Auction is the quickest, easiest, and most efficient way to buy a property — fact! What ensures this process remains as smooth as possible is buyers conducting thorough due diligence before the auction takes place. Let’s go through why due diligence is so crucial to the auction process, and why it just might save you a headache down the line.
What is due diligence?
Due diligence is the process of doing the necessary legal and property checks on the property you’re interested in bidding on. This involves being aware of any potential risk and costs you may be liable for through researching the property itself, its condition, remedial works required, location, design, and suitability. You can find much of this information in the legal packs found on each of the lots in the catalogue, which include title documents, searches, special conditions of sale and other related papers.
Why is it important?
Auctions provide the certainty that isn’t present in private treaty sales, where a sale can fall through even at the very last minute. At auction, when the gavel falls, the sale is final. Contracts are exchanged, the buyer pays 10% of the deposit and are then legally liable to complete the full purchase within 28 days. This makes for a very efficient sale, but also makes it imperative that you know exactly what you’re purchasing, as if you then discover an issue with the property or reasons to back out, you’ll have no legal recourse.
Due diligence is also a good place to determine your bidding strategy. Through performing the necessary checks, buyers can assess the true value of the property, establish its market value and potential for appreciation. This way, buyers can avoid overpaying and ensure a fair purchase price. For investors, reviewing financial documents, such as property taxes, utility bills, and rental income can help accurately estimate the property’s operating costs and potential returns.
Tip on carrying out due diligence
Property Check: It’s important to visit the property in person to check its condition, design and whether it is in need of any renovation or modernisation. Auctioneers will hold house viewings in blocks and, depending on demand, multiple viewings will be held. It might be valuable for an experienced builder or surveyor to also visit for an independent expert opinion.
Legal Pack: Legal packs should contain everything you’ll need to know about the property, such as planning permission documents, lease information, details of fixtures, and it should be read extremely thoroughly. The pack is prepared by the seller’s solicitor and is part of the sale contract. It is recommended that your own solicitor looks over it so they can spot any issues you might not be aware of. Pay attention to the special condition of sale, where the seller states things such as the competition date (if it’s earlier than the typical 28 days), the terms of sale, and any additional costs the buyer will be liable for.
Property Survey: Conducting a property survey not only helps alleviate any concerns about the property and its condition, but it will also help if you need to arrange a mortgage for financing. As there is a very tight time frame post-auction, already having the survey completed will help move the mortgage process along before the completion date.
Funding the Purchase: A prudent buyer will make sure they have the funds in place to complete. If reliant on a lender, part of your due diligence must involve ensuring they can provide the funds you need in time to complete.
Due diligence is a crucial step in the property auction process and ensures buyers make the most informed decision. Through conducting thorough research and analysis, buyers can identify potential issues, assess the property’s value, and feel confident going into the auction.
