Buying Commercial Property At Auction - A Few Things To Be Aware Of...

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.

This said, when purchasing commercial property at an auction there are a number of crucial issues that buyers need to be aware of, because the process works differently to a regular commercial property purchase. Here is a useful guide to understanding the main issues buyers need to be aware of when buying commercial property through an 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.

Commission a Surveyor: What you will need to conduct is a valuation and conveyance of the property, even if there are a few rival bidders for the property. This will not usually be included in the seller's pack, even if it is; you should commission your own before the auctions date. Issues that were unknown to the current owner could be discovered which could, in the long term, cost any future owners thousands of pounds in repair costs in the long term.

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.

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.

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 do not stretch or scratch your head while the auction is in process!

The end of the bidding also compels a successful bidder to complete the full transaction on a date listed in the auction conditions. This is normally 30 days from the date of the auction. In practice this means that the remainder of the purchase price must be paid within one calendar month.

Failure to complete on time: This is the nightmare scenario for both seller and bidder. A failure to complete on the purchase of a commercial property can have expensive consequences. If the buyer fails to meet the deadline, a seller can impose a 'completion notice' on them which means that after short period of time (normally a week to ten days) any further failure to complete will lead to the seller keeping the deposit and cancelling the contract. Buyers will also to be penalised for the cost of the preparation of a completion notice.

Whilst purchasing commercial property at an auction might be a good way of finding cheap property. That said, the process is fundamentally different from the standard property transaction that most of us are used to and so it is vital that buyers understand the processes and potential pitfalls before they get started.