Caveat emptor is Latin for let the buyer beware, meaning the buyer assumes the risk in a transaction.
For those thinking of investing, expanding their portfolio or buying a home then an auction may offer a fast-paced, easier way of doing so. But beware: preparation is key. If a bid is made and the gavel falls, the bidder is legally obliged to buy the property and has no right to raise any further enquiries. Understanding the process can help ensure you make a good investment and prevent you from making an uninformed and costly mistake.
Purchasing properties at auction is a popular option amongst prospective buyers due to the speed of the transaction and the fact that the entire ‘legal pack’ of documents is available for review in one place before the actual auction date.
When purchasing a property there are some critical factors to consider. This is because when your bid is accepted at auction, you become legally obligated to complete the transaction within the timeframe that has been indicated, usually between 21 days to a month.
British Courts have used the principle of ‘Caveat Emptor’ since the medieval times, and its origins date back even further. The Latin phrase translates to ‘let the buyer beware.’ The idea behind this principle is that the buyer alone is responsible for checking the physical condition of the property along with whether any legal issues are surrounding the property or its owners. The main reasons why caveat emptor still applies are: the seller is not obligated to reveal defects in the property and the buyer’s purchase is not protected by a warranty.
You will need to appoint a solicitor to advise you on the legal pack, the auction conditions and any tax implications of your proposed acquisition. The full legal pack can usually be downloaded from the auction house’s website or obtained from the seller’s solicitors. This should contain title information, search results, replies to enquiries and other essential information relating to the property. It must be reviewed by your solicitor in good time before the auction. As with any acquisition, the principle of caveat emptor (let the buyer beware) applies meaning that the onus is on the buyer to carry out a thorough investigation and raise any enquiries with the seller before the transaction is entered into i.e. before the bid is made at auction. If you are reliant on mortgage finance, you must also ensure that the information in the legal pack will meet the lender’s requirements.
There are risks involved including a potential restriction on planning and usage or perhaps a defect in the roofing or an asbestos issue. These matters can be expensive to resolve therefore being aware of them before becoming legally liable is essential and is a mark of effective planning.
The risk will also increase significantly if you are purchasing with the aid of a mortgage. A Lender will carry out a valuation of the property, and if any defects are revealed, then they could refuse lend. By the time the lender does the valuation you will already be legally obligated to complete the transaction, so this could prove to be a major problem if you are unable to secure a mortgage to fund the purchase.
The legal pack of documents is made available by the auction company several days if not weeks before the auction date itself. This is a legal requirement and allows you; as a prospective buyer; to review the legal documents and also inquire as to whether a site visit can be organised before putting in a bid for the property. It is strongly recommended that you carry out these investigations before the auction so that you are can inquire about any concerns you have before being legally obliged to complete the purchase. These investigations form a large part of the principle of ‘let the buyer beware’ and if you are satisfied with the outcomes of your investigations it significantly lowers the risk of purchasing an auction property.
We strongly recommend that you to contact our team of lawyers who can provide you with a review of the legal pack which is provided before the auction. Obtaining this legal advice will allow you to make a more informed decision as to whether a property is worth the risk.
Auction properties still provide for far quicker transactions that can be beneficial for property developers and first-time buyers alike. The main thing to consider when bidding is to ensure you have carried out your due diligence before the auction date. The pace of transaction will make little difference if after your bid is accepted or on completion, you come to realise that there are several defects that will need resolving before you intend to use the property as first planned.
As per the Latin phrase Caveat Emptor, it is essential to carry out your own investigations, so you are indeed aware of any defects or legal issues that could negatively impact you.
About the Author
