Q? I am extremely anxious to buy an investment property before the Capital Gains Tax relief ends this year. I was thinking about buying one at the next Allsops Auction. Is there anything that I should watch out for over and above what needs to be checked in a normal property purchase?
Property transactions are notoriously stressful events even for a seasoned buyer. Buying a property at an auction, particularly in circumstances where the Vendor may be a Receiver or the property may be in negative equity, can be even more frustrating and stressful again! Indeed, on occasion, it can prove to be disastrous for the unprepared. I have attended most of these Allsops Auctions since they started, both on behalf of buyers and sellers. It never ceases to surprise me how many buyers attend unprepared. I have seen buyers asking random Solicitors on the morning of the auction to explain contracts. At the last 3 Allsops Auctions I witnessed inexperienced buyers bidding against themselves or at least trying to do so at the auction. However, for a buyer who has done his homework and is well prepared, it can be a very transparent process that can be successfully and quickly navigated. Here are a few useful tips which should at least prepare you for what is involved. My advice is not to turn up at the auction unless you have prepared several weeks in advance.
The first choice you will need to make is who to engage as your Solicitor to act in the purchase and mortgage transaction. Remember, this may be the biggest financial decision of your life so the decision as to whom to engage as your Solicitor is a serious one. Also remember that this is a service and not a product and service levels can vary dramatically from firm to firm. Do not make your selection based on the lowest price only. Ideally you should select a firm with a good reputation in this area and one that has been recommended to you by a family relation, friend or other business advisor. You should make sure that your Solicitor is not only prepared to review contracts and title in plenty of time for you but is also prepared to attend the auction for you in Dublin.
The next Allsops Auction is on the 10th December 2014. It is likely to be a very busy event as buyers wish to purchase before the end of 2014 to avail of the generous Capital Gains Tax relief available to a purchaser who buys this year, holds for at least 7 years and then sells. You should be engaging with your Solicitor with a view to reviewing contract and title and starting to make other preparations at least 3 weeks in advance so you should be starting the process no later than the 19th November 2014.
Many, but certainly not all, of the properties offered for sale at these auctions are distressed sales. Sellers, often Receivers/Banks/ individuals being pressed by the Banks to sell, take the approach that you are “getting a bargain” and when it comes to the legal transaction the seller often seems unwilling at the outset to furnish even the very minimum documents that should be expected in a normal transaction. In all likelihood you are not getting a “bargain”. You are paying market price today for the asset and your Solicitor should insist that the seller complies with it’s obligation to furnish at its expense all of the normal documentation that would be expected of any seller (subject to the limitations below). My experience with Allsops auctions has been that the seller’s Solicitors, if approached early enough, are usually very helpful and will answer reasonable pre contract queries in advance of the auction.
To be fair, Banks or Receivers selling distressed assets cannot give all of the normal warranties and assurances which a private seller would be expected to give. The Bank or Receiver may have very little personal knowledge of the history of the property, disputes with neighbours over boundaries, notices that may have been received etc. Extra care should therefore be taken by you in advance of signing the contracts. Arm yourself with as much local knowledge as possible, have a chat with someone else living nearby to see are they aware of any problems.
Planning Permissions and planning warranties-
General Condition 36 of the Law Society standard contract of sale contains a warranty whereby the seller agrees to prove that the property fully complies with all planning permissions and building regulations and will prove compliance by furnishing a certificate of compliance with these rules signed by an appropriately qualified Architect or Engineer. Even where there are no planning problems this condition is very frequently excluded from the sales contract. The result is that the responsibility to have these matters investigated passes from the seller to the buyer. The buyer, assuming that a mortgage is required to buy the property, will still have to convince his own lending institution that all planning matters are in order. For this reason the buyer should engage and pay an Architect or Engineer prior to the auction to make these investigations and issue the appropriate certification to enable the buyer to satisfy the buyer’s bank in advance of the loan cheque issuing.
You should engage an Architect or Structural Engineer to carry out a structural survey on your behalf prior to the auction. If you do not do so and are successful at the auction then you must pay for the property regardless of subsequently finding out about structural problems and you will have no come back against the Vendor. The same Architect or Structural Engineer can check the accuracy of the title map for you and can advise you on planning issues. You should allow them at least 2-3 weeks warning prior to the auction date.
You should never buy a property at an auction unless you are 100% certain that you have all of the funding guaranteed in advance of the auction. If you are successful at the auction then you will be asked to pay a 10% non refundable deposit that day and to sign a binding contract. That contract will have a completion date, usually 4 weeks away, by which date you will have to pay the remaining 90% of the purchase price or face financial penalties. This process ideally suits a cash buyer who does not need a Bank loan.
If you require a Bank loan to part fund the purchase then you will be taking some level of risk by purchasing at an auction as you will not be able to make the transaction subject to the drawdown of your loan funds. If you have done nothing about the bank funding prior to the auction then you will definitely not be able to have the funds approved and drawn down in the 4 week window between the auction date and the closing date. Even if you have agreed loan terms from a bank in advance of the auction you will still struggle to draw down those funds within the 4 week timeframe. It is possible but will require you and your legal team to be very well organised.
At the earliest possible stage you will need to prepare a simple budget of all costs and expenses that buying a property will involve. Your Solicitor will help you with this process. You will have legal fees and outlays, valuation fees, survey fees, life assurance premiums, buildings insurance etc. If you address this issue in advance then there should be no nasty financial surprises awaiting you as the process unfolds. You will inevitably have increased expenses associated with buying a property in negative equity or at auction so it is best to find out about any such increased costs as early as possible. If you do fully prepare in advance of the auction you need to realise that if you are not successful then you will have spent some money without achieving a result-however this is preferable to spending a huge sum of money on a property with a title, planning or structural problem.
Do not bid at such an action unless you have had the contracts and title examined by a competent and experienced Solicitor and remember that you will incur a fee for this service whether you buy or not.
Do not bid on the property unless you are a cash buyer or are 100% certain that you have a written letter of loan offer from a Bank and that you can comply with all of the loan conditions.
Do not assume that all of the auction contract conditions are going to be fair or that the title will be ok because it is being offered for sale by auction.
If you are not experienced bidding at auctions then you would be better engaging your Solicitor to bid for you on the day.
Attending the Auction;
Even if you have engaged your Solicitor to bid for you at the auction you should attend yourself. You will need to register in advance and to pay the registration fee of €200 (most of which will be refunded post auction). You will need to bring your registration details and your original passport or driving license and a recent original utility bill as evidence of identity. More detailed requirements apply to purchasers who plan to buy in the name of a limited company.
Be careful out there!