Conveyancing auction properties - what you need to know

Mon 18 Jul 2016 by Lorraine Imhoff

Written by Lorraine Imhoff

Whether buying or selling a property by auction, there will be differences in the way that the conveyancing is carried out when compared to a normal transaction.

Contract binding when the hammer falls

The major difference between property auction conveyancing and an ordinary purchase or sale 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 written contracts are concluded. So there will be a period after the buyers’ offer has been accepted when their Conveyancing Solicitor will be checking the seller’s title and making various searches and enquiries about the property. 

Only when all this has been done, and the buyers have received a mortgage offer, will contracts be exchanged and both parties will be committed to the complete. 

But with an auction the successful bidder is committed to complete the purchase whether or not they have made any enquiries about the property. So any title checks and other enquiries will have to be done before the sale itself. 

If you need a conveyancing solicitor to handle your auction purchase or sale, run a conveyancing quote here and we will be in touch asap.

Auction bargains may not be all they seem to be

Buyers often get the idea that they can pick a property up cheaply at auction. But properties are often sold by auction because either they are in poor condition or they have less-than-perfect legal titles (or both!) So although you might think you are getting a bargain it might not to be such a good buy afterwards.

It is not a good idea to go along to an auction and bid for a property without knowing what you are letting yourself in for. The best thing is to get a pre-auction title report from a Conveyancing Solicitor beforehand, as well as a proper building survey.

Pre-auction legal report

Another reason to have a pre-auction conveyancing report is that auction sales are subject to numerous conditions of sale. These conditions not only regulate the way in which the sale is to be conducted, but will also form part of the sale contract. So a buyer is stuck with them whether or not he has read them. 

The general conditions may be printed (usually in small type) in the sale catalogue, but not always. It is also common for there to be separate special conditions relating to each property in the sale. For instance, if the seller’s Solicitor knows that the property title is not perfect it is likely that a conditions will be included preventing the buyer from raising any objections to this after the sale.

If you appoint a Solicitor before the sale, he or she will check the sale conditions and can advise on any that are particularly significant. Auctioneers should be able to provide Solicitors with a legal pack including title details. This may also include copies of any searches which have already been carried out, and other important legal information.

It can be a false economy by not bothering with a title report or survey before an auction. Admittedly you would have to pay for these whether or not you were successful in bidding for the property. But many buyers who don’t get a title report first end up having to buy a property with a bad title – sometimes one on which it will be impossible to get a mortgage. 

On an auction sale the successful bidder will have to pay a deposit (usually 10% of the purchase price) to the auctioneers immediately after the sale. If the buyer then cannot complete – perhaps because a flaw in the seller’s title prevents them getting a mortgage – then they will lose this money.

Conveyancing Solicitors will be happy to prepare a pre-auction report. This costs much less than the Conveyancing for a full purchase, and if you do buy the property the cost of the report can be deducted from the full costs. 

Ready to go? Get an auction conveyancing quote here.

Obtaining searches prior to auction

One problem with buying at auction is that it may be difficult or impossible to make any of the usual searches or enquiries about a property before the auction. Auction sales frequently include repossessed homes and those being sold by the executors of someone who has died, where the seller will have no knowledge of the property. 

Although sellers may sometimes have paid for local searches to be done, this is not always the case. Buyers will rarely want to pay out the search fees when there is no guarantee that they will buy the property, so buyers may have to take a chance. However a Solicitor will be able to give advice about the best course of action, and the cost of search indemnity insurance which may be an alternative.

Deposit must be paid on the day of the auction

Once a final bid has been accepted the bidder will be asked to give their details to the auctioneer, and pay the deposit as specified in the auction conditions. Buyers are usually requested to sign a copy of the auction catalogue incorporating a memorandum of the agreed price. The auctioneer will sign another copy on behalf of the seller, which may either be handed to the buyer or sent to his Conveyancing Solicitor if one has already been instructed. 

The conditions of sale will specify a date on which the purchase must be finally completed. This is when the balance of the purchase money must be handed over, and the buyer can take occupation. 

The completion date is normally four weeks from the date of the sale, but it is not uncommon for an earlier date to be specified. Auction bidders should therefore make sure that they can have the necessary finance available by that date.

Many bidders make the mistake of assuming that they can arrange a mortgage between the auction sale and the completion date. Lenders will only make a definite offer in respect of a particular property, so any agreement in principle will be subject to a formal application being made. Normally this can only be done after the auction, when the buyer knows that his bid has been successful. 

If you fail to complete the seller keeps the deposit

A problem with the seller’s title or a defect in the property may make it difficult or impossible to get a mortgage on the property. If this should happen the buyer is faced with the choice of finding alternative finance or reneging on the contract. When a buyer fails to complete the seller will retain the deposit, and has the right to take further legal action such as suing for any loss if the property is subsequently sold for a lower amount.

A buyer will not be entitled to take occupation of the property until completion. Sometimes a seller may be happy to complete earlier than the contract date if the buyer is ready to proceed. If the buyer has instructed a Conveyancing Solicitor before the auction, it is likely that all the necessary legal work can be completed shortly after the sale. Therefore a buyer who has the cash available may be able to get an earlier completion date.

If a buyer does not instruct a Solicitor until after the auction, the seller’s lawyers will not be able to send out title details until they know who will be acting. This can lead to delays in completion of the necessary legal work which has to be carried out before completion. On the other hand a Solicitor who has already carried out a pre-auction Conveyancing report will be able to proceed quickly, ensuring that there will not be any delay in completion.

No guarantees

Finally be aware that there are no guarantees when buying a house at auction. If you buy at auction and then find something wrong with the property, you probably won’t have any come-back against the seller or the auctioneers. Consumer legislation which gives buyers various remedies in respect of faulty goods does not apply to property purchases – you cannot take it back and ask for a refund!

You might have a remedy if there has been some misdescription in the auction catalogue, but that is a complicated area of law. You could be faced with the prospect of possible expensive litigation, which is best avoided. 

Don’t let any of this put you of buying at auction. It can be a very good way of getting a bargain, but do make sure that you get professional advice first or otherwise your bargain may turn into an expensive mistake.

If you're confused about this, why not get in touch with Homeward Legal on 0800 038 6699, or get an instant conveyancing quote here.

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