On the fall of the hammer, you will be locked into an unconditional contract. So when purchasing a property at auction, you must complete all your due diligence before you buy.
There will be no conditions under which you can cancel. You have to do all your homework and enquiries before you bid at auction. You should:
1. Obtain pre-approval of finance for the property. This may mean that you have to get a report from a registered valuer;
2. Have the deposit ready on the auction date (normally 10%);
3. Have the title and the auction terms and conditions checked out by your solicitor;
4. Get a LIM report, or at least check the council property file, to confirm that the property is suitable for you. For example, check that the buildings have their consents and code compliance certificates, and that there are no natural hazards or other features affecting the property;
5. Seek a builder’s report to confirm the structural integrity of the buildings;
6. Get a report that the property is not contaminated by “P”; and
7. check the chattels list to ensure that all the chattels, you are expecting to pass with the property, are included.
A word on mortgagee auctions
The mortgagee auction poses more risks for a purchaser. It is to be approached with caution. A mortgagee auction is a bank enforcing its rights under a mortgage to sell, because of default by the owner. The additional risks a purchaser faces at a mortgagee auction include:
1. No vendor warranties – the mortgagee will remove all vendor warranties, which are normally there to protect the purchaser. For example, the mortgagee will remove the warranty that all work undertaken on the property has the required building consents and code compliance certificates. This means extra care needs to be taken by purchaser, to check these out.
2. Vacant possession – is not guaranteed on settlement. A purchaser may find the property is still occupied, and then has to evict the occupants. This can be a costly and lengthy legal process.
3. Damage to the property before settlement and possession – I have seen cases where an angry and depressed owner, having his house sold from underneath him, does damage to the house, or removes chattels, fixtures and fittings. Make enquiries about who will be in occupation of the property, and at least be aware of whether it is likely to be vacant or not. If the property is likely to be still occupied on settlement, this will reduce the price you will be prepared to pay for the property.
4. Not being able to view the property – If the owner is in possession, it may be difficult to view the property prior to auction. Of course, there are big risks in buying a property without having first inspected it.
5. Chattels not included – Check the chattels list in the auction documents, but you cannot guarantee that they will be there on settlement. The mortgagee will protect itself, should they be missing.
If you would like further advice on buying at auction, contact Ian Reeves, Thomas Biss, Virginia Craig, Amanda Morgan, or Christine Harding at Henderson Reeves Connell Rishworth.