Do your homework before bidding for a home at auction
I HAVE recently taken early retirement. Having just turned 60, I still wish to work and have decided to use my capital to start a property venture.
Accordingly, I am looking to buy a run-down property to renovate and then, depending upon the subsequent valuation, either to sell or rent it out.
Over the last six months, I have been following the property auctions held in Yorkshire and have seen a number of suitable properties for sale by auction. However, I have no experience of buying a property at an auction and require some advice and guidance. BUYING at auction takes away the uncertainty usually associated with buying property as the legal commitment between seller and buyer is achieved on the fall of the hammer.
This means that both parties are committed to the legal contract with a fixed completion date. The successful buyer is required to pay a 10 per cent deposit and to take on the buildings insurance liability from the date of the auction.
Once you have located a suitable property to be sold in a forthcoming auction, there are a number of key steps you must take, namely:
Arrange a thorough inspection of the property to familiarise yourself with it and its suitability for your proposal.
Arrange for an independent surveyor to carry out an inspection with a view to providing you with a detailed report on the state, condition and valuation of the property, to report on the costs of renovation works proposed and the probable value of it following renovation.
You should be present at this inspection with the surveyor and to ask questions so as to obtain as much information as possible.
Instruct a conveyancer to obtain, inspect and report upon the legal contract pack and the terms and conditions of the auction sale contract.
It is most important you obtain proper legal advice before the auction to ensure there are no legal title issues and adverse search entries which could affect the title and future saleability of the property.
If you intend to part-fund the purchase by way of a mortgage, you need to submit an application prior to the auction ad ensure you are able to obtain the required finance before you bid for the property.
Remember that the legal commitment is made at the fall of the hammer and if for any reason you are unable to pay for the property on the completion date, you will forfeit your 10 per cent deposit paid and risk being sued for any loss on re-sale and associated costs.
You will need to register with the auctioneers and to provide them with your passport as proof of identity and a recent utility bill as proof of your address. If you do this prior to the auction, it will make things less stressful on the day.
It is open to you to make an offer for the property prior to the auction. Remember the “guide price” set by the auctioneers will be at the bottom end of the expected eventual sale price and set to obtain as much interest as possible from potential buyers.
I personally would not make a pre-auction offer as experience suggests the reserve price is set by the amount of interest and the level of any offers received.
Obtain a copy of the auction catalogue and read the auctioneer’s notes on how to bid and their requirements. Contact the auctioneers or your conveynacer if you require any clarification.
Following survey and valuation, set you own ceiling price and stick to this at the auction.
Buying at auction can be an exciting and financially attractive way to buy property. However, you must follow the above steps to ensure you protect your financial outlay.