Buyer beware to avoid distress after property auctions
Prospective buyers at tomorrow’s Allsop Space auction should do their research, or repent at leisure
BUYING AT a distressed property auction can be cheaper than buying through private treaty – but it can also carry considerably more risk.
According to solicitor Anthony Joyce: “People should take the same precautions as they would when buying a house on the open market. They should carry out a full survey, planning search and analysis of contract, but for some reason they sometimes don’t do a full due diligence when they buy at auction – or in some instances don’t realise that they can do it.”
A client of his recently bought at auction without having the title of the property checked and didn’t realise there was an outstanding planning contribution owed by the developer. The planning contribution was €440,000, which was split between 10 properties in the development and meant his portion was the equivalent of half the purchase price.
“Another client didn’t realise that the property he was buying was a new build. He assumed it was second-hand and there would be no Vat liability.
“However, Vat was payable on the purchase price of 13.5 per cent, just as it is on most new property being sold at auction. Scrutiny of the contract would have flagged this for them.”
According to Robert Hoban, director of auctions with Allsop Space, he and his team go to great lengths to advise people to do as much research beforehand as possible: “We recommend everyone view the properties via the open views we run about once a week in the run-up to the auction, and get their surveys done then. We also have an online legal document service where all contracts of sale and title deeds for each of the properties can be downloaded from our website for view by solicitors in advance.”
Joyce advises people to ensure there are no judgment mortgages on a property and that there are certificates of compliance for extensions or any building work carried out on a property. If they are buying an apartment they should get their solicitor to check out the solvency of the management company.
With second-hand property the onus is on the buyer to check the standard of the property for defects. “The consequences of not doing this are huge. People would never buy a house normally without a survey, but for some reason they do at auction. It’s very risky,” says Joyce.
Hoban adds that buyers need to have their finance in place in advance. “We advise people to have not just loan approval in principle on the day, but the actual loan offer for the property.”
On askaboutmoney.comthere’s a post by “Gottogo” who bought an apartment in Dublin at a distressed property auction. “The problem appears to be with the title of the overall development. The information provided by the vendor does not allow my solicitor to issue a certification of title to the bank and the agreement I signed on ‘auction day’ apparently forgoes any right I have to request additional information.”
Gottogo goes on to say: “It’s not that I didn’t check, I obviously stupidly assumed that any property offered in such a high-profile auction would have been kosher.”
Joyce says this is an assumption many buyers make. They think that because it is being sold at auction by a well established firm, there won’t be any issues with the property.
“They might think, it’s only small money, I’ll buy it at auction and get a solicitor afterwards to finalise the deal, and it ends up being expensive to rectify the problem.”
Hoban counters that auctions offer greater transparency to buying on the open market. “We offer full disclosure – warts and all – of the contracts beforehand. The crucial difference with buying on the market is that you only see all the legals after the negotiations and an offer has been made. With auctions you can see all that beforehand.”
All property sales are covered by the Law Society’s general conditions of sale, which lay down the rules that apply to both the seller and the buyer in order to ensure a fair and reasonable sale.
It is important that buyers check these conditions have not been altered or omitted before signing a contract so that they do not end up with title issues that can be expensive to rectify.