What Happens at an Auction
The Auction Process
Buying a property at auction is unlike buying on the open market where once you have had an offer accepted you can carry out searches and make enquiries and inspections before committing to buy. At the Auction, if you are the highest bidder when the Auctioneer’s hammer falls then you are contractually bound to complete the purchase of that property. You don’t get a say in the drafting of the contract and if you fail to complete on the specified completion date for whatever reason, (other than if the seller refuses to do so), you will most likely lose your deposit, which is usually 10% of the purchase price and paid immediately after the auction.
The completion date will normally be set for 28 days from the day of the auction but this can be any period which the seller chooses and sets out in the Special Conditions of Sale.
A surprising number of people ‘buy blind’ at an Auction and this can be very dangerous. It is not uncommon that a seller will put their property in an auction because there is some defect, either physical or legal, which would make it difficult to sell on the open market. The seller will hope that someone will buy the property at Auction without having inspected it or having the legal title checked and therefore take the problem off their hands.
It is highly advisable to have a good quality survey carried out on a property which you are considering bidding for at Auction. It may be tempting not to bother with this as it might seem like a waste of money as there is no guarantee that you will actually be the winning bidder. However, it could end up saving you thousands of pounds.
Buying with a Mortgage
As mentioned earlier, the completion date will be fixed and can be as soon as the seller requires, so if you are buying with the aid of a mortgage you need to make sure that you have an offer agreed in principle before you go to the Auction. Even afterwards, the lender will not be able to issue a mortgage offer until it has carried out its valuation.
Where you need a mortgage it is important to instruct a solicitor on your behalf as soon as possible after the auction. Nationwide Property Legal Services can help you find an experienced solicitor.
Failure to Complete
If you are the successful bidder then you will be contractually bound to complete on the completion date and the seller will be entitled to damages from you if you do not. On the day of completion you will be obliged to get the money to the seller’s solicitor by the comple-tion time stated in the contract, usually 2pm. Once the completion time has passed the seller may serve a “notice to complete” on you or your solicitor.
From service of the notice to complete you will then have 10 working days (or such other period as is specified in the Special Conditions) in which to complete. You will be liable to the seller for interest at the “contract rate”, which is usually 4% above the Bank of England base rate on the balance of money owing to the seller.
In addition, the contract will usually include a clause requiring you to pay the seller’s solicitor’s additional fee for serving the notice, calculating the interest etc. This will typically be between £100 – £200 plus VAT.
These amounts will need to be paid before completion can take place. You will also be liable to the seller for any losses suffered as a result of the delay, for example additional mortgage interest, wasted removal costs etc.
If the notice to complete expires then the seller has the option to rescind the contract, (bring it to an end). They do not have to rescind immediately and if they choose to delay they still retain the right to rescind at any time. Until they do, interest will continue to accrue and you will continue to be liable for their losses. If they do rescind, they will be entitled to keep your deposit, (regardless of the amount of deposit actually paid, you will be liable for 10% of the purchase price), and sell the property again. If the eventual sale price of the property is less than the price you had agreed to pay, the seller will be entitled to sue you for the difference, as well as additional costs such as legal and estate agent fees and any number of other losses. For example, if the seller was in a chain then all the other buyers’ and sellers’ losses will ultimately fall on you. If you are sued successfully you will most likely also be liable for the seller’s full legal costs. Clearly the damages could run into many thousands of pounds and so you can see that by obtaining your Auctus Legal Auction Pack Report you have taken a very prudent and sensible approach to buying at Auction.
Contact the Nationwide Property Legal Services for Auction Legal Packs and Conveyancing services.