Skip to main content

Beginners Guide: How to buy property at Auction

Buying property at auction beginners guide

Historically, relatively few properties in Aberdeenshire have sold at auction, and it’s been rather more common in other parts of the country. However, it’s becoming increasingly common in Aberdeen and buyers should be aware that it’s a different process to buying on the open market. In this article we’ll be highlighting potential benefits and issues to look out for, how to buy a property at Auction, and common frequently asked questions.

What are the benefits of buying property at auction?

Buying property at Auction can be a bargain compared to buying on the open market. Properties are often listed at auction because they haven’t sold on the open market or because they are being sold by a repossessing creditor and it’s often possible to purchase for substantially below the open market value.

Even if the property represents a “project”, buyers often take the view the price is low enough that it justifies the risks. The process is also much quicker than buying on the open market, the commitment for seller and buyer is very quick, and there are no risks of either party changing their mind after agreeing the price.

What are the risks of buying property at auction?

One of the main issues when it comes to buying a property at Auction is that it can often be difficult to view the property before bidding. The property may be tenanted or the auction sale may happen so quickly that potential buyers don’t have time to view the property.

Unlike a normal purchase contract there will be nothing in the auction contract that obliges the sellers to accommodate viewings once the contract is binding.

Buying any property without having the opportunity to view it at least once constitutes a huge risk.

Does the seller still need to exhibit a home report?

Yes. Every property listed at auction should be listed with the benefit of an information pack. That includes a home report, and a copy of the title to the property and search reports. The difficulty for buyers is that they are deemed to be satisfied with those reports when they offer.

It’s not possible to raise queries with the seller after the price has been agreed and the strong advice to anyone considering offering at auction is to instruct a solicitor to look at the documentation in detail before offering.

What if the property is tenanted? Does the seller have to provide details of the lease?

The short answer is yes. However, the nature of auction sales is such that the party selling often has little information about the tenancy and won’t be in a position to exhibit any of the safety checks or even the lease paperwork. That leaves the buyer with the problem of carrying out any checks and trying to establish (and if need be formalise) lease arrangements after the transaction has completed. Any sitting tenants will have rights and it is not open to the purchaser of the property to terminate any existing lease without grounds.

Is there still a purchase contract?

Yes, there is a binding contract between seller and buyer but the contract will be on auction terms which can be radically different to a standard purchase contract. One of the issues buyers have is that by signing up to the auction process they will be giving a representative of the auction house authorisation to commit them to a contract on auction terms.

There is often no documentation the buyer needs to sign as they have authorised the agents signing that on their behalf. That means as soon as a price is agreed the contract is binding and it is not open to the buyer to query any of the standard contract terms.

Is there a risk for the buyer in relying on the auction contract?

Yes, if the buyer hasn’t read the auction terms in detail, but if the buyer has taken the time to check the auction terms which will be listed on the website of the auction house and contacted a solicitor beforehand, the risk is minimal.

What are the differences between an auction contract and a “normal” contract?

The main thing to bear in mind is that a contract at Auction is immediately binding, meaning it is not possible to offer at auction conditional on finance and it is normal to have to pay over the price 28 days after the price is agreed.

That doesn’t allow buyers much time to get mortgage funding through and it is not possible to offer conditional on the buyer getting a mortgage, and so any buyer needs to be sure the funding is in place before they commit to the deal.

The other difference is that an auction contract often includes reference to the buyer covering the auction costs. The fee charged by the auction house (often a few percent of the sale price) is something the buyer needs to cover and there can also be an obligation to contribute to the seller’s legal costs too.

That will dramatically increase the overall cost of purchase and it makes buying at auction substantially more expensive than buying a property on the open market.

Can buyer’s contract out of standard terms?

They can try, but this would have to be done before the contract was signed and most auction houses will resist any departure from any standard contract terms. Speak to a specialist before heading to auction.

Is it actually worth it?

Purchasing a property at Auction can be worth it, but it really depends how much of a bargain the property is.

Before committing, buyers need to factor in the additional costs incurred in paying auction fees and the property needs to be substantially underpriced to address that.

Buyers also need to be sure funding is in place before they commit, given the very short lead in time after the price is agreed.

Buyers also need to question why the property is being listed at auction? Why are the sellers not listing the property on the open market, and if they have tried that previously and the property didn’t sell, buyers need to ask themselves why.

Can I take advice from a solicitor before the auction date?

Yes, you can and it is strongly advised. Your solicitor will be able to read over the auction terms and comment on that as well as look at the title and searches for you.

If you’re considering purchasing property at Auction in the future, speak to our expert team before you go.