finance it.

Where this action is not taken in advance and you are unable to complete the purchase of the property on the completion date, you may lose your 10% deposit and the seller would be able to claim interest and compensation.  The financial penalties therefore far exceed this initial expense.

If you are thinking of buying a property at auction and would like some initial advice before the big day, please contact Claire Joseph in our Residential Conveyancing department on 020 7288 4799 or clairejoseph@boltburdon.co.uk.

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