Buying Commercial Property at Auction - A Few Things To Be Aware Of...
The popularity of property auctions has rocketed over recent years. Increased exposure on television property shows has attracted more and more investors to auction rooms in the hope of picking up a property at a knock down price.
Commercial property auctions, however, work very differently to a standard property transaction. So, for buyers looking to bid in the auction room it is vital that they understand the specifics of the auction process. Our guide explains the main things auction buyers need to know.
Sellers Packs: Typically, a commercial property at auction will have a 'seller's pack'. Prepared by the vendor's solicitor this will include a range of searches (environmental, drainage, local authority) as well as information on the registered title and information about any leases or service charges that are applicable. When buying at auction it is wise to have a solicitor look over the seller's pack to check for any problems that may arise.
Instruct a surveyor: Buyers should always instruct a valuation of a commercial property before bidding at auction. Without a qualified surveyor inspecting the property, there could be major structural issues which a buyer is unaware of. If unsuccessful at the auction then this may seem like a waste of money but buyers could save thousands by seeing a valuation before bidding.
Arrange your finance: Commercial property auctions require completion to take place very quickly and so it is vital that buyers have the funds available to complete the purchase. If using a commercial loan to fund an auction purchase, buyers should agree the borrowing they need well in advance to ensure that the funds will definitely be available to them.
In addition, failure to meet the completion date can cause serious problems and so planning early is essential. Many lenders will not be able to complete a purchase within a month or so and so it is vital that a commercial mortgage is set up early on.
You agree to a contract on the fall of the hammer: On the fall of the hammer, a contract is forged between the seller of the property and the successful auction bidder. The contract requires the buyer to pay a deposit on the day of the auction generally around 10 per cent of the purchase price.
The buyer is also contractually obliged to complete the purchase of the commercial property by a date stipulated in the auction terms and conditions. Buyers will therefore typically have only around 28 30 days to complete the purchase in full.
Failure to complete on time: Sellers can penalise auction buyers if the purchase does not complete by the scheduled completion date. For example, a seller can ask their solicitor to serve a 'completion notice' at a cost to the buyer. This sets out a further short period by which the completion should be concluded otherwise the seller reserves the right to keep the deposit and rescind the contract.
Buying commercial property at auction is a very different process from a standard purchase. The timescales are much tighter and there are strict deadlines to be met. Whilst buying at auction can offer the opportunity to pick up great value commercial property, it is crucial that buyers know exactly how the process works.
About the Author:
Howard O'Gollegos writes for Just Commercial Mortgages the UK's No1 site for the latest commercial mortgage rates and commercial property finance news.
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