Buying a property at auction can be an exciting and cost-effective way to secure your next home or investment property. Whether you’re looking to buy a house at auction, expand your property portfolio, or purchase a commercial property, auctions offer opportunities to buy properties quickly, but they also carry real risks.
In this guide, we’ll explain how the auction process works, what to consider when buying at auction, and how to reduce the risks while taking advantage of the many benefits.
How do Auctions Work?
Properties at auction in Scotland are open to the public and the property is sold to the highest bidder. This will either be at a physical auction ouse or through an online auction platform. Each auction catalogue lists the properties being sold at auction, showing a guide price and details about the auction date. Properties at auction often sell below market value, making them appealing to investors and first time buyers.
Sellers typically use this method when they want cleared of the property promptly or the property is at risk of being repossessed. It is best to have funding in place ahead of bidding as the transaction tends to move very quickly once purchased.
The Seller’s Legal Pack
Before the auction, the Seller’s solicitor will typically provide a Legal Pack to the Purchaser’s Solicitor. This will typically include the Articles of Roup which sets out the date of entry. A state for settlement is also provided which demonstrates the deposit paid and the outstanding sum. Reviewing this Legal Pack carefully is crucial as it outlines the conditions of sale and any potential legal obligations attached to the property.
Searches, Due Diligence and Mortgage Considerations
The Purchaser’s solicitor will obtain property searches at the purchaser’s expense this may cost around £200 – £300. This will clarify any proposed developments within the vicinity of the property, if any roads are privately owned and so on.
If you need a mortgage to fund your auction purchase, it’s crucial to get an agreement in principle before the auction, as completion is typically required within 28 days. If the property being sold is not lettable or in poor condition, a traditional mortgage can be difficult to arrange, so you may need to act as a cash buyer.
Some buyers opt for auction with a mortgage through specialist lenders that handle auction purchases across the UK.
Deposit Requirements at Auction
The Purchaser must pay a non-refundable deposit typically around 5% – 10% of the purchase price, immediately after your bid has been accepted. If for some reason, you cannot complete the transaction in time you risk losing the deposit.
Risks of Buying Property at Auction
One of the major risks of purchasing a property at auction is the limited time for due diligence to be conducted. For example, some properties may be structurally unsound, or there may be hidden costs attached to the property for example, outstanding factor fees and unpaid bills.
It’s also common to find that auction sales are final and legally binding, meaning there’s little room to withdraw or renegotiate once your bid is accepted.
Benefits of Buying Property at Auction
Conversely, you will gain entry to the property usually within 28 days and there is limited negotiations if any between the parties. Further, you will obtain a property at a much cheaper price compared to market rates. Purchasing a property at auction may enable you to access unusual properties such as listed buildings or fixer uppers allowing room for profit.
Final Thoughts – Should You Buy a House at Auction?
Buying a house at auction in Scotland can be a cost-effective and exciting way to enter the property market, provided you prepare carefully. By reviewing the Legal Pack, arranging auction finance and seeking expert legal advice, you can minimise risks and buy with confidence.
At Complete Clarity Solicitors, we provide comprehensive legal advice on buying or selling property at auction. Our experienced conveyancing solicitors can guide you through reviewing auction documents, conducting due diligence and ensuring a smooth completion.
