Finding a bargain property is the dream of any would-be homeowner but turning that dream into a reality is never easy.
Property auctions, long the preserve of investors or cash buyers, offer this chance – but purchasing your home in this way isn’t for the faint hearted.
The good news for those considering buying at a property at auction is that the number of houses and flats being sold in this way is on the rise.
Many landlords are choosing to sell their rental properties at auction as they seek to exit the property market. Recent data from auction house My Auction revealed 38% of all lots were former buy-to-lets.
In addition, it is much easier to buy a property at auction these days with a mortgage using the modern process, making them accessible for all homebuyers.
So, what is involved in a property auction and what are the pros and cons of buying your home this way? Let’s find out…
The two types of property auction – which one should you choose?
Properties are usually posted online for a month before the auction, allowing you to view them and decide if you would like to bid.
There are two types of auction – traditional and modern. In the first there is a set day and time and interested buyers will make bids in quick succession.
With modern auctions, meanwhile, bids are made online up until a final time and date.
In all auctions the seller will set a reserve price which is the lowest price at which they will sell. The highest bidder over this price obtains the property.
Buyers must pay a deposit or a reservation fee on the day of the auction. They will have exchanged contract on the day of the auction with a fixed completion date thereafter.
For those needing a mortgage to purchase property, modern auctions are by far the preferred option. This is because modern auctions offer more time and flexibility, usually running for 30 days online and then allowing the purchaser 56 days to complete the process.
Normally you have to exchange contracts and pay a 10% deposit within 28 days of having reserved your property, then you get another 28 days to complete.
In contrast a traditional auction which commits you to exchange on the day of the auction and complete within a fixed period after that.
While buying at auction may land you a bargain there are several things you should consider before taking part.
Auction tip: Proceed with caution and be prepared
While potentially landing a bargain is enough to make any homebuyer rush to an auction, it must be noted that a lot of people have cottoned on to the fact that this could be a place to potentially find a cheap property.
Auctions are also a lot more accessible as, since Covid, even traditional auctions are usually online now.
This means you get a lot more people potentially attending as you don’t need to stand in a room on a rainy Wednesday afternoon to take part. So, the combination of more interest and potentially more bidders has lead to increased prices being paid.
One of the main tips is don’t get taken in by the guide price – these are often low to entice bidders, but the final price is often much higher.
The big question is how you are going to finance the purchase, as you will need everything in place before you bid.
If you are using a mortgage you need to have your Agreement in Principle (AIP) in place and have a 10% deposit to pay on the day for a traditional auction.
It’s worth viewing the property you have your eye on beforehand and, if possible, taking an expert with you such as a surveyor. It’s would also be wise to assign a solicitor to go through the paperwork in the legal pack before the auction to make sure everything is watertight.
Finally, you will need to take along photographic ID and proof of residence – so don’t forget them!
What are the risks of buying a property at auction?
As you may not have been able to conduct a survey on the property there is always the risk that there could be a structural or repair problem with the property that could cost you a lot to fix.
Make sure you have cash for contingencies as things can go wrong. Also, don’t get over excited and break the budget on a property and get carried away bidding. Set a budget and stick to it.
If you are buying at auction with a mortgage your lender will require a valuation once you have paid the deposit to ensure the house is worth what you are paying for it and that the property is in a liveable condition.
If you pull out it is expensive. You will lose your 10% deposit in a traditional auction.
In a modern auction you will lose your 5% reservation fee if you pull out within the first 28 days, and your 10% deposit if you duck out after this time.
Once you have secured the property don’t forget to get insurance as it is now your responsibility.
Is it worth buying a property at auction?
Buying at auction is riskier than buying through an estate agent, you have to ensure you have everything prepared beforehand and it is expensive if you pull out.
That said it is a quick and transparent process where you may be lucky enough to pick up a bargain and you could find that renovation project you’ve been looking for.
Just make sure you do your due diligence and have professionals on hand to help you through the process.
Simon Nosworthy is head of residential conveyancing at Osbornes Law
