Fancy snapping up a bargain on your next property? Or just discovered your dream home is going under the hammer? Property auctions can be a great way to buy a house – assuming you’re well prepared. Fortunately, the process isn’t too tricky to get to grips with. Let’s walk through the basics…
- Buying at auction can be riskier than buying through the traditional process. But knowing what to expect is key to bagging a bargain.
- After a successful bid, you immediately enter a legally binding contract. So it’s important to have a conveyancer look at the auction pack and any conditions of the sale before you raise that paddle.
- You’re responsible for insuring your new property as soon as you exchange contracts, and completion should take place in as few as 28 days. If you don’t meet this deadline, you could lose your deposit.
How does a property auction work?
At auctions, properties are sold via a live bidding process. To secure your purchase, you need to compete with other prospective buyers to make a winning bid, some of which, will be experienced investors. If your bid is successful, you need to pay a non-refundable deposit or reservation fee on the auction day.
There are two ways to buy at auction: a traditional method, and more modern one.
The traditional method means that participants bid for properties in real time, and the winning bidder needs to exchange contracts immediately, making a 10% deposit on the day of the auction. They must pay the rest within 28 days, which is not usually long enough to secure a mortgage.
The modern auction method takes place online, usually over 30 days or more. Prospective buyers can bid any time, but most importantly, they have the option to complete their purchase in 56 days, granting more time to arrange a mortgage, if necessary.
If you want to buy somewhere quickly, then an auction might be a good option. There’s no waiting around for offers to be accepted, and you can eliminate the risk of being gazumped. However it does come with added pressure.
Unless you’re a cash buyer, you need to be prepared with your mortgage in principle, have your 10% deposit ready and have already carried out all the necessary research and checks.
Risks can include:
Not being financially prepared
If your offer is successful, you need to make sure that you can pay the remaining 90% during the set timescale. If you fail to do so, you’ll lose your deposit as well as your opportunity to buy the property.
Not investing in research and surveys
Auctions can be a way to sell problem properties, so it’s key to be well-prepared. Inspect the building yourself and invest in surveys to avoid any hidden structural problems. A conveyancer could also help you avoid legal issues, reading through the legal pack for any restrictions or title problems and advising on them – it may be that the property couldn’t be sold on the open market in the traditional way, so having an expert review the papers before you put any money down is essential.
Bidding more than you can afford
It’s important to work out the maximum amount you’re willing to spend on a property and stick to your budget. This will help you avoid overspending for a house by getting caught up in that auction adrenaline.
Before buying a property at auction
Ready to join the ‘bidding war’? Keep in mind that an auction isn’t a blind process where you simply pick a property to bid on from a brochure of options.
Take these steps to make an informed decision:
Do your research
Contact a local property auction house for the area you’re interested in. They’ll be able to guide you through the process and advise you on any upcoming auctions. They’ll also provide you with a full catalogue of properties prior to the auction.
Carefully study the auction pack
Just because the bidding process is much faster, doesn’t mean you should skip the preparation. Carefully look over the auction pack for the properties you’re interested in and consult a solicitor or conveyancer; they’ll be able to support you by reviewing the legal documents and advising on any hidden covenants or loopholes.
Check the terms and conditions
Read the terms and conditions to avoid any unpleasant surprises on the day of the auction including additional costs or fees you may have to pay on top of the purchase price.
Arrange viewings through the auctioneer
Arrange a viewing to make a thorough inspection of the property and neighbourhood. Take builders or surveyors with you, and seek legal advice on the contract, title and searches.
Consider a survey
A survey will help you find out more about the overall condition of the property and any urgent defects. Find out more about the different types of surveys.
Get on top of your finances
Not a cash buyer? Get your mortgage sorted before the day of the auction.
Set your budget
What’s the maximum amount you’re willing to pay? Don’t expect to pay the guide price, however don’t get carried away with the excitement of a bidding war if you’ve reached your limit. Keep in mind that prices may seem low, but there are bound to be further costs once the property is yours.
Know how bidding disputes work
The auctioneer’s word is final when it comes to any bidding disputes. Once the reserve price set by the seller has been met, the highest bid will usually secure the property. Auctioneers may re-offer a property at their discretion, while they also have the right to regulate the bidding and refuse a bid.
What to do at the auction
Here are a few tips to help you keep your cool on auction day:
Stay calm and focussed
It’s important to remain calm on auction day, which is easier if you’re prepared. Make notes of any changes to the guide price, as this can fluctuate before a property goes under the hammer. Remember that any additional information might be announced by the auctioneer before the process starts.
Have all the necessary documents
On the day of the auction, you need to have two forms of ID and proof you can afford the 10% deposit.
Know what ‘guide’ and ‘reserve price’ mean
Auction properties are initially offered at a guide price, which is the starting price. They’re also subject to a reserve price, namely the minimum amount the property will sell at. When bidding, keep in mind that the reserve price can be up to 10% higher than the guide price.
After waiting for your slot to come around, make sure you bid clearly to register your offer with the auctioneer.
What happens if you win the bid?
Make sure you have all your finances in place, and that you can pay the deposit straight away. Remember that when the hammer falls on your winning bid, you’re classed as having exchanged contracts, which is legally binding, so you’ll sign the contract, transfer your deposit (usually 10%) and pay any fees due to the auction house.
You will probably be responsible for insuring your new property as soon as you exchange contracts, while completion should take place within 28 days. If you fail to meet this deadline, you might lose your deposit. That’s why you should have your solicitor or conveyancer on board prior to auction.
Find out more about how the conveyancing process works at auction.
This guide covers buying a house at auction, for a guide on buying a house the traditional way please read our article The Process of Buying a House Explained.
Disclaimer: Please note the article above is only a rough guide to give you some idea of the process involved in property auctions and conveyancing.