By Probate Property Conveyancer Theresa Arkless
The main difference between buying a house through an estate agent and buying a house at auction is that the auction creates a legally binding contract.
If you buy a house through an estate agent you make an offer which can be amended or withdrawn up until exchange of contracts. Once you've successfully bid at an auction you've agreed to buy at the price offered. There is almost no room for negotiation and there will be consequences if you pull out of the purchase, so there are some important things to consider when buying a house at auction.
Before the Auction
The first thing you need to consider is the house you want to buy. Look through auction catalogues at every property that suits your needs, create a shortlist and arrange to view each property on the list. Viewing the properties should give you a good idea as to which house you like, and at the same time alert you to any obvious issues.
When you've found a property you like, the next consideration is to get professional advice about the property. A property survey will often highlight any issues or work that is needed. You should also get a copy of the legal pack from the auctioneer. You can read this yourself, but it's advisable to get your Conveyancer to check for anything that may cause you problems and for any hidden costs in the terms and conditions.
Once you're satisfied with the property, set a budget for yourself. The budget you set needs to reflect what you think the property is worth and also what funds you can get in time to complete the purchase. If, for example, you need to cash in shares to fund the purchase, make sure you can get the money to your Conveyancer in time for completion.
If you are getting a mortgage on the house you're buying, there are some requirements that the property will need to meet before a mortgage will be offered. The mortgage lender will need a valuation report and a Conveyancer's certificate that the legal title is 'good and marketable'.
If you haven't got your legal checks done before the auction and there is something defective in the legal title, a Conveyancer can't confirm that it is 'good and marketable'. The mortgage may not be issued or may be issued at a lower figure. If this happens you will need to try to raise the funds another way. If you can't, you will have to withdraw from the purchase and there will be consequences.
You can either attend the auction or bid in advance. You can attend in person, online or by phone depending on the auctioneer. You'll need to provide your details upfront and you'll usually need to provide evidence that you have a deposit in place before you'll be allowed to bid on anything.
When the property you're interested in is called up you can make the opening bid, or you can wait and see if someone else bids first and jump in with a bid, assuming the property is still within your budget. If you are the highest final bidder, the auction closes and you have agreed to buy the property.
Following the closing bid, you'll be asked to sign the auction contract and hand over a deposit, which is usually 10% of the property value. At this point you have exchanged contracts. You will have a deadline to provide the rest of the funds and complete the purchase. This is usually 28 days after the auction date.
After the Auction
The deposit will be sent to the seller and their Conveyancer will contact your Conveyancer to arrange for the transfer to be signed. If you're getting a mortgage the valuation will need to be done. After the 28 days are up you will have to hand over the outstanding 90% of the purchase balance and the keys will be given to you. You have now completed your purchase and the house is yours!
But, if you fail to complete, the seller can serve notice to complete and you may have to pay costs for any delay. If you are unable to complete it is likely the purchaser will claim compensation, which will usually mean they keep your 10% deposit.