Risks of Buying Property at Auction

 
08/05/2025
3 min read

Key Takeaways

  • Once your bid wins, you’re legally bound to complete the purchase.
     
  • Pulling out after exchange means losing your 10% deposit and potentially paying the seller’s legal costs.
     
  • Properties at auction are often there for a reason—issues with financeability, structure, or title are common.
     
  • You’ll have limited access to information, and post-bid enquiries are rarely entertained.
     
  • Not all auction purchases are profitable, and some carry significant risk.
     
  • Mortgage approval is not guaranteed—lenders may refuse finance due to legal or structural defects.

Why Auction Properties Are Riskier

Auction properties are typically sold below market value—but there’s usually a reason why they weren’t sold on the open market. Common red flags include:

  • Repossession by a lender
     
  • Unmortgageable condition due to structural or legal issues
     
  • Lack of title proof (unregistered land)
     
  • Local developments reducing future value
     

At auction, contracts are legally binding upon the fall of the hammer. Unlike traditional purchases, due diligence happens before bidding—not after exchange. If you back out after winning, you’ll forfeit your deposit and may be liable for seller costs and damages.

How to Mitigate Risk

You can reduce your exposure to risk by:

  • Instructing a solicitor to review the Pre-Auction Legal Pack
     
  • Commissioning a RICS survey before bidding
     
  • Budgeting for legal and survey fees even if you decide not to bid
     

Remember, this due diligence must often be completed quickly and at your own cost—with no guarantee you’ll win (or want to pursue) the property.

Legal Risks of Buying at Auction

For Freehold Properties:

  • Restrictive Covenants: Conditions on land use that may prohibit redevelopment or certain uses. Breaches transfer to the buyer and must be remedied or indemnified.
     
  • Possessory Title: The seller lacks full documentary proof of ownership. You may need indemnity insurance or risk future legal challenges.
     
  • Probate Sales: Executors selling a deceased's property may lack full knowledge of the home’s condition or history.

For Leasehold Properties:

  • Short Leases: Leases under 80 years reduce mortgage options; under 70 years makes financing nearly impossible.
     
  • Unfavorable Ground Rent: Some clauses are flagged by lenders and may require legal variations or indemnity.
     
  • Restrictive Lease Terms: Limitations on subletting, renovations, or even owning pets could affect usability or rental plans.
     
  • Cladding Concerns: Flats in buildings over 18m (7+ storeys) need a valid EWS1 certificate confirming fire safety compliance.

Cash Buyers: Proceed with Caution

If you're buying with cash, you can technically purchase regardless of issues—but you're taking on all associated risks. If you plan to refinance with a mortgage or bridging loan later, unresolved defects in the property or title could block lending entirely.

Learn more: What stops you getting a mortgage?

Structural Risks to Watch Out For

1. Subsidence or Structural Movement

  • Look for large vertical cracks, especially around doors and windows.
     
  • Repair costs can range from £10,000 to £70,000.
     
  • Read more: What is Subsidence?
     

2. Damp and Water Ingress

  • Signs include mould smells, flaking plaster near the ground, and water stains.
     
  • Rising damp often requires costly treatment if the damp-proof course has failed.
     
  • Read more: What is Rising Damp?
     

3. Concrete Construction

  • Concrete homes (often post-war bungalows) can be difficult or impossible to mortgage.
     
  • Read more: Risks of Buying a Concrete House

Final Thoughts

Buying property at auction offers potential for quick and profitable deals, but comes with serious legal and financial risks. Always conduct thorough due diligence and consult with an experienced auction solicitor before bidding.

Ready to bid smart and avoid costly surprises?

Before you raise your paddle, protect your investment— speak with one of our experienced solicitors today. Make your next auction purchase a success, not a setback.

Important Notice
This guide is provided for general information purposes only and is not intended to be relied upon as legal advice. While we’ve taken care to ensure the information is accurate and up to date as of the time of writing, it does not take into account your personal circumstances and should not be used as a substitute for tailored legal advice. Reading this guide does not create a solicitor-client relationship between you and Parachute Law. We accept no liability for any loss or damage arising from reliance on this guide. If you need legal advice about your specific situation, we encourage you to get in touch with us for a confidential consultation. We're here to help you understand your options and take the next step with confidence. Contact us at: thelegalteam@parachutelaw.co.uk