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Thousands of properties are sold at auction every year and these can be at a discount from market value but, like any other purchase decision, you need sound advice and everything in place before you place a bid.
All properties should come with a legal pack. This is a review of the seller’s terms and conditions (what initial payment do you have to make on fall of the hammer, how long have you got to tie-up the legal aspect and other important factors to be considered). This should also describe what you are buying: the legal title (freehold/Leasehold and any restrictive covenants), the Energy Performance Certificate (EPC), a plan of the land and any other factors that need to be considered before placing a legally binding, winning bid.
Beware, a picture of a house may not mean you are buying the house itself but the Leasehold land on which the house sits only and this does not give you the right to occupy the house!
If the property is leasehold this will mean you have to pay ground rent. If the property has less than about 83 years remaining, the cost or renewal of the lease may run into £1000’s. In some London boroughs the cost of buying a new leasehold interest could be £1 million!
The property may have been modified, extended, or converted and these may not have the appropriate authority from the local council. If this is the case the council have the right to ask you to either apply for retrospective permission or if this has been previously denied the right to force you to demolish at your cost (or they may even demolish it themselves and charge you for it).
The position of the boundary shown on the title plan may not be what you are buying as the title plans only show the approximate position of the boundary. Does the fence as seen on the ground actually match with the plan you have been given? The answer to this question can have more consequences than just how much land you own, it could affect potential off road parking, hinder plans to build an extension and more. Making sure that the plans are accurate is an important aspect of buying at auction and the actual boundaries should be investigated to avoid later disappointment or inconvenience.
It is always best to knock on the neighbour’s doors and ask them whether there are any issues and meet up with them to see what they are like so you are fully informed.
When you buy you will need building insurance and/or household contents insurance. If the property has been subject to a number of claims insurers could refuse to insure the property. This could also leave you unable to get a mortgage as all lenders will ask for building insurance to protect the asset as part of the loan.
Don’t be confused by the price at the fall of the hammer as you will almost certainly have to pay a buyer’s premium on top of the winning bid and this can vary considerably,1-2.5% or more is not uncommon as a buyer’s premium.
Non-refundable reservation fees will also apply which can be 5% or a flat fee of £6,500 +VAT or more to be paid within 48 hrs of auction completion (it is important to note that this can be a reservation fee that does not form part-payment of the final selling price).
When buying a home (through auction), one of the most important aspects is to understand the condition of the property and costs involved in putting it back into good order. Many properties are put to auction because the owner has defaulted on the loan and this is generally because they have run out of money. In many of these cases there will be a long list of outstanding or botched repairs which could cost £1000’s to repair.
The easiest way to understand the costs is by getting a full Building Survey with a cost schedule. This will help point out any defects and how much you might need to pay to fix them. You can then factor the additional work and expenses into your potential bid if you still intend on bidding for the property at all.
Find out what has been sold and for how much with some research about past house sales in the area from the Land Registry. This will give you an indication of the price you can expect to pay but it doesn’t account for the specifics of the particular property you are considering bidding on.
On the day of the auction, you will need to pay a deposit in order to secure the property and the remaining to be paid 28 days later.
Beware, if your lender has concerns raised by a survey or particular defects, they could withdraw your pre-approved mortgage offer or attach additional conditions to the mortgage offer. They may restrict the amount they will lend or queries relating to the survey may delay your mortgage being approved and funds being available. Should you not be able to proceed with the home you have bid for, you will still have to pay the non-refundable reservation fee.
Whether you buy your home trough auction or not you will almost certainly want to read our guides on saving money on everything from repairs, refurbishments and even your energy bill. For these articles and more visit the Moving & Improving blog page.
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