Commercial property auctions are an ideal and often exciting way of finding new investment property that you can snap up in record time and at a bargain price. Far removed from the traditional world of private treaty sales, auctions are fast-paced and can often catch the novice unaware.
From planning to purchase, preparation is key. To that end, here is our guide to buying property at a commercial property auction.
The benefits of commercial property auctions…
Some vendors will want a quick sale or will have had trouble selling the commercial property on the open market. Other commercial lots will be repossessions, sold as they were at the time of foreclosure. For these and many other reasons, auction property can often be bought significantly below market value.
Traditional commercial property sales can be a drawn-out process; not so with auction purchases. The time between the final gavel and completion is typically no more than 28 days.
Once your bid has been accepted, the property is yours. Provided you are able to finance the purchase within the timeframe, there is very little chance of an auction purchase falling through. You also can be certain of many factors, such as the completion date (which is clearly set in relation to the date of the auction) and the price you pay (over which, as the bidder, you have direct control).
…and the drawbacks
The flipside of ‘cost’, above, is that you often get what you pay for. Many auction purchases require significant renovation, which will require further outlay and more delays before you can lease the property out. Thankfully, the property’s condition will usually be reflected in the price.
This is another flipside of one of the positives, this time ‘speed’. You will need to pay a deposit up-front, typically 10%, when you successfully bid on an auction property. If you can’t get the outstanding amount together inside the four-week timeframe, you run the risk of losing your deposit.
Research and planning
Because of the potential drawbacks of buying at auction, it should hopefully go without saying that research and planning are paramount.
- You will first need to find an auction taking place in your area. Commercial auctions take place with relative frequency, and websites such as www.ukauctionlist.com offer an easy way to find out about upcoming auctions.
- Familiarise yourself with the lots on offer and decide which ones you are interested in. Auctioneers’ catalogues, which list details of the lots up for auction, are ordinarily available online around three weeks before an auction takes place.
- Always view a property prior to purchase. This will give you an idea of the property’s condition and give you a firmer idea of what, exactly, you are paying for. Consider taking a professional surveyor along to the viewing; he or she will be able to identify issues with the property that you might otherwise have missed.
- Register your interest in any lot with the auctioneer. This help to ensure that it will be sold without your knowledge.
- If you wish to see any legal documentation or special conditions of sale for any lot, you may also request them from the auctioneer in the run-up to the auction.
At this stage, you can also start to think about getting your finance in place – both the cash deposit (which needs to be available on the day of the auction), and the remainder. A commercial mortgage will generally be the first port of call for a commercial property purchase; however, because commercial mortgages are bespoke products that are tailored to each individual borrower, they can generally take around six to eight weeks to complete.
In order to complete within the 28 day time frame, you might consider financing the purchase using a bridging loan, which can be turned around in as little as 48 hours. Once controversial for their cost, bridging loans have since become significantly more competitive.
Find out more about bridging loans.
As auction day approaches, it is worthwhile bearing a few things in mind:
- Each property has a reserve price, which is usually undisclosed. If this price is not met, the lot will be withdrawn.
- The guide price is generally the lowest price that the lot is expected to achieve, and it is more than likely that the bids will exceed this. Remember to set your budget and stick to it – it is easy to get carried away!
- Buying commercial property at auction is very different to buying by private treaty. Be sure to re-familiarise yourself with all of the terms and conditions before the auction begins.
- Lot information and special conditions can change at any time, even at the last minute. Be sure to check for addendums or alterations before the auction starts. (Further to this, it’s also advised to check that the lot is still available, as it could have been sold or withdrawn prior to the auction.)
You should take the following items with you to the auction:
- The auctioneer’s catalogue
- Photographic identification and proof of address
- An appropriate means of paying the deposit (debit card, personal or company cheque, etcetera)
- Details of your conveyancing solicitor.
If your bid is successful
If yours is the highest bid when the gavel falls, and the reserve price has been met, a legal and binding contract is immediately formed. You will be required to provide your identification and hand over the deposit, as well as fill in a slip detailing your name, contact details and solicitor’s details. Shortly afterwards, contracts will be exchanged and the property will be yours. Remember that winning a bid is a legal and binding contract.
To discuss obtaining a bridging or a commercial mortgage quote for a commercial auction purchase, contact our advisors on the number at the top of this page; alternatively, request a quote and we will contact you.