Buying a House at Auction
What You Need to Know
- Remember the Golden Rule of property auctions: work out your budget and stick to it.
- Try going along to a few auctions without bidding; this can help learn how the process works and ease any nerves you may have when buying for real.
- Learn the jargon of property professionals before going to an auction; confused buyers don’t make well-informed, wise decisions.
- Try to view any houses for sale you might want before you bid for them. Also work out the cost of any work that may need doing when you draw up your budget.
- Remember, if you are the highest bidder when the hammer falls, you are legally committed to paying that price and seeing the sale through to completion.
- Consider submitting a proxy bid to ensure you don’t go over your budget on the day.
- Consult industry publications to find the property auction nearest to you.
Hundreds of private firms hold residential property auctions right across the UK on a year-round basis.
To find your nearest one, simply conduct an online search, or else check out the local press or property trade publications such as Estates Gazette.
Once you have located a property house in the area you are targeting, get in touch with them directly.
As a rule, they tend to publish a catalogue of lots around one month before they are due to go under the hammer, giving you plenty of time to do all the necessary homework.
Benefits of Property Auctions
The number one reason buyers turn to auction is price; quite simply, at their best, property auctions give you the chance to snap up a home for significantly less than you would pay through an estate agent.
Similarly, this can often be the best way to buy what’s known in the trade as a ‘Cinderella property', that is, one that’s in need of repair and renovation but which can offer a substantial return on investment over the long-run.
Property auctions are also a good way of securing a quick sale. In general, there are none of the chains that come with homes sold through estate agents. If you win an auction, then the home is yours on the very same day.
One other potential advantage of buying at auction is the fact that this can be the best way of snapping up a quirky property.
Local authorities, for example, often use auctions to sell-off hard-to-value or unusual properties, such as former churches or even old public toilet blocks, many of which can be converted into homes. (If you're a seller, unless your property fits into one of the categories described above, an auction is probably not the best way of selling your house yourself.)
It is worth bearing in mind that it can be considerably more difficult and expensive to secure house insurance for such properties.
It may well be possible to snap up a bargain home at auction, but equally this may not be the case.
Indeed, competition can be fierce, pushing prices up and making any potential savings against estate agents’ prices negligible.
Furthermore, when it comes to run-down properties, you may well be up against professional developers with much more financial clout than you.
The biggest potential downside of buying a property at auction, of course, is realising that, far from getting a bargain, you made a costly mistake.
Failing to do your homework properly can mean that a house needs much more work than you initially anticipated, thereby blowing your overall budget, while buying from a book can mean you are unaware of what an area or even the neighbours are like before you take ownership.
How to Buy at Auction: Setting Your Budget
Once you have found a reputable auction house in the area you’re targeting and then identified one or more prospective properties, then you can start getting ready for the auction itself.
The golden rule for buying at auction is setting yourself a budget and then sticking to it.
So, work out how much you have to spend on a home and, if you will have to borrow, ensure you get a mortgage offer in advance.
On top of the cost of a property, you will have to take into account a number of extras, including stamp duty, administration fees and the ‘buyer’s premium’ levied by auction houses, usually around 1.5 per cent of the sale price.
Doing Your Homework
So, once you have identified one or several prospective homes and have your budget fixed, it’s time to play property detective and investigate these lots.
Again, auction houses should publish their catalogues well in advance, so use this time to do your homework.
Consult estate agents to check how much neighbouring properties have sold for and, above all, contact the auctioneers to arrange at least one viewing.
Be prepared to pay for a survey, even if a property looks in good condition, or at the very least arrange for an expert to accompany you on a visit.
Uncovering hidden horrors like subsidence, severe damp or rot could save you a lot of grief, not to mention money.
As well as the home itself, use this time to check out the surrounding area; speak to the neighbours and investigate the quality of local schools, amenities and transport links.
At the same time, consider getting professional legal help to understand the terms and conditions printed in an auction house’s catalogue and, if appropriate, financial help for matters related to taking out a mortgage to buy a home at auction.
Consider going along to an auction as an impartial observer so as to get an understanding of the process in advance. This way, you won’t be unduly flustered when it comes to joining in and bidding on your property of choice.
Once the auction begins, the auctioneer will describe each property listed for that day.
An opening bid will then be suggested and prospective buyers will be invited to put their own bids forward. The price asked for by the auctioneer will rise in steps of £5,000, falling to jumps of £1,000 or £500 as bidding slows. Once the highest bid is reached, the auctioneer will drop his hammer, with this signifying a legally-binding contract.
If the thought of getting involved on the day unnerves you, consider getting someone else to bid on your behalf, though make sure they are trustworthy and know you upper limit financially.
Completing a Sale
Should you win an auction, the auction house clerk will hand you a Memorandum of Sale and other legal paperwork to complete and sign.
You will then also be asked to pay a deposit on the property you successfully bid for, with this usually ten per cent of the sale price.
Note that, as a rule, auction houses will not accept cash, with deposits to be paid either by cheque or by banker’s draft.
You will then be required to pay the remaining 90 per cent within a fixed period of time, usually 28 days. Failing to do so could see you losing both the home and your deposit.
- Keep your new purchase safe with our guide to home security.
- You can find more advice on buying or selling a house at auction here.
- Find homes that are about to go under the hammer at Property Week.
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