Buying Commercial Property at Auction
Buying a commercial property at auction is different to buying a commercial property on the open market. It requires more planning and preparation, meaning you will need to instruct a property solicitor before the auction even takes place.
How to buy a commercial property at auction
You may have found a commercial property that meets your needs – be it for your own business or as an investment opportunity. However, you may then realise that it is being sold at auction, rather than via the open market.
If so, do not worry. In the past, commercial property was usually sold at auction because there was something wrong with it. This is no longer the case and it is becoming an increasingly common way of selling commercial property.
Nevertheless, buying a commercial property at auction does have its differences. You need to be aware of these before you begin bidding.
The sale is final and binding
The important thing to remember about auctions is that once your bid is accepted and the hammer falls, the sale is final and binding. You are then contractually obliged to go through with the purchase.
If you cannot afford the final purchase price, or you realise that the property is not what you want or need, then you cannot do anything about it – you must continue with the transaction. If you withdraw from the sale, you will lose your deposit. You could also be sued for breach of contract.
Therefore, you need to put the necessary planning and preparation in place, before you even attend the auction. Your bid may not even be successful. But if it is, then you need to be 100% committed.
Before the auction
To ensure you avoid the pitfalls of buying a commercial property at auction, you need to do several things before the auction takes place. Ideally you will do this well in advance, or you may run out of time. You need to:
1. Speak to your mortgage lender
If you want to buy a commercial property with the help of a mortgage, then you must speak to your lender and agree a mortgage in principle. You cannot know exactly how much the property will sell for – it’s an auction, after all. Find out how much the bank or financial institution is willing to lend you and let this be your guide when bidding. If the sale does go to you, then you will be able to put your funding in place within the necessary timeframe. If you fail to secure a loan after the auction, then you will lose your deposit and could be subject to legal proceedings.
2. Instruct a commercial property solicitor
You must also instruct a commercial property solicitor to check the property title, carry out searches, check planning permissions, advise on the mortgage terms and identify any other potential issues. When buying a property on the open market, these things are all done once an offer has been accepted. However, when buying at auction, all your due diligence must be performed in advance. This prevents you from committing to a purchase that does not serve your needs (perhaps because you cannot change its use) or is defective in some way.
3. Gather your deposit
If you successfully bid on a commercial property at auction, then you will need to provide the deposit immediately. This is typically 10% of the sale price. You therefore need to gather your finances now and have them ready to transfer to the seller on the day of the auction. This figure could be more than you anticipate, if competition for bidding is fierce and the sale price is pushed up.
4. Arrange buildings insurance
You also need to ensure that you will be able to put buildings insurance in place, should you buy the property.
5. Contact the seller directly
Finally, you may want to consider contacting the seller directly, offering to buy the premises before the auction takes place. The seller may or may not agree. If the seller is amenable, then it would prevent you from having to compete with other bidders. You can also make a private offer if the property fails to make its reserve price at auction.
At the auction
If you have done all of the above, then you can be confident that you are buying a commercial property that you both want and can afford. However, be sure not to get carried away when the bidding begins. Keep to your budget and stop when the bidding exceeds your planned allowance.
If the hammer falls and you are the final bidder, then congratulations – you have just purchased a commercial property. You will have to hand over the deposit straightaway. A date will then be set for closing day. This is usually a short time frame of around 20 days.
Commercial property solicitors Sunderland
If you are hoping to buy a commercial property at auction, please contact us for a free no obligation discussion. We can handle all the legal aspects of the transaction, working in your best interests at all times.
Call us on 0191 567 7244 and we’ll be happy to help you.
If you would rather contact us online, email us at email@example.com and one of our team will be in contact with you shortly.