Going to a Saturday auction to buy property can be an exhilarating experience but unless you understand some of the risks involved in property transactions, you can expose yourself to unnecessary legal problems. Here are 5 of the common legal risks when buying at auction:
Firstly, buying a property at auction removes any cooling-off period, meaning that you have to exchange contracts and pay the 10% deposit on the day, unless you have agreed with the vendor otherwise, beforehand. If you default on the contract then the vendor can force you to go through with the sale or, you will default on the deposit and will be sued for any damages suffered. The damages can involve the difference between the winning bid and the second highest bid, any losses suffered by the vendor if they were relying on the funds to purchase another property, legal fees, and breach of contract.
Secondly, you should have your finance approved. It is rare to have a ‘subject to finance’ clause for a property going to auction. The vendor wants certainty that the property will be sold. If you manage to negotiate a ‘subject to finance’ clause, you will need to make sure that you have enough time to obtain finance and at terms you are happy with.
Thirdly, getting pre-approval from a lending institution does not mean that you have an approved loan. Pre-approval is subject to terms and conditions, such as the property being valued at a price acceptable to the lender. If the valuation comes in less than the purchase price, the lender can either reject the loan or offer you a lower amount than you need, with you having to make up the difference. This can be a big problem if you are the winning bidder and the house sold for above market expectation.
Fourthly, ensure that you have the property thoroughly inspected before arriving on auction day. Currently there is no legal recourse for a buyer if they were deceived by a selling agent or previous owner regarding any damage to the property, if the damage does not impact on the structural soundness of the building. Having a leaky roof or blocked drains may incur thousands of dollars of remedial costs but if they don’t affect the structure, then no law has been broken.
Lastly, it is important to get your solicitor involved early in the process. The contract that the vendor will send you will be written to suit themselves. You might think that the contract is just another standard one, but a day or two before the auction you realise that it stipulates a delayed settlement of 6 months, or there is some special condition attached. You then try to get your solicitor to make amendments but it’s too late to negotiate with the other side and you’re unable to go to auction.
As you can see, there are legal risks when buying a property at auction. To avoid these risks, it’s important to give yourself time to do your research, get your finance in order, seek legal advice and inspect the property as thoroughly as you can so that on auction day, you make the right decision and minimise your legal risks.
Chedid Storey legal has extensive experience helping buyers and sellers of residential and commercial property minimise risks during the property transaction process. It’s commercially minded solicitors act in a timely manner and guide you through the legal process. For more information contact us.