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If you’re clued up on how auctions work, then you could pick up a real bargain when a house you’re interested in goes under the hammer. There are some key differences in the auction conveyancing process when you decide to go down this route though, when compared to a standard purchase. Find out more about these differences below.
Exchanging contracts when buying a house at auction
The biggest difference is that as soon as you’re successful with a bid on a property at auction, you enter into a legally binding contract when the hammer falls. When you’re not buying at auction, this only becomes the case once written contracts have been drawn up and exchanged.
Instructing a conveyancer for auction properties
When buying at auction, it’s always a good idea to instruct a conveyancer or solicitor ahead of the auction. You can then give the legal documentation, or auction pack on the house you’re interested in, to a conveyancer to check prior to bidding. The auction pack can include:
Official copies of the Title Plan including title deeds, Land Registry documents and boundary information.
Any results from conveyancing searches if carried out, including Local Authority and Environmental Searches
Property information form
Fixtures and fittings form
Special conditions of sale
Property certificates, such as an energy performance certificate, or planning permissions
Any other relevant documents, such as leasehold documents.
When going through the standard conveyancing process, where your conveyancer would organise things such as the property searches and obtain certain documentation, however every house that’s sold at auction should have these things in an auction pack. This includes documents such as the title deeds, special conditions of sale, outstanding liabilities and local authority and water & drainage searches. If they don’t have all of these documents, it’s likely that strict contract clauses have been written in to exclude any liability. As you’re entering into the legal contract effectively at the offer stage, it’s important that you don’t jump into an auction without professional advice in regards to these documents.
Financing your auction purchase
Another key difference with buying at auction is that you must have the funds required in place before you agree your purchase. So, if you’re not buying with cash and plan to purchase using a mortgage, you’ll need to secure your mortgage in principle prior to the auction. The risk comes in that once you have ‘bought’ the property at the auction, you may not be able to actually secure the mortgage you wanted within the set timescales (usually 28 days), or your lender may not be willing to lend on the property you have chosen. Securing another mortgage before the deadlines are up can be expensive and stressful.
Deposits on auction properties
With regards to your deposit, you’ll have to pay a sum that’s usually 10% of the sale price to the auctioneers immediately after the sale, compared to doing this at exchange of contracts with a normal purchase. You will stand to lose this if you don’t go on to complete within the specified timescale (usually 28 days), this is why it’s so important to have a conveyancer look at the auction pack and any conditions of sale prior to agreeing to buy a property.
Auction conveyancing costs
There are fees you have to pay when buying or selling at auction. Auction conveyancing fees can include:
Entry fee - this is the fee for including the property in the auction catalogue and can be around £300-£400. Depending on the auction house, this cost may include the marketing fee, or it might be an additional cost.
Buyer's fee/ buyer's premium - the amount is set by each auction house and so can vary a lot, however, it can be around 2% of the property value. This means if you buy a house at auction for £150,000 your buyers premium would be £3,000.
Commission - this is payable only once the property has been successfully sold and is usually around 2% of the sold price. This means if you sell a house at auction for £200,000 your commission would be £6,000.
Pre-auction report - if selling you'll need to create a report for potential bidders to view, this costs upwards of £200. If buying, you may want a solicitor to review the pack, this can cost upwards of £400.
Conveyancing fee - as well as reviewing the report a conveyancer, or solicitor, will complete the legal work. View our guide to conveyancing fees to find out more about conveyancing costs when buying a house.
Home buyer's survey - these can cost anywhere between £300-£1,500 depending on the level of home buyers survey you want to get.
Indemnity insurance - as it’s not always possible to get all of the usual conveyancing searches when buying through auction, you may need to get a No search indemnity insurance this can cost anywhere between £20-£300 depending on providers, coverage and terms.
What are the timelines when buying a house at auction?
When you’re successful at auction, you usually have four weeks to complete your purchase. This is different to a regular purchase in that a strict deadline is set that could see you lose your deposit if you fail to meet it. It’s also another reason why you should have a conveyancer on board before you go to auction, as they’ll be able to get the ball rolling with the legal documentation straight away and maximise the time you have.
If you are purchasing your first home, take a look at our first time buyers guide for even more handy information on what steps you can expect to take throughout the process.
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