Rising house prices and mortgage rates are driving more and more people to auctions in search of a bargain, with sales up by more than a third last year alone according to one auctioneer.
With do-er uppers regularly listed for £10,000 or less, it’s a tempting way for those with limited funds to get their foot on the housing ladder. It’s also a much quicker process, with contracts exchanged as soon as the gavel falls.
There are, however, pros and cons to consider before you head to the auction room. Here are some things you need to know before you go.
What research should I do before the auction?
Auction properties are sold ‘as seen’ so make sure you know what it is you’re bidding for.
Once you’ve identified a property, speak to the auctioneer who can advise as to its saleability and confirm the terms such as the guide price (how much the seller hopes to get) and reserve (the lowest they are willing to accept).
A legal pack prepared by the seller’s conveyancer should be available prior to the auction, sometimes at a small charge. It is advisable to show this to your own conveyancer too.
This pack, among other things, contains evidence of ownership, copies of any leases or tenancy agreements affecting the property, results of relevant searches, specific conditions of sale and the memorandum of sale/contract.
What information will I need to buy a home at auction?
Whilst a mortgage in principle is usually all that is needed before making an offer on a property, at auction buyers will also be required to pay a 10% deposit which is payable on the day.
You should be prepared to produce identification, proof of funds and source of wealth, i.e. where the money is and where it has come from. If the deposit is being gifted, from the ‘Bank of Mum and Dad’ for example, this also applies to them.
All this is standard procedure in any property sale to comply with anti-money laundering regulations.
Typically, there is a four-week window between a property being listed for auction and sold so be prepared to act fast. If you have found a property you like, call the auctioneer to register your details, and those of your conveyancer, and get your bidding number.
As auction properties often require significant renovation, it is sensible to arrange buildings insurance from the date of the sale too.
What will happen on the day of the auction?
Lots are often withdrawn so it is wise to call ahead and check that the property you’re interested in is still listed for auction. If it is, you will need your bidding number, identification and your deposit to proceed.
If you can’t attend in person, someone else such as an agent or conveyancer is allowed to bid on your behalf as long as they have written authorisation from you beforehand.
Some auctioneers will also accept bids by phone. The seller and their conveyancer may not attend the auction, but the auctioneer can act on their behalf and sign any necessary paperwork.
My auction bid’s successful – what now?
Once the auction begins, the process is straightforward. As soon as the gavel has fallen, contracts are exchanged, and buyers must sign the memorandum of sale and pay the deposit.
Auctioneers may also charge buyers an administration fee, which can be anything between £200 and £1,200 plus VAT so it is wise to check this beforehand and factor the cost into your calculations. Sellers also typically pay a 2% commission.
Auction contracts tend to be non-negotiable and, once signed, both parties are bound by the terms and conditions.
What happens after the property auction?
Transactions will typically be completed 20 to 28 working days after the auction and if you haven’t already by this stage, you should inform your conveyancer so they can perform the necessary checks.
Buyers should also notify their broker and/or financial adviser as soon as possible so that they can start the process of obtaining a formal mortgage offer.
Given the short window between the exchanging of contracts and completion, it is crucial that prospective buyers have their mortgage in principle in place prior to the auction and do not risk the sale falling through because they have run out of time.
Taking part in an auction can be exhilarating and it is easy to get carried away, particularly when properties can be 
listed at up to 20% below their true market value. It is, however, important to understand that, once your bid is accepted, there is no backing out and so having knowledge of how the process works is crucial.
Finally, don’t bid beyond your means, especially if you will also need to fund renovations. Thousands of properties are auctioned off each year and I guarantee there will be others more suited to your budget.
John Jones is head of conveyancing at Jackson Lees
NEXT WEEK: Online property auctions – the pros and cons
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