We know that buying a property at auction can feel exciting and overwhelming all at once. With tight timelines and legally binding commitments, it’s important to go in fully prepared. These top tips will help you understand the process and make informed decisions on auction day.
Understanding the Auction Process
Before a property auction, a legal pack will be made available for buyers to review. This typically includes Office Copy entries from the Land Registry, property information forms completed by the seller, and relevant property searches. Buyers are strongly advised to review this pack in full before bidding.
In a traditional (unconditional) auction, buyers place bids on a property or piece of land, with the highest bid at the close of the auction being successful and at this point contracts are exchanged, and the transaction becomes legally binding. The buyer is then required to pay a deposit, usually 10% of the purchase price, to the auction house and proceed to completion within the timeframe set out in the contract. If the buyer withdraws after exchange, the seller is generally entitled to retain the deposit.
In a modern (conditional) auction, buyers place bids during a set marketing period, often online. When the auction ends, the successful bidder is required to pay a non-refundable reservation fee to secure the property. Contracts are not exchanged immediately; instead, the buyer is given a fixed period, typically 56 days, to exchange contracts, followed by a further period to complete. If the buyer fails to exchange contracts within the agreed timeframe, the reservation fee is usually forfeited.
As a buyer you can identify a modern auction if the property is marketed with a non-refundable buyer’s reservation fee and allows time after the auction (often 28 days) to exchange contracts. In a standard auction, contracts are exchanged immediately at the auction when the bid is accepted. If exchange does not happen on auction day and a reservation agreement is used instead, it is a modern auction.
Do Your Research Before Bidding
Before placing any bid, buyers should carry out thorough research on the property. This includes reviewing the property description, photographs, and any supporting documentation or searches provided. Where possible, attend inspections to view the property in person. Understanding the market value of comparable properties can help avoid overbidding.
Prior to the auction, a legal pack will be made available for review. It is essential that these documents are fully understood, as they set out the rights, obligations, and any restrictions associated with the property. In some cases, certain rights may be missing, or the buyer may be required to contribute financially to shared costs or obligations.
As the buyers, it is advised to instruct a conveyancer to review the legal pack before bidding. This helps ensure the property is legally sound and that there are no unexpected risks before bidding and possibly legally committing to the purchase.
Read the Contract
The legal pack will include the contract for sale. Please ensure that you have read the conditions of the contract.
It is important to read and fully understand the contract within the legal pack, as this is the contract that will be exchanged and become legally binding if your bid is successful. Buyers should be aware of all fees payable and note the expected completion date, as you will be required to comply with these terms.
Have Your Proof of Funds Ready
Due to Anti-Money Laundering (AML) regulations, your conveyancer is required to carry out checks on any funds they receive.
Buyers must be able to provide evidence of the following:
- Confirmation that sufficient funds are available for the transaction
- Evidence of the source of funds, such as savings, proceeds from a property sale, a third-party gift, or a mortgage offer
Your conveyancer will be unable to accept funds until these checks have been completed and approved. As gathering this evidence can take time, it is advisable to prepare proof of funds in advance of the auction so that it can be provided to the conveyancer quickly.
If you intend to purchase with a mortgage, it is advisable to have your application as close as possible to offer stage before the auction. This helps minimise delays caused by mortgage arrangements not being in place. Maintaining clear and regular communication with your mortgage broker will be important in achieving this.
Only Bid on Properties You Are Fully Prepared to Purchase
Buyers should only bid on properties they have fully researched and are financially and legally prepared to purchase.
Bidding should always be considered and informed, as withdrawing after exchange can result in significant financial loss.
If you’re feeling unsure about any part of the auction process, you don’t have to navigate it alone. Our conveyancers and specialist investment property team can provide clear, practical advice and act on your purchase when you’re ready. Get in touch with our team on 01752 292292 or email clientservices@wolferstans.com to find out how we can help.