The Ultimate Guide To Buying A House At Auction
Before you even consider going to an auction, you need to understand the risks and decide whether you really want to raise your hand before the hammer drops. Before you know it, you could get carried away in the excitement of acquiring a seemingly cheap property and live to regret it for years to come.
The benefits of buying through a house auction
The key benefits are getting a property at a much-reduced price than a standard sale. Additionally, the process is generally much quicker than average house sales and there will not be a chain that slows things down. Property investors learn how to find bargains and can make a good living from buying auctioned properties to sell on or rent out after a bit of work.
What are the drawbacks of buying a house at auction?
- You cannot change your mind – When you buy items on eBay you can change your mind in some situations under the Distance Selling Regulations. However, if you buy a house at an auction, once you have made a successful bid for a property there is no backing out.
- No time to research – At a live auction you will not have the benefit of being able to research the local area, see recent local house sales or any other useful research that would help you to choose whether to buy a property. You should sign up for a catalogue before the auction to enable you to do adequate research and you can arrange viewings at the properties you are potentially interested in.
- Going over budget – When you go to an auction, it is easy to get involved in a bidding war that you are reluctant to pull out of. If another bidder is interested in the same property then the auction price could end up rocketing above the budget that you set yourself.
- Survey could reveal major work is required – Without a survey of the property, it is very difficult to know how much work will be required to fix any issues, whether that is structural or more cosmetic problems.
- Legal pack details – If you do not get a solicitor to review the legal pack for a property you are interested in then you are risking facing potentially expensive complications. You should be able to obtain legal documents for each lot prior to the auction that you should ask your solicitor to review to ensure there are not any loopholes etc.
How an auction works and top tips for success
- Find an auction house
The first step is to find a local auction house in your area and ask to go on their mailing list. They will send you catalogues ahead of upcoming auctions and you can see which properties may match your objectives. Some auctions are the tradition ones where you attend a venue and bid by raising your hand and other auctions now take place online.
- Organising your finances
Before you are in a position to make any auction bids it is important to ensure that you have the financial side of things organised. It is recommended that you speak to a mortgage broker to understand what deals are available to you and to work out which mortgage options will best suit you when buying a property by auction. Depending on your financial situation, you may need to find out about bridging loans, so a mortgage broker will be able to direct you to the most relevant options.
You should get a mortgage Agreement in Principle before you attend any auctions to ensure that you are able to get a mortgage. Once you have this, you will be able to set your budget. A non-refundable deposit (usually 5-10% of final price) must be paid once you make your bid and you will need to have proof of funds to show that you can afford the deposit.
- Preparing for an auction
Preparation is key when it comes to going to an auction, so find out as much as you can about any property you are thinking of bidding for. If you can, get a builder to go with you to view the property and have your solicitor look over the legal documents before you attend the auction. You can also check websites like Zoopla to get an estimated value of properties to avoid paying over the odds.
- Have a strategy
Before you head to the auction, have a strategy in place regarding your bidding and your budget. In the excitement of the auction you can get tempted to keep bidding until you get the property that you were looking at. Having a strict budget and sticking to it will ensure that you don’t get carried away and spend more than you can afford to. The guide price indicates what the auction house expects the house to go for but the final bid value can be much higher.
It can be disappointing to miss out on a property you wanted but the experience of the auction will put you in a better position for next time. If the property does not go for the reserve price you might still be able to negotiate a sale with the seller after the auction.
- What to do on the day of the auction
As well as the proof of funds for the deposit, you will be required to take two forms of ID. Make sure that you get there early so that you can get into a good position close to the auctioneer. If you are the successful bidder then you will need to exchange contracts and pay the deposit. Once the contracts are exchanged you are legally bound to the purchase of the property.
- After the house auction
The completion day will usually be four weeks from the auction but make sure you have everything in place for when you take over responsibility for the property such as mortgage and buildings insurance. In the 28 days from the auction you need to arrange for your mortgage to get issued, instruct your solicitor and have a survey completed (if you haven’t already).
Where can I find more information about auctions?
You can find out property auction information from the UK Auction List or you can find an auction house local to your area.
Are there any administration costs?
You will generally be required to pay the auction house between £200-£300 in admin fees.
What happens if I pull out of the sale?
You could face being taken to court and face other additional costs.
Can I bid for a property before the auction?
You will need to check with the auction house but most will allow you to bid prior to the house auction taking place, depending on the seller’s instructions.
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