Going Going Done!
8 months ago
Avid social media followers may be familiar with the recent “Florida man” meme, which culminated in a Twitter challenge whereby people googled the words “Florida man” followed by their birthday and shared the most outlandish stories they could find. Among the many (and more “safe for work”) classics shared was my own, the mind-boggling “Florida man wrecks liquor shop, blames catepillar”!
Whilst flicking through a news app, I came across a textbook “Florida man…” headline which, although presented in a typically light-hearted manner, actually serves as a cautionary tale of the risk of buying property at auction, both in the Sunshine State and here in Scotland.
As the story goes, Kerville Holness (the eponymous “Florida man”) bought what he thought was a tremendous bargain at a property auction – a house worth $177,000 (£140,000), which he snapped up for an incredible $9,100 (£7,000). Incredible indeed, because what Mr Holness had actually purchased was a 1ft wide strip of grass seperating two driveways which had erroneously not been included in either title.
The strip of land was being sold by the County government in order to recover unpaid taxes – something which is not unusual on either side of Atlantic, as sale by auction allows a seller to expose a property to market relatively quickly and more straightforwardly than traditional sale methods. Although auction sales are more common, traditionally they have been the domain of “distressed sales”, namely those by insolvency practitioners, banks and building socities who have repossesed properties, or by local authorities or other public sector bodies looking to dispose of scraps of disused land quickly with minimal fuss.
This is not to say that bargains cannot be found at property auctions – in fact anyone who has endured daytime TV staple “Homes Under the Hammer ” knows that with a bit of scrutiny and planning, there is money to be made by property investors or developers taking a punt. So, what can you do to avoid being stung like the unfortunate Florida man? Here are some useful tips:
1. Know what you are buying – first and foremost, make sure you do your research before the auction. Don’t be dazzled by the photographs – read what you are actually buying! Auction catalogues will contain a brief description of the lot for sale, together with a guide price.
2. Read the title pack – as well as the description in the catalogue, the auctioneers will also make a title pack available, and it is imperative that you review this, with the help of a solicitor if possible, prior to making any bid. Once the hammer falls, you will be bound to buy the property for your agreed price, warts and all. If there are any issues with access, restrictive title conditions or boundary disputes, you will inherit all of these, so it is useful to know about them before you part with your money.
3. Set a budget, and stick to it! – on the question of money, you should go into the auction with a fixed budget in mind, and be careful not to get caught up in the excitement of the sale room. On top of the price you bid, you will often have to pay an administrative fee to the auctioneers, which could be a percentage of your successful bid, plus your own legal fees, outlays and Land and Buildings Transaction Tax, and any VAT which may be payable on the price. Most auctioneers also require payment of a deposit following the auction, so you should also be prepared to pay as much as 10% of the agreed price (usually subject to a minimum of a few thousand pounds) on the day.
4. Understand the Terms and Conditions – related to the fees and deposit above, it is also very important to read the terms and conditions of the auction before you bid. Each auctioneer has their own general conditions which set out how the auction will work, and what you will be required to pay, and sellers will also set out their own special conditions which apply to the individual lots. Once the hammer falls on a successful bid, these conditions form the basis of the sale, and there is no scope for negotiating these retrospectively. There are no formal offers or qualified acceptances – the terms and conditions form the missives of the purchase. That being the case, many of the usual purchaser protections are included. The sellers will typically give no conveyancing searches or reports, or any warranties as to the state of the property or any central heating etc within it.
If we can learn one thing from poor Mr Holness’ story, it is that auction purchases should be treated with care. The key phrase is “buyer beware” – and if something looks too good to be true, it probably is!