If you are new to the auction scene, it can seem a little daunting. Let our guide ease you in gently and start you on the road to picking up a real bargain.
What Are The Advantages Of Buying A House At Auction?
The main advantage of buying a property at auction is that you avoid the lengthy process of buying a house in the traditional way. At auction, the process is condensed into a matter of minutes rather than months and when the hammer falls, you own the property.
Lucy Alexander, presenter of the BBC’s Homes Under the Hammer, says: “Buying a property at auction is both exciting and potentially profitable. I love the process; it avoids all of the lengthy purchasing procedures that you usually have to endure and the risk of everything falling through at the eleventh hour.”
Another benefit of buying at auction is that you can often get a great deal on a property. You will generally find that properties are competitively priced to sell rather than priced to sit on an estate agent’s books for months.
Buying A House At Auction – The Guide Price
The BBC defines the guide price as ‘an indication of the price that the property is expected to sell for and what the vendor is hoping to achieve.’
Auctioneers provide guide prices for information only. They are not legally binding and should not be relied on as an indication of the reserve price or as a professional valuation. The BBC says that ‘purchasers are deemed to have relied on their own knowledge or obtained the independent, professional advice of others.’
How The Deposit Works
If you are the last and highest bidder when the auctioneer's hammer falls it means that you are the successful buyer. It also means that you are legally obliged to pay the price you bid and complete the sale.
Under UK law, if you buy a property at auction you are contractually bound to pay 10 per cent of the bid price immediately, and the balance within 28 days. The Guardian reports that you ‘also become liable for any damage to the building as soon as the hammer falls.’
You will have to pay the 10 per cent deposit on the day of the auction. Most auction houses will accept a cheque or banker’s draft. As a rule they will not accept cash.
Guide To Buying Property At Auction With A Mortgage
Remember that if you are successful at auction you only have 28 days to complete the purchase of the property. This means that you should arrange your mortgage finance in advance of the auction.
Many lenders won’t be able to process and complete a mortgage application in 28 days if you wait until after the auction. And, you are at risk of losing your 10 per cent deposit if you don’t complete within four weeks.
As you become liable for damage to the property immediately that the hammer falls, you will also need to arrange your property insurance.
3 Pieces Of Invaluable ‘Buying A House At Auction’ Advice
Buying a property at auction has become more popular in recent years. David Sandeman, of EIG, told the Daily Mail: “Against a backdrop of continuing economic difficulties, and a slow property market generally, the auction market has fared relatively well over the last four years, and recently has shown some signs of tentative recovery.”
However, if you’re planning to buy a home at auction, it’s vital that you follow these tips:
1. Check the property thoroughly before buying
Once you've identified the properties you're interested in, you should contact the auctioneers to arrange a viewing. Often, auction properties are in poor condition and so it is advisable to take a builder or a surveyor with you to find out what needs to be done to the property and how much it is likely to cost.
"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."
2. Have your legal team ready
If you’re successful at auction you only have 28 days to complete the purchase. You should therefore have a solicitor at the ready to ensure you meet the deadline.
The auction house will normally have a ‘legal pack’ available for the property you are interested in. Your solicitor can read through the legal pack and check for awkward covenants or restrictions that could have implications for the value of the property. In some cases it is also advisable to carry out property and land searches of your own.
3. Read the addendum sheet on the day of the auction
When you arrive at the auction, obtain a copy of the catalogue ‘addendum sheet’. This reveals any mistakes or changes that may have occurred since the catalogue was published. Check this carefully in case it contains any important information about the property you want to bid for.
Don't assume that all the properties included in the catalogue will be offered on the day of the auction. Some may be withdrawn or sold prior to the auction.
Tips On Bidding At Auction
Here are some useful tips for bidding at auction:
- Sit or stand somewhere where the auctioneer can see you clearly
- If you want to place a bid, make sure you gesture clearly at the auctioneer
- Work out the maximum you are prepared to pay and stick to it. It’s very easy to get caught up in the excitement of a bidding war and end up spending more than you wanted to
- Be prepared to walk away if the property exceeds the price you’re willing to pay
If you bid on a property and it fails to reach its reserve price, that doesn’t mean it’s the end of your chances of buying. Register your interest with the auctioneer at the end of the auction and it may be possible to negotiate a deal with the vendor.
Prime Location says that doing a deal after the auction ‘is often a good way to pick up a bargain, as a vendor might have been chancing their arm with their reserve price, but could be willing to do a deal after the auction.’
Buying A House At Auction – The Fees
If you’re buying a property at auction you will face a number of fees. These include:
- An administration fee to the auctioneer – typically £150
- A ‘buyer’s premium’ to the auctioneer – typically around 1.5 per cent of the sale price
- Stamp duty – the amount depends on the purchase price of the property
- Legal fees
- Any fees payable to your mortgage broker or lender if you’re using a mortgage to buy
- Survey and valuation fees
Additional Information About: Buying A House At Auction