Whilst buying at auction can present an opportunity to purchase a property cost effectively and quickly, it should be approached with caution to avoid costly mistakes. No prudent buyer would buy a property through an Estate Agent or Developer without taking care to ensure that it was free of legal defects affecting its use or value. Buying sensibly at auction requires a pre-auction Title check be carried out to ensure the same and no problems do arise after the hammer falls.
What is a pre-auction Title Check
A pre-auction Title check, as the name suggest, is the process by which a Conveyancer investigates the legal ownership of the property, looks into any restrictions that apply to owners of the property and makes sure it is free of issues that would prevent the buyer from registering it in their name – prior to the auction. These issues commonly involve looking at any restrictions affecting the everyday use of the property, ensuring rights of way are present and looking at any obligations placed on the owner of a property that could involve additional expense.
Many properties come with conditions on use called restrictive covenants. They can affect what trades or businesses are allowed to be carried at the property, the size and appearance of alterations to it, or prevent future development of it. Your Conveyancer can advise on the nature and scope of any restrictions, whether they can be removed or altered and the cost of remedying any breaches. This is something that should be considered carefully in the pre-auction Title check to preserve the future value and marketability of the property.
Buying a property at auction
Buying a property at auction is really no different from buying anything else at auction. There will normally be a catalogue providing brief details about the properties for sale. The auction house will often make available a legal pack containing documents such as the Title deeds, local and environmental searches and the Sellers Information Forms. These need expert review by your Conveyancer to guard against defects in the title. A pre-auction Title check can save valuable time in what is already a time sensitive situation.
Why carry out a pre-auction Title check on a Property
The process of buying property at auction is not the same as going in to a High Street Estate Agent. Part of the benefit of the auction is the lack of chain in the process and the speed of being able to make the purchase. That advantage means that even greater care needs to be taken to scrutinise the legal aspects of the property, at the earliest opportunity.
The obligation to check that the sales particulars reflect the reality of the property being purchased falls squarely on the buyer. Auctions can be a way of moving on unusual or problem properties, so it is essential to be properly prepared. This is where a pre-auction Title check can avoid the trap of buying in haste but repenting at leisure!
As soon as the hammer falls at the end of bidding on any property, a binding contract exists immediately between the highest bidder and the property owner. The buyer is committed to proceed with the purchase of the property and so if any issues arise afterwards affecting the Title, the buyer has to go ahead in any event. Where problems are discovered afterwards they can be difficult, time consuming and expensive to correct.
Although properties end up at auction for lots of different reasons it cannot be ruled out that a defective Title is not one of them. It is too late to raise issues after the hammer has gone down and some terms and conditions of sale actually prevent the raising of title defects after the sale. Remember that the auction house is selling on behalf of the owner or their estate and so their focus is not on protecting the buyer.
Issues with the Title can lead on to other problems. For example preventing the buyer from getting a mortgage or bridging loans. This can mean that the whole transaction is at risk if the buyer is relying on mortgage funds to make up the purchase cost.
Once the auction is finished the bidder is obliged to pay a deposit. This is usually 10% amount of the total price. That deposit is at risk of being lost if the purchase cannot be completed because due to Title related issues.
The timescale for the completing the purchase is fairly tight in the auction process. The deposit is due on the day of the sale and then the buyer must complete the purchase in 28 days. If Title issues prevent that timetable form being met then further financial risks fall on the buyer. Why take that risk when a pre-auction Title check would identify any problems and possible solutions? It may mean that purchasing a particular property would not be recommended and it is much better to know that before rather than after!
As part of the pre-auction Title check Express Conveyancing Solicitors can advise on indemnity options to correct any issues identified. That means you can go to the auction in a position of knowledge and take that into account when bidding.
Leasehold properties present particular challenges in the auction process. There are often issues to resolve regarding the terms of the Lease, Freeholder considerations and service charge and other expenses. The pre-auction Title check is a sensible way of knowing what exactly the winning bidder is letting themselves in for.
Auction houses will have their own General terms and conditions of sale. These are combined with the Special Conditions of Saleprepared by the Sellers Solicitors. The General and Special Conditions will often seek to exclude the seller’s liability for almost everything and place the burden for any problems on the Buyer.
Benefits of Pre-auction Title check
The benefits of a Pre auction Title check outweigh the costs involved and is part of being well prepared for the auction process. Among the advantages are:
- expert and timely advice on the quality of the legal title
- pre-warning of any legal issues that may negatively affect the value of the property
- allowing an opportunity for sensible pre-auction advice about the options and costs of remedying any issues identified
- revealing at an early stage any problems that might result in registering the property for the buyer at the Land Registry
- providing confirmation of any Title problems that may lead to the refusal of a mortgage
- allowing a clear appraisal of the value the property represents the before being committed to buying it
- identifying areas for further investigation
- ensuring the 28 day deadline is met to safeguard the deposit
Buying at auction is a great way of sourcing the right property at the right price. Pitfalls and problems can be avoided so long as the important pre-auction Title checks are conducted. Happy Bidding!