Are you thinking about buying a property at auction? On the fall of the auctioneers hammer a buyer will then be under a legal obligation to buy the property 'warts and all'. A completion date is fixed at the auction and a buyer has to comply with the terms of the auction contract. It is important that a buyer undertakes all proper due diligence before bidding on or exchanging contracts to purchase an auction property. Consider our ten top tips for buying at auction before you do:
1. The legal pack
A seller will always make an auction or legal pack available for the property. This is usually accessible via the auctioneer’s website. Sellers are generally advised to make a pack available as early as possible, but availability does vary from property to property. Buyers should always instruct a solicitor to thoroughly review the legal pack well in advance of the auction. If a document is missing, this may suggest that the missing document could reveal an issue if provided. Many issues such as rights of way, boundary disputes, and planning breaches can be revealed within a legal pack, which is why professional advice is essential.
2. Survey
The legal pack for a property will not contain a survey. On the fall of the auctioneer’s hammer, a buyer is placed under an immediate legal obligation to purchase the property for the amount of the winning bid. If a structural defect is discovered after the auction, the buyer cannot simply withdraw from the contract without financial penalty. It is therefore critical to arrange a RICS Homebuyer Report or Building Survey before attending the auction. Structural issues can also impact a buyer’s ability to obtain a mortgage or insurance.
3. Stamp Duty Land Tax (SDLT)
As with all property purchases, SDLT may be payable on the acquisition of a property at auction. When budgeting, you should account for SDLT in addition to the purchase price and all other costs. From 1 March 2019, the deadline to submit an SDLT return and make payment was reduced to 14 days after the date of completion. It remains essential to ensure funds are readily available within this tight timescale. Further information on SDLT rates is available at: Stamp Duty Land Tax
4. VAT
VAT may be payable on a property if the seller has opted to charge VAT. This can increase the purchase price by up to 20%. Additionally, SDLT is payable on the VAT-inclusive price, further increasing the tax payable. If VAT is payable, buyers should check whether they can recover this VAT and whether they need to register for VAT themselves if buying through a company.
5. Extra charges
It is common for sellers to require buyers to pay additional sums on completion. This can include reimbursing search fees, auctioneer’s fees, and the seller’s legal costs. These additional charges are typically set out in the special conditions within the legal pack. In recent years, it has become more common for buyers to also pay the auctioneer’s administration fee, which is often several hundred pounds or more. Always check the fine print to avoid unexpected costs.
6. Budget
It is important for a buyer to set a strict budget before attending an auction. Consider the total cost including SDLT, VAT, additional charges, surveys, and legal fees. Emotional bidding can lead to buyers exceeding their budget — it’s crucial to remain disciplined and walk away if bidding surpasses your financial limit.
7. Funding
A buyer should carefully plan how they will fund the purchase before the auction. Mortgage offers can take time to process, so ideally, buyers should obtain an Agreement in Principle (AIP) or even a formal mortgage offer (subject to valuation) before attending the auction. This helps ensure funds can be drawn in time for completion. Some specialist auction finance providers offer fast turnaround loans, but these often come with higher interest rates and fees. Be aware of the risks and costs if you intend to use bridging finance.
8. Leases and tenancy agreements
A property sold at auction may be subject to a lease, tenancy agreement, or even unlawful occupation. While some buyers seek rental properties with tenants in place, it is vital to ensure that existing agreements are legally valid, enforceable, and that rent payments are current. If the property is let, understand the type of tenancy (e.g., Assured Shorthold Tenancy, regulated tenancy, or commercial lease) as this impacts your ability to take possession.
9. Who is the buyer?
The buyer named in the auction contract is legally obliged to complete the purchase. Consider who will buy the property before bidding — you may wish to buy in your personal name, jointly, or through a company for tax or financing reasons. Recent tax changes, particularly those affecting second homes and investment properties, mean it is more important than ever to seek tax advice in advance.
10. Timing
Proper due diligence takes time. Identify the property as early as possible to allow for comprehensive checks and to resolve any issues revealed. Ensure your solicitor has adequate time to review the legal pack thoroughly. More auction houses now use online auction platforms where exchange can occur immediately on a digital bid. These often have even stricter completion timeframes, so ensure you understand the auction format in advance.
Our commercial property and residential conveyancing solicitors are experienced in advising on auction properties and can work with you in auction transactions. Call us now on 0161 696 6174 for a no obligation quote.
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