Auctions can be a great way of getting around time consuming, and at times, unpredictable buying procedures. However, they don’t come without their downfalls.
Why choose an auction?
There are some properties that estate agents struggle to market, and so auctions are ideal if you’re looking for a unique property. It’s also worth bearing in mind that if you find a property with potential that no one else has noticed, then you could be getting a bargain.
Over the past decade auctions have really opened up to buyers looking to avoid getting stuck in the house buying chain. This increased popularity is due to the fact that with auctions there are no risks of things falling through at the last minute, because the sale is agreed on as soon as the hammer strikes. Another benefit is that there’s a lot less an estate agent can hide from you as you’ll have the opportunity to see the other bids as and when they’re made.
What are some potential downfalls to auctions?
Auctions are completely transparent, even so, they’re just like any other buying process, which means that you could get involved in a bidding war, and if you’ve already invested in the property – to carry out surveys or research, then you would be losing out on your investment and on the property.
Also, be aware that there is the chance that you could spend all that time and money on making sure a house is worth bidding on, only to find that it’s been bought before it even goes to auction.
How much does it cost?
For the average auction house, the administration fee is usually between £200 and £300. You will also have to pay your conveyancer, stamp duty and your solicitor. And once you buy the property you’ll be responsible for insuring it.
How to find an auction?
The first step is to focus on the area that you’re interested in. Find and contact the auction houses who work in that area. After that, ask them for a catalogue and look at their upcoming property auctions. It may also help to subscribe to their mailing lists and visit websites like UK Auctions List or Essential Information Group.
Do remember: The typical time between publication of the auction catalogue and the auction is four weeks – so if you find a property that you like, act fast!
Getting ready for the auction.
Study the catalogue and make sure you’ve shortlisted the properties that interest you. One of the most important things you can do is make an appointment with the auction house to view the properties. Keep an open mind, and do remember that the reason you get absolute bargains at auctions, is because some of these properties aren’t in the best states.
It would be wise to take an architect or a builder with you to these viewings to avoid paying more than the property is worth at the auction. They’ll be able to give you a better idea of how much the property could cost you in terms of renovations, if you do end up owning it.
Compare the price of other properties for sale in the area. It might even be worth asking local estate agents and neighbours, that way you’re not relying on the advertised price, and you can go into the auction with a realistic number in mind.
Lastly, and importantly, attend a few auctions. Get to know the environment and how they work.
Get a survey
The average homebuyer’s report costs around £600, but it’s more if you’re looking to get a structural survey. This is money that you could potentially lose if you decide not to buy the property. But the surveys are essential in letting you know exactly what you’re buying.
Read the legal pack
The legal pack will contain all the information you’ll need for the property: title deeds, local authority, environmental searches, fixtures-and-fittings list and a seller’s information form. It will also include information about the leasehold.
Consider asking your solicitor to look over this, in the long run they could end up saving you money if they find hidden loopholes.
The guide price could be wrong.
Be warned, the guide price is rarely what is advertised. To tempt buyers the guide price is almost always set at a lower price than the property is likely to sell for. It’s worth keeping an eye on it; if you notice the price increase before the auction, then this could be a sign that the property has generated a lot of interest.
Sort out your finances
Getting your finances in order in advance is essential. Modernisation and refurbishment properties are usually the sort of properties that mortgage providers will consider lending you money for.
There are other options for short-term funding that could help if you’re expecting a gap between the sale and completion dates.
As soon as the auction is over you’ll be expected to pay 10% of the property price, you’ll then be given a month to pay the remaining 90%. If you find that you can’t pay, then you will lose the 10% you’ve already paid, as well as the property. However, that’s not all you’ll lose – you may even have to pay for re-selling the property, including any shortfalls between the price you originally agree on and the final selling price, and it’s possible that you’ll even be charged interest for every day that the property remains unsold.
The day of auction.
Everyone is different. Some people find auctions nerve-racking, others find them exciting, which ever category you fall under, its important to keep calm.
Beforehand you should make sure that you know exactly what you can and can’t afford. It’s easy to get lost in the moment, and the last thing you want is to realise you’ve overspent, or bought a property you can’t afford.
The aim of the auction is to be seen when you bid. So, get there early and get yourself a comfortable and visible spot.
Bring everything you need.
You will need to prove that you can afford the 10% deposit, and you’ll also need two forms of identification: A passport and a utility bill.
Don’t worry about the reserve price.
The seller might always choose to sell to the highest bidder if the property doesn’t go for the reserve price, so it’s well worth sticking around at the end.
Used by a few estate agents, this new type of auction has become increasingly popular. It allows buyers to bid online from the comfort of their own homes. The potential buyer is required to pay a non-refundable reservation fee. One of the benefits is that this form of auction gives the buyer longer completion time, so that they are able to sort out mortgages and other finances.