Over recent years, buying property at auction has become more and more popular. An increasing awareness of property auctions (partly thanks to TV shows such as Homes Under The Hammer) has attracted more and more people to auction rooms in the hope of snapping up a property bargain.
However, when buying commercial property at auction there are various important issues that buyers should be aware of, as the process works differently to a standard commercial property transaction. Our guide explains the main things buyers need to know when buying commercial property at auction.
Sellers Packs – When a property goes to auction, a ‘sellers pack’ is ordinarily prepared by the seller’s solicitors. In this pack are included a number of documents such as a drainage search, a local authority search, a chancel check, an environmental search, a copy of the title and information about leases and service charges. It’s important that buyers obtain a copy of this pack and provide it to their solicitor for them to start investigating any potential issues with the property.
Instruct a surveyor – Even if there are several bidders for a property, it is wise to instruct a surveyor to undertake a valuation/survey of the property before a buyer bids at auction. Major issues could be revealed which would affect a decision to bid and so a small cost up front could save buyers thousands in the long term.
Arrange your finance – If buyers plan to use a commercial mortgage or loan to buy a property at auction, they should ensure that their funds are arranged and ready to go before they bid in the auction room. Buyers should obtain a ‘decision in principle’ with a commercial mortgage provider so they know they will definitely fund the purchase.
As buyers only have 30 days to complete the transaction, trying to arrange a commercial mortgage after the auction cuts things fine. It is therefore vital that buyers plan early and set up their commercial mortgage in order that they don’t fail to meet the completion date.
You agree to a contract on the fall of the hammer – The second that a property sells in the auction room, a contract has been made between the seller and the successful auction bidder. It is a binding contract and requires the buyer to pay a deposit on the day (typically around 10 per cent of the purchase price).
The end of the auction also obliges a successful bidder to complete the commercial property purchase on the date specified in the auction conditions. This is typically 30 days from the date of the auction. What this means is that the remainder of the purchase price is generally payable within just once month.
Failure to complete on time – Failing to complete the purchase of a commercial property at auction can have serious consequences. If a buyer misses the deadline, the seller can serve a ‘completion notice’ which means that after a further set period of time (typically a week to ten days) failure to complete will result in the seller keeping the deposit and canceling the contract. Buyers are likely also to be charged for the preparation of a completion notice.
Buying commercial property at auction can be great a way of picking up low cost property. However, the process is very different from a standard property transaction and so it is vital that buyers understand how an auction works before they make their first bid.