Buying at auction is often perceived as a favourable method of acquiring commercial property as it effectively ‘fast tracks’ the usual transactional process.
Whilst such speed is obviously appealing to many prospective purchasers, not to mention the potential to acquire a ‘bargain’, buying at auction is not without risk. Properties are often sold at auction due to there being underlying legal issues, or as a result of them being in poor condition.
Once the hammer falls, the buyer becomes contractually committed to purchase, the deposit is immediately payable and a completion date is fixed (usually within 28 days of the auction date).
With this in mind we have outlined below five top tips to bear in mind should you wish to acquire property at auction.
1. Be prepared – It is vital that as a potential buyer you are well informed before bidding at auction. Carry out your own research by studying the market and comparison properties, with a view to ascertaining the true market value of the property. This will enable you to set a maximum bid you are prepared to go to.
2. Know what you are buying – It is important to inspect the property ‘pre auction’ and to carry out a survey to ensure you are aware of any underlying structural issues.
Ensure that you examine the auctioneer’s legal pack, which will usually contain the contract, title information and searches. This will alert you to potential problems with the property, such as restrictive covenants affecting use, or easements over the land.
We would also recommend instructing an appropriately qualified solicitor to review the legal pack, who will be able to spot any legal issues which may affect value. There will not be an opportunity to carry out further due diligence after the hammer has fallen.
3. See the bigger picture – Consider your long term plans for the property. For example, if you have plans to redevelop the property it is advisable to speak to the local planning authority in order to obtain an initial view as to whether any planning application is likely to be considered favourably.
4. Show me the money! – Ensure that your finances are in place well before the auction date. Should your bid prove successful you will be required to pay the deposit (typically 10% of the agreed purchase price) immediately, with the remainder of the purchase price due on contractual completion.
In the event that following a successful bid you subsequently fail to come up with the completion monies you will forfeit the deposit and will be open to a claim for damages in respect of any losses suffered by the seller.
5) The early bird catches the worm! – Given that you will have done the necessary due diligence in advance of auction day, consider making an off-market bid for the property prior to the auction. Should the property prove popular you may find that the bidding process at auction takes the property well above market value. Some sellers will consider selling their property prior to auction day which may enable you to acquire the property at a more realistic price.
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