The Risks of Buying a House at Auction

Buying a property at auction comes with many benefits. Efficient purchases, certainty and great deals are a few examples of these benefits which attract buyers to the auction house. However, there is an element of risk when it comes to this method of purchasing property.

Listed below are the main risks which we think are worth taking into consideration before you go down this road:

1. Limited Information of the Property: In most cases, not all information about a property being sold at auction is included in the auction pack prepared by the seller’s solicitors. There is no guarantee that the auction pack will disclose every issue with the property. Issues may only be found between exchange and completion or after completion and because you can’t withdraw from the purchase without losing your deposit, it may lead to unexpected expenses.

2. Not doing enough research: Solicitors can provide guidance and help identify potential legal issues, so it is worth asking a solicitor to carry out a review of the auction pack before the auction takes place so that you can make informed decisions. It is also worth visiting the property in person – and more than once – to ensure that your visual inspection matches with what is in the legal pack.

3. Not paying attention to auction terms and conditions and special conditions: Each property auction has specific terms & conditions which contain all your legal obligations and any fees and costs payable if you were to win the bid. These include what could happen if you were to not complete on your purchase by the deadline, for example paying a penalty fee, or any reimbursements to the seller you will need to cover.

4. Underestimating costs: Additional costs can include taxes, insurance, seller’s fees, potential repairs and renovations, or even outstanding management company fees. This is why it is important to read the small print within the special conditions of sale as mentioned above and take note of any reimbursements liable to the buyer, as it is usual for the buyer to reimburse the seller their legal fees and disbursements. Sometimes problem properties are sold via auction, so visiting the property will also give you a rough idea of what needs to be refurbished or repaired, and you can then weigh up the costs of these before you make any bidding decisions. Another way you could minimize this risk is to do your own stamp duty calculation using the government’s stamp duty calculator, which will give you a better idea of the total cost of purchasing the property.

5. Overbidding on the property: It’s easy to get caught up in the excitement of a bidding war and let your emotions drive your bidding strategy. To avoid going over your budget, we suggest setting yourself a maximum bid that you will stick to. There will always be another opportunity!

6. Difficulty backing out of the Purchase: If you decide upon further review and inspection of the property that it is going to be too big of a job or cost than what it’s worth, and at this point, you have already won the bid, you will most likely lose your deposit or reservation fee if you decide to pull out of the purchase. This is why it is important to have your solicitor carry out a review first.

As you can see, there are a few risks you should be aware of and take into consideration before purchasing a property at auction. However, there is a lot you can do through proper research and budgeting to mitigate these risk factors. You will find that it will be completely worth it in the end as auction properties hold so much opportunity and can offer significant savings.

At Attwells Solicitors, our Auctions Team will help you navigate your way through the auction process. Our services include pre-auction reviews, which we believe are essential for you to go into the auction house feeling informed and confident. We will help guide you through to a stress-free completion.

For more information, please get in touch with our Auction team on 01473 229213.