16th October 2018 ❘

Buyers beware! 8 things to check before buying a house at auction

As tempted as you may be by the price of a property being sold at auction, if you proceed to bid without seeking legal advice first, you leave yourself open to significant risks.

For example, a property being sold may have title issues that the seller is not obliged to assist you with (or even capable of) resolving.

Why would you go along to an auction and bid for a property without knowing what you are letting yourself in for? It is strongly advised to speak with a property solicitor in order to give them the opportunity to review the title and report to you before you attend the auction.

Summarised below are eight points to provide some guidance on issues that you need to think about and discuss with your solicitor before purchasing a property at auction.

1. Does the sale plan show the full extent of the property?

It’s important to check that the boundaries of the property on the ground match those shown on the plan of the property which is being sold.

Does the plan include all of the property which you believe is to be sold? If you have any doubts, these need to be raised with the seller’s solicitor before the date of the auction. This allows time for these to be resolved or at least ensure you of what is actually being offered for sale.

2. Does the property have access?

Is the property accessed directly from the public highway?

If there is a grass verge or even if on the ground there is a hard track to the property, is this being sold with the Property?

If not, there could be potential issues if specific rights of access are not granted over this land extra land for the benefit of the Property.

If a third person owns this land, they could hold this as a “ransom strip”. This could mean that the owner of the ransom strip could deny you access to the land or demand that the owner pay them an agreed sum to gain access to the land.

3. Does the seller have legal title to the property?

By instructing a solicitor prior to the auction, they will review the legal pack provided to ensure that the sellers have the correct title to the property to allow them to sell it.

They will also check the title to the property and report on any problems i.e. if the land has been acquired by adverse possession (squatters rights).

If the title to the property is unregistered, your solicitor will need to check that all of the documents have been supplied and raise any further enquires with the sellers in relation to these.

4. Your proposed use of the property?

Depending upon your proposed use of the property, you may need to ask your solicitor to check that there are no restrictions which could stop you carrying out certain activities.

For example, there may be provisions prohibiting you to run a business from the property.

Another example could be that the property may be being sold subject to overage, whereby if you develop the property, the sellers would be entitled to a payment.

5. Does the property have the necessary rights to be able to use it?

It is important to consider what rights you need to allow you to operate the property.

For example, does the property have a water supply? If so, does the supply run through a neighboring property?

Your solicitor will need to check that the necessary rights are in place.

6. Does anyone else have rights over the property?

It is often the case that third parties have rights over property.

These may relate to such things as the right to use a specific accessway or to utilise joint services.

There is also the possibility of public rights of way affecting the property: your solicitor would be able to advise you once they have checked the local search within the auction pack.

7. How are you funding the property?

If you are buying a property with the support of a mortgage from a bank or building society, it is strongly recommended that you have a mortgage offer in place.

You may be mistaken to think that you can arrange a mortgage between the date of the auction and the date of completion – do not take the risk!

With completion usually set for 4 weeks after the auction, there are any number of issues which may come to the fore and make it difficult (or even impossible) to get a mortgage on the property.

If you are unable to complete on the contractual date, you risk being charged significant interest, losing your deposit and the seller taking legal action against you for any losses sustained by your breach of contract (e.g. if the property is subsequently sold for a lower amount than your bid).

8. On the day of the auction

On the fall of the hammer, as the successful bidder, you will be required to pay a deposit (usually 10%) immediately to the auctioneer/seller’s conveyancer.

You will then be asked to sign a contract containing various conditions of sale, together with the set date for completion (the date on which the balance of the purchase funds need to be transferred to the seller’s solicitors).

What is the difference between buying a property at auction compared to the usual conveyancing process?

The major difference between buying a property at an auction as opposed to purchasing via the usual conveyancing process is that a binding contract is concluded when the hammer falls.

With a normal purchase, neither the buyer nor seller is committed to the sale until contracts are exchanged. This would not normally take place until your solicitor had completed the necessary due diligence.

With an auction, the successful bidder is committed to complete the purchase regardless of whether they viewed the auction pack prior to making a bid. Therefore, it is critical that title checks and other enquiries have been done on your behalf by your legal representative before auction day.

For further information on how Burnetts can assist or help with any advice relating to an auction purchase, contact our agricultural team on 01228 552222 or re@burnetts.co.uk.