Buying a house is one of the most nerve-wracking yet rewarding purchases you can make in life. From the excitement of the first viewing, to the satisfaction of moving-in day, the efforts to get to home ownership are worth it.
But, like with anything worth doing in life, there’s always a risk. The risk that somewhere along the line, the sale could fall through and you miss out on securing your dream home.
However, with house auctions, all sales are final. On the surface, this sounds great, but you need to be prepared, as well as willing to find ‘potential’ in unexpected places.
This guide will take you through the ins and outs of buying a property at auction.
There are many benefits to purchasing a property at an auction. Here are some reasons why more and more would-be home buyers are choosing to purchase at auction;
Get a copy of the local newspaper and find property auctions in the area. You can also find UK listings online. Once you have found an auctioneer, get in touch and ask for their catalogue. Many are held on a monthly basis, which will give you a maximum of four weeks to view the listings you’re interested in.
Quick Tip: Take a builder with you on your viewings, they may be able to point out the immediately obvious repairs that need to be carried out. This may help you rule out properties which require too much work, before you pay a buildings surveyor, who will only tell you the same thing.
Attend an auction to get an idea of how they work. Buying at auction is a process that’s not for the faint-hearted. The more preparation you can do in advance, the more confident you will be in raising your hand at auction.
In your research, the auctioneer will be able to hand you a legal pack containing relevant deeds, leasehold information, local authority searches etc. You may want to give these to your solicitor to examine for any hidden costs. As is the case in many options, the guide price will appear as enticingly low, but be warned, the auction may run over this price early on. Make sure that you are aware of any sneaky costs before you set your maximum bid for the auction.
If you have found somewhere you like, do some background digging before the auction. Talk to some local agents and find out if the price listed has any leeway. But of course, this will not give you an accurate assessment of the home’s value, so you will need to carry out a survey with the help of a qualified surveyor.
Whether you need a homebuyer’s report or a full structural survey will depend on the property’s condition. The cost of the survey is one of the risks associated with buying at auction. There is a chance that you will pay for a survey on a home, only to be out-bid on it at auction. This is where you must weigh up your options, can you afford to make a saving at auction by potentially forking out for a wasted survey beforehand?
For more on surveys and how they fit into the process of buying a house, take a look at our Guide to Buying your First Home.
It goes without saying, that if you are looking to purchase a home, you will need some funds put back for a deposit.
You will then need to get a Mortgage Agreement in Principle, from a lender, before you can proceed to auction. Read more in our Guide to Applying for a Mortgage and our tips for Improving your Credit Rating, for more information.
You must walk into the auction knowing how much you can bid as a maximum and exactly how much the process will cost. If you are successful, you will be legally obligated to pay;
You will also need to bring to the auction;
If a property you like did not make the guide price on auction day, don’t lose hope. Each lot should also have a ‘reserve price’. This is lower than the guide price and will usually not be disclosed to the public before the auction. Approach the auctioneer at the end and see if you can make the seller’s reserve price.
You may Lose Money – If you have paid for a survey, only to lose out to a higher bidder on auction day, there is nothing you can do about it. That money will be lost.
You need a mortgage in principle – securing a mortgage isn’t an easy process nowadays, but if you go into an auction with no agreement in principle, just a deposit, you could find yourself in deep water. On auction day, you will need 10% of the funds ready, upfront, if you win the bid. After that, you will have 28 days to transfer the other 90%. If you successfully win the bid, pay the 10% but then have delays getting hold of the rest of the money, you will have to pay for the following;
Property auctions aren’t just for repossessions; many conventional sellers may look to property auctions in order to sell their home. For sellers, going through auction has the following advantages;
However, if you are considering selling you will need to factor in the following;
If you’re looking to sell at auction, make sure you thoroughly research residential property auctions in your area. You may also want to look at national auctions. If you live in an up-and-coming area, your home may be spotted by a property investor looking to build a buy to let portfolio. Aim to advertise your property as widely as possible, as you will be more likely to get the higher bid you’re after.
Once you have covered the auctioneer admin fee, you will need to submit a ‘legal pack’ of home information, for your potential buyers to inspect before the auction. Typically, you will need to get your legal representatives to submit;
You must submit two price points before the day of the auction. The reserve price is the rock-bottom offer you will accept at auction; the guide price is where you would ideally like bidders to start from on auction day. The reserve price does not have to be disclosed to the public, this is just between you and the auctioneer. However, if your property bids go over this reserve price, but do not make the guide price threshold, your home will be sold to the highest bidder over the reserve price.
If the bids do not go over reserve or guides prices, your property will be withdrawn from the auction. If you have tried and failed to sell your home at auction a number of times, you may find it worth lowering your price point, in order to make a sale. Seek advice for this and make sure that you don’t set the price too low for your needs.
If you are successful in selling your property at auction, the home belongs to the buyer from the day the gavel falls and they put down their 10%. You will need to ensure that you have lined up your next residence, or rental arrangement, as the sale will be completed in just 28 days.
Buying and selling your home at auction is an exciting, yet stressful process, but worth it if you can bid on a ‘hidden gem’ or finally close that sale and move on with your life.
Speaking to an independent mortgage broker can help you plan for your first auction and get your finances in order. Get in touch with an expert, for free, today.
My biggest concern was finding a mortgage with no strings attached. My options were clearly explained to me and I felt confident about the decision. Alice Silverman, Stoke-on-Trent
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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATION EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
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