Have you ever considered buying a property at auction? Many think that auctions are for investors or property developers, but the method of selling at auction is becoming more popular, meaning a wider pool of properties to choose from. Compared to buying a property through the traditional method, auction purchases offer increased accessibility and benefits including a faster sale.
What are the benefits of buying a property at auction?
- Speed – from a successful bid, the property can be yours within 28 days.
- Transparency – You will hear/see all bids that are placed, in the room or on our website
- Fairness – there is no rush to view the property and get your offer in, everyone is in the same position.
- Straightforward – all you need is the means to pay the 10% deposit/reservation fee and the buyers premium, your ID and obviously the knowledge that you are able to meet the completion terms should you be successful.
- Often properties sold at auction, are extremely unique. If you are looking for a rare gem, it’s often found at auction.
Property auctions are a relatively fast way to buy property and they’re a good way to find fantastic properties for relatively low prices.
In the past, property auctions were mostly aimed at property investors and cash buyers, but recently they’re increasingly popular with mainstream buyers and sellers too. As there’s increased interest in buying a house at auction, more property owners and landlords are choosing to sell this way, which means that there are more properties to choose from.
Sellers benefit from a quick sale at auction without the worries of a complicated chain and with limited opportunities for people to pull out. Auctions are especially useful if you’ve inherited a property that you don’t want or need, or if you need to move house quickly.
Buyers enjoy auctions because there’s a better chance of getting a rare find, or a property at a lower price for the area that it’s in. It’s also a perfect way to buy for people that love renovation projects because people often auction properties that are turning into a lot of work. Landlords like to buy at auction because they can invest in a property that might have been out of their price range otherwise, and it’s a quick way to build their portfolio.
The traditional auction
The traditional auction is a very quick process with little flexibility. Once the hammer falls, you pay the deposit, contracts are exchanged and completion happens within 28 days.
The modern auction
This is a slightly longer process and is known as a conditional auction. It’s an online auction, which runs for 30 days and the winning bidder pays a reservation fee, which is generally 5% of the property price. You then have 28 days to exchange contracts and pay a 10% deposit, and then a further 28 days to complete.
How to prepare for buying a property at auction
The best way to prepare for buying a property at auction is to do your research. Make sure you’ve covered all the following steps before attending an auction:
1. Choose the area and property type you want
Decide where you want to live and look at the properties available within the area to see if they fall within your budget. You can then get more specific by contacting auction houses and searching property portals (like Zoopla) for properties that are currently up for auction.
2. Visit properties you’re interested in
Before buying property at auction, it’s vital that you visit it, and you can visit more than once. It’s often worth taking along a professional builder to get some insight about the state of the property, as well as the potential costs for any renovation or improvement works it needs.
3. Decide how much the property’s worth
The auctioneer will provide a guide price for the property, but this may not reflect the true value of it. Research similar properties in the area to see how much they’re selling for and this should inform your decision about how much it’s worth. Sometimes the guide price is very low, and this is done to increase interest and get more bidders attending the auction. Decide how much you think the property’s worth and how much you can afford.
4. Set your budget
Decide the maximum amount you’re willing to bid and make sure you factor in any renovation costs you’ll need to cover if you’re successful at auction. You may need to arrange an Agreement in Principle for a mortgage, and you’ll also need to have your deposit or reservation fee ready. Make sure you know what needs to be paid, and when, so that you’re fully prepared.
5. Find a solicitor
The auction house should provide you with a legal pack for the property ahead of auction. This pack contains the land registry and local searches, the title deeds, any special conditions of sale, property information, a fixtures and fittings list, as well as other important information and documents. Your solicitor can go through and check all these for you to make sure everything is as it should be and that you’re aware of any issues regarding the property.
6. Consider a survey
If you’re going to a traditional auction, then get a survey completed before auction day. This is your only chance to check for potential issues because it will be too late to change your mind if you’re successful with your bid. If it’s a modern auction you can do a survey after winning the bid, but you’ll lose your reservation fee if you discover lots of issues and then decide to pull out.
7. Watch other auctions
Before buying a house at auction, go along to other auctions to see how it’s done. This will help you to prepare for your auction day, and it might also help control some of the nerves and uncertainties by making you feel more prepared.
Steps for buying a property at auction
1. Arrive in plenty of time
It’s always worth arriving before the advertised start time of the auction because there can be last minute changes or new information about the property announced on the day. These announcements might have an impact on your decision to bid on the property so make sure you’re there in plenty of time. It also gives you a chance to get a good seat that’s near the front and in good view of the auctioneer.
2. Bring your paperwork
You need to have at least two forms of identification with you in order to place a bid. These could be your passport and a utility bill, for example. You’ll also need your 10% deposit as this will be payable immediately should your bid win the property.
3. Be mindful of the reserve price
The auctioneer will provide a guide price for the property, however, the current owner will also have a reserve price in mind. The reserve price is the minimum price that the customer will accept, and it can be up to 10% higher than the guide price. If the bids don’t reach the reserve price, the auctioneer cannot sell the property.
4. If you can’t attend, send someone else
If you can’t be there for the auction, you can send an agent in your place. Alternatively, the auctioneer can bid by proxy for you, if you sign off on it and provide a deposit for your maximum bid. The auctioneer will bid in increments on your behalf, stopping at your maximum bid.
5. Keep calm and be clear
When you’re ready to place your bid, calmly but firmly raise your hand (or paddle if you’ve been provided with one). Clearly state your bid so the auctioneer can easily understand it. They’ll then keep an eye on you for further bids as the auction progresses.
6. Stick to your maximum bid
It’s very easy to get carried away when you’ve got your heart set on a property. However, it’s vital that you don’t bid beyond your means as you’ll be liable for the costs should you win the auction. You must be ready to walk away if you have to.
7. Winning the auction
If your bid on the property is successful, you’ll pay the deposit and sign the contract immediately. The outstanding amount of money is then normally due within 28 days, but all the particulars will have been made clear in the legal pack. You also need to set up buildings insurance straight away as you’re liable for it from this point onwards.
If it’s a modern auction, you’ll just pay the reservation fee at this point (normally 5%) and then it’s time to get your survey completed.
8. Pulling out of the sale
If you pull out of the sale after signing the contract, you’ll lose your 10% deposit and there may be high administration fees to pay, amongst others. If it’s a modern auction, and you pull out within the first 28 days, you’ll lose your reservation fee. However, if you pull out after signing contracts you’ll lose your 10% deposit on top of this. If the seller pulls out of the sale, you’ll have your reservation fee and/or deposit paid back to you.
Can I buy a house at auction with a mortgage?
Buying a house at auction with a mortgage can certainly be done, but you have to work fast. There’s only a few weeks between the property being advertised and the auction date so you need to line everything up quickly within that time. Make sure you get a survey done so that you’re aware of any expensive and/or structural issues with the property.
Talk to mortgage lenders and get yourself a Mortgage in Principle so that you know the maximum amount you can borrow, and you can get your mortgage arranged quickly after auction day. Your mortgage lender will give you a Mortgage in Principle based on the value of the property, so if you bid above this amount, you’ll be liable for the difference.
There are many advantages to buying or selling your property at auction. The speed of the process is the biggest benefit, but there are also much less delays to the process and fewer people pull out. Additionally, if you’re selling at auction, the money comes through relatively very quickly.
If you’re considering putting your property up for auction, find out how much it’s worth by getting a free, no-obligation property valuation from our expert team today.