Property auctions often seem like an affordable route to home ownership. This is because an auction will give you greater control over the price that you end up paying for a new home.
However, the final bidding price for an auctioned lot often doesn't reflect the final cost of buying a home from the auctioneers. Various risks associated with the acquisition of auctioned property can affect the perceived affordability of your property investment. Here's how.
Search Indemnity Insurance
You'll need to pay for a number of property searches before you move into a newly-acquired home. Examples of these searches include a conveyancing search from the local authorities and a search aimed at identifying the location of utility lines within the home. Local authorities will need to search your property in order to rule out the possibility that the property is not located in a protected area (e.g. a heritage site).
At an auction, there is often no guarantee that the seller will have paid for the mentioned searches and others that may be required. You may also have reservations about paying for these searches because of the possibility that someone might outbid you for the property come auction day.
To be on the safe side, you might be forced to pay for search indemnity insurance prior to the auction date. Such a policy will have you covered in the event of legal complications that may arise because the required searches were not done before you bought the property.
Many prospective homeowners choose to do their own conveyancing when buying property the conventional way. For those who can muddle through the legal requirements of a property transfer, DIY conveyancing eliminates the cost of hiring a property lawyer or a conveyancing solicitor.
DIY conveyancing may be too much of a risk if you're buying an auctioned lot. For example, property owners often choose to get rid of "problematic" lots through the auctioneers. Problematic lots in this context may refer to properties whose legal ownership is contested (e.g. between family members) and/or properties whose structural condition is dilapidated.
In the absence of a property lawyer or a solicitor, it might not be possible to determine that your preferred lot has a clean title. Additionally, auctioned properties are sold on an "As-is, Where-is" basis. If you end up making a successful bid for a house with a dilapidated structure, you cannot blame the seller or ask them to undertake repairs after the sale.
DIY conveyancing is often difficult enough in straight-forward transactions between a private buyer and seller. It's often not an option for complex transactions that are common with the acquisition of auctioned property. Therefore, it's worth the cost of property conveyancing when you buy property at an auction.