A guide to buying commercial property at auction
1. Ensure you carry out your due diligence
As with a transaction on the open market it is a case of “caveat emptor” or “buyer beware”. In fact, it is even more important that buyers carry out their due diligence on auction properties as, at auction, on the fall of the auction hammer exchange of contracts takes place and so that is when the buyer becomes committed to buying the property. Although the content may vary, all properties placed in auction will have an “auction pack”. This is a set of documents that the seller will make available to the buyer for them to consider before attending the auction. It is very important that buyers both consider auction packs and take legal advice on the pack.
Always ensure you and your solicitors have as much time as possible to consider the auction pack. In many cases, documents can be missing from the pack. Your solicitors may need time to obtain them.
Most auction contracts state that a 10% deposit is payable on exchange of contracts. You will need to ensure that you have cash available to pay this. In addition, most auction contracts also state that completion must take place within 20 working days. This is a very short timescale to arrange a mortgage. If you do need to arrange mortgage funding, you should liaise with your mortgage broker or lender before the auction to make sure they can comply with the timescale.
In addition to the purchase price, most sellers, at the very least, include conditions in the auction contract that will require you to pay all or part of their legal fees. In addition, you may be required to pay other sums including refunding the cost of searches within the auction pack. It is important you understand, before the auction, what sums you will be required to pay on completion.
5. Buildings insurance
Most auction contracts state that the “risk” that is responsibility for the property passes on exchange of contracts, so on the fall of the auction hammer, to the buyer. It is very important that you ensure you are able to arrange buildings insurance before the auction and indeed that you put it in place as soon as the hammer falls.