The Lowdown on Buying Commercial Property at Auction

The Lowdown on Buying Commercial Property at Auction

With people always looking to for an easier and cheaper step to get on the property ladder, it was only a matter of time before property auctions became much more popular. The saturation of property shows on the TV is considered one of the main factors in the property auction craze, in particular the show 'Homes Under The Hammer' has led to the general conception that every property at auction is a bargain.As with all things, when buying commercial property at an auction house there some very important issues to address, as the possibility of serious financial loss is there for the inattentive buyer. The process of buying a property works fundamentally differently to a normal commercial property transaction. This short guide describes the key issues buyers need to be aware of when purchasing commercial property at auction.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.Secure some finance: Any buyer planning to access a commercial loan or mortgage to pay for property at a commercial property auction, should make sure their funds are ready to go before they bid, not simply a promise of funding. The key term that all buyers should be looking for is a 'decision in principle'. This means that a commercial mortgage provider is happy to lend funds for the purchase.buyers are obliged to complete the transaction in 30 days, so attempting to arrange a mortgage after you've committed yourself to a purchase is very risky indeed, neither seller nor bank manager will thank you for doing things this way round. Arrange the money up front or you will probably not complete.The Fall of the Hammer is the Contract: It is not a widely known fact, but the as soon as the property is sold it is a contract being sealed. Straight after the auction a deposit will have to be paid on the purchased property, usually 10% of the purchase price and it will be very, very difficult to get out of the obligation, if at all possible. So don't stretch or scratch your head while the auction is in process!As already mentioned, the winning bidder has to abide by the conditions specified in the auction, such as the final purchase deadline which is 30 days after the auction. So you need the finances in place or well down the road to completion by the day of the auction.If You Don't Have the Finances in Time? - As said, the hammer blow on the auction is a binding contract to pay for the property, so the consequences are severe for failure to complete the purchase. If you miss the 30 day deadline a completion notice will be issued, which adds an extra week to 10 days onto the deadline. After this period, the sale is cancelled and your deposit will not be returned, you will also be charged for any fees incurred (such as the completion notice) and possibly be blacklisted by the auction house.Purchasing a commercial property through an auction can be a good way of snapping up low cost property. That said, the process is fundamentally different from an average property transaction and so it is important that buyers know how the auction process works before they make their first bid.

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