It is becoming more frequent to buy property through auction. With a large selection of properties available, speedy buying processes and the potential to acquire an affordable property, it’s not hard to see the reasons. There are some risks to be aware of when buying a house with a hammer, and it’s certainly a case of buyer beware…
Thinking of buying your home at auction?
When it comes to purchasing property, auctions are becoming the preferred option not just for investors or property developers. In 2020, nearly 40% more properties by value was sold through auction, as compared to the year 2019. With house prices growing at the fastest rate in 17 years – sitting at an average of P238,831 in the Nationalwide’s April 2021 home price index and it’s a trend that could be set to accelerate.
Rightmove reports that bidding is more competitive since twoand three bedroom semidetached properties are going to auction rapidly. If you’ve decided that buying a house by auction is the best option the right choice for you, it’s essential to prepare.
To ensure you’re auction-ready, there are a few actions to follow:
You can get hold of the catalogue of viewing
Usually published in print and online around three weeks prior to the auction, each property will be advertised with a suggested price. This differs from the reserve value (normally kept confidential), which is the price that the seller will accept. Be aware that guide prices and reserve prices may fluctuate up to and on the day of the auction.
Contact the auction house to register
You’ll have to fill in a short online registration form to be eligible for the auction.
Schedule a visit to the property
Viewings can be booked through an agent or auctioneer. To estimate repair costs, have a surveyor or builder with you. This will allow you to decide on the amount you will place your bid.
Take out a loan as a principle
Your mortgage adviser can help with this. You’ll be given a time limit to exchange and complete your bid , if successful.
Check the legal pack
This includes documents like the conditions of the sale and the results of local authorities searches. Take note of this and then send it to your solicitor for them to look over.
Do a survey of your property
This is crucial especially if you’re trying to buy a house to remodel. The seller might be looking to sell a property with structural issues.
Get an independent evaluation
This is so you can make sure that you aren’t paying excessively.
Set the price limit you want to set.
Find out what comparable properties in the same area have recently sold for.
Arrange buildings insurance – Once you exchange contracts you’re legally required to purchase the property. Therefore, you’ll require insurance for buildings from the day you exchange. In order to lend mortgage lenders will demand that you have buildings insurance.
What is the process of an auction?
On auction day, make sure you:
Be sure to have the right paperwork
This could include a photo ID as well as proof of residency (such as a passport, driving licence and utility bill) and the information about your solicitor, and methods of deposit payment (cheque or debit card, or banker’s draft).
Get a decent seat
Be early to find a spot with a good view of the auctioneer. It’s not the case for auctions that are held from a distance.
Keep an eye on any last-minute changes
Before bidding begins the auctioneer ensures that all bidders have a copy of the addendum page. He will also read any changes to the catalog’s details.
Make sure that your bids are in writing
Buyers who are interested will be asked to raise their hands or paddles once bidding has begun so the auctioneer can be able to identify them.
Do not get distracted by the moment. Stay within your budget. Do not bid higher than you can manage to.
You may also bid online in the event that you cannot be present at the auction
Through proxy, the auctioneer may place bids for you, up to the maximum amount you set.
Through telephone: The auctioneer will call you so that you can make a bid over the telephone
Live Online Bidding – You can bid live from your PC or tablet
If your bid is accepted, you will usually be required to make payment:
For an advance payment for a deposit, 10% of the day’s sale price is required as a deposit
You are required to pay the remaining 90% within 28 days. If you fail to do so, you will lose your deposit and your property.
A fee for administration is due to the auction house. It is usually between £200-£300
Stamp Duty Land Tax
Conveyancing solicitor fees
Insurance for buildings
You can bid before the deadline when you’ve found the perfect property and have done the required research. You’ll need to act quickly and take the advice of an experienced lawyer and mortgage expert if you are successful.
If a property isn’t sold at the auction, the auctioneer will ask any buyers interested to submit a private bid afterwards, so you can still bid.
What are the two property auction methods used in the UK?
There are two ways that exchange and completion can occur at a property auction – the traditional method’ as well as the ‘modern method’.
If you bid successfully at an auction using the standard method of bidding, you’ll be able to exchange contracts and pay a 10% deposit as soon as the auction ends. The auction will then close and you’ll have 28 days to conclude the transaction.
Modern methods mean that you do not have to swap contracts in a matter of minutes. Instead, you pay a fee to reserve the property, which can’t be refunded in the event that you decide to pull out. This fee can vary in price, but it generally, it’s a percentage of your offer. You will then have 56 days to swap contracts and complete the purchase.
Online property auctions are a possibility?
Allsop, the largest auction house, has sold six of seven commercial lots at its first auction exclusively online in 2018. Online-only residential auctions may not be common in the UK in the moment however it is a trend that will likely expand in the near future. In an auction that is online only an untimely bid could result in the timer being extended by one minute, and the sale can only be completed after 60 seconds of silence.
What are the advantages of purchasing a house at an auction?
The process of buying at auction is easy. The benefits of auctions include:
You can move quickly by completing the entire process of buying a home being completed in a specified number of days (often 28) after the auction.
You’ll be able to see other bids for yourself and there’s no risk of gazumping.
There’s no obligation to get your offer in first, similar to other buying strategies.
The deal’s done
There aren’t any delays or interruptions in communication that could affect the process.
There are numerous possibilities
There’s typically a larger selection of homes and it’s possible to find the most treasured properties for sale, like an unloved house that has planning permission or the home improvement project that you’ve been searching for.
As soon as the auction ends the auction is over, contracts can be signed.
What are the disadvantages of buying a house at an auction?
All of the work must be completed fast – from making the survey to asking your solicitor to check the legal document. You should also be aware of these:
Do you have all the funding in place?
If your bid is successful, you’ll need to be in a position to pay the deposit of 10% and then the remaining shortly after.
Do you have the courage to go beyond your budget?
Set yourself a limit because it’s easy to get carried away on the day.
Will the price change?
Guide prices are often low to draw attention. They do not represent an estimate of the sales cost. Rising guide prices can indicate that there’s a lot of interest from buyers, and the home you are interested in could sell for more than you anticipated.
Beware of the Buyer
Auctions are a common way to sell properties that have structural problems such as short leases, defective covenants (such no legal right of access) or restrictive covenants (such how the property can modified or extended).
It is possible that you will not win the auction
If someone bids more than you, you’ll have lost time and the money you’ve spent on surveys or solicitors.
What’s done is
Remember that once the hammer is dropped, there’s no going back.