vallierojas: The hidden risks of buying at auction

The rising number of home repossessions has fuelled a boom in auctions, but it pays to proceed with caution

When Colin Todd successfully bid for an unmodernised flat in the Renfrewshire town of Gourock, he thought he had landed a bargain. The Victorian property overlooked the Firth of Clyde in a handsome part of town, and the auction catalogue declared the repossessed ground-floor flat an "interesting development opportunity for a dwelling or holiday property".

"Interesting" it indisputably was. A week later the building had vanished. A tip-off had alerted the local council to alleged structural problems and it was demolished after council inspectors deemed it unsafe. Todd now faces the bill for the demolition, plus the �37,500 price of a property that no longer exists. "I can't even pick up the key because there's no front door," he says.

Todd's plight is a dramatic example of the pitfalls that can face the unwary as a rising number of repossessions fuels a boom in property auctions. Under UK law, a purchaser at auction is contractually bound to pay 10% of the bid price immediately, and the balance within 28 days. They also become liable for any damage to the building as soon as the hammer falls, and a premonitory, but standard, clause in Todd's contract specifically exempts the seller from costs associated with the destruction of the building as soon as a bid is accepted.

Todd, who had also bought an adjoining property with the intention of merging the two buildings, reckons he has been misled. "The auction catalogue stated it needed extensive modernising, not that it was falling down," he says. "Somebody should have picked up any major structural defects."

SVA Property Auctions, which handled the sale, insists there were no visible dangers when its surveyor visited. Moreover, a dozen potential buyers inspected the flat during three viewing days, and bidding was vigorous. "I find it hard to reconcile the conclusions of the council's surveyors with what we saw," says director Shaun Vigers. "It was a building that needed a lot of work, but there was nothing to suggest it was imminently falling down."

The council's surveyors, however, identified a partially collapsed gable and concluded that a disintegrating wall at the top of the building could lead to it falling down. "Inverclyde council was notified by a member of the public [a week after the auction] that the building appeared to be in severe disrepair with concern expressed with regard to safety," says a council spokeswoman. "Under section 29 of the Building (Scotland) Act 2003, the council has an obligation to investigate and, if appropriate, take immediate action to secure, repair or demolish property which is deemed unsafe. An investigation was carried out the following day, and the property was reported as an immediate danger."

Todd would be entitled to damages if a court found that the seller, or auctioneer, had deliberately misled prospective purchasers. However, at auction, bidders have a responsibility to check that sales particulars paint an accurate picture. "You may find that aspects of the property are very different in reality to what you assumed from the auction catalogue," says David Dalby of the Royal Institution of Chartered Surveyors. "Auctions are a good way to sell problem, or otherwise unsaleable, properties, so it's essential to do your homework."

This, for Scottish buyers, includes scrutinising the home report that sellers are legally obliged to commission. The report for the Gourock flat highlights a bulging gable and twisted facade attributed to long-term subsidence and advises interested parties to consult a structural engineer before proceeding.

Todd, however, did not ask for a copy and did not appoint a surveyor because he intended to bid for several properties and the cost of a survey on each one would have been too high. He's now taking legal advice in the hope of reaching a compromise deal. "Basically, I'm being expected to pay for a heap of rubble," he says. "Somebody, somewhere, must have realised how bad things were, and they're just trying to shift the risk to me."

Vigers reckons Todd has learned a hard lesson in an unusually forceful way. "Mr Todd had ample opportunity to inspect the property and get a survey, but he has been incredibly unlucky," he says. "In 25 years of auctioneering, I've never had a situation where I've sold a property one week and it's totally disappeared the next."

Tips on buying at auction

If the property seems a bargain, there's probably a reason. It's essential to inspect the building yourself before the auction in case the catalogue forgot to mention the motorway flyover outside the top windows.

If the building is elderly and needs a lot of work, it's worth investing in a structural survey to check for hidden problems. Or, should the �500 cost prove too daunting, you could bring a builder with you on your site visit to advise on the scope and costs of the renovations needed. Before saddling yourself with a disused chapel/barn/signal box you'll need to check that any proposed renovations have planning approval.

Make sure you have a solicitor at the ready to read through the legal pack that comes with each property and check for awkward covenants or restrictions.

Sort out your mortgage application in advance. You only have 28 days after the hammer falls to pay the balance of the bid and most mortgage lenders need far longer than this to approve a loan. You'll also need insurance lined up since you become liable for any damage to the property as soon as your bid is accepted.

Keep an eye on estate agents windows and on previous auction sales to gauge the demand for and market value of similar properties.

Read the addendum sheet on the day of the auction as this reveals any mistakes or changes that may have occurred since the catalogue was published.

Work out the maximum you're prepared to pay and stick to it, however fevered the auction room becomes. Some unscrupulous sellers send accomplices to make fake bids to swell the price.

Anna Tims

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