A guide to buying a house at auction - pros and cons
Property auctions are still a popular way to find a property bargain. Before you bid however, be sure to fully understand the process and risks involved.
The benefits of buying at auction
Buying a property at auction means avoiding the usual lengthy buying process. As soon as the hammer falls, the winning bidder exchanges on the property. Completion must then happen within 28 days.
The process is much faster and more certain than buying a house in the standard way.
Unusual or quirky properties of a type that may not be sold via an estate agent can often be found through auction houses.
It is also possible to snap up a bargain if you happen upon a property that hasn’t generated much interest.
Repossessions and probate properties are also often sold at auction.
The key to success is preparation and sticking to your budget.
The downsides of buying at auction
Before you bid on a property, you should have already invested both time and money ensuring that the property is is both structurally and legally sound. It would be prudent to have a full structural survey and a legal appraisal carried out before you bid.
Any adverse findings in the due diligence process should inform the price that you are willing to pay.
If you are subsequently outbid at the auction, this investment will be lost.
The risks of buying a property at auction
Property auctions have grown in popularity over recent years and competition for good properties has increased. Nevertheless, it is still possible to find a bargain.
Buyers should be on their guard and not become emotionally invested in the property just because it appears to be a bargain.
Auctions can be a dumping ground for defective housing stock such as:
- properties with structural problems
- properties that have not been suitably maintained
- properties with short leases
- properties with defective legal title
- unregistered properties
- properties with restrictive covenants
Here is what you need to do when buying a house at auction:
Contact local auction houses
Get in touch with as many auction houses you can find that sell properties in the area you wish to buy in.
A quick internet search will help you locate local auction houses.
Subscribe to the auction houses’ mailing lists, and request the latest catalogues produced on the properties available.
You can also find details of most properties to be auctioned across the UK at EIG.
There are an increasing number of online property auctions where you do not have to attend the auction in person.
The usual time period between an auction catalogue coming out and the auction taking place is about a month, so you will need to act fast if you see a property of interest.
If you have never attended a property auction, sit in on a few to get a feel for how they work.
Ensure your finances are in order
If you buy a property at auction, costs will include:
- 10% of the sale price on the day, as a deposit.
- The remaining 90% around 28 days later (if you do not pay this, you will lose the deposit and the house)
- An administration fee to the auction house (usually between £200 and £300)
- Any stamp duty owed on the property
- Conveyancing fees and survey costs
- Buildings insurance for the property from the day you buy it.
If you require a mortgage, you should, at the very least, get a mortgage agreed in principle with your mortgage lender before you bid on a house.
There are a few specialist mortgage lenders who can work to tight time frames. If you are in a real hurry there are other options available including specialist auction finance and bridging loans.
Arrange property viewings
Once you have identified the properties you are interested in, you should arrange viewings with the auctioneer. Do not be afraid to ask to view more than once.
It is a good idea to take a builder, surveyor or architect with you to view properties if you can.
Homes bought at auction are often in disrepair. Get as much advice as you can on the cost of necessary repairs, and whether your vision for the property is feasible and affordable.
Do not rely on the guide price
The guide price on a property selling at auction is often on the low side in order to generate interest.
You should expect to pay more than the price the property is advertised for. The guide price will often go up prior to the auction; keep an eye on this, as a rising guide price can mean a lot of interest from buyers.
Instruct a conveyancing solicitor
You will be given a legal pack by the auction house for each of the properties you are interested in. Instruct a conveyancing solicitor to look over these for you, to ensure the paperwork does not reveal any issues on the property that could deter you from buying it.
The legal pack covers areas such as environmental and local authority searches, title deeds, the seller’s information form, a list of fixtures and fittings and more.
Instructing a solicitor at this stage also means they will be up to speed on the house should you end up buying it.
Hire a surveyor
You are not legally obliged to have a property survey carried out on a house before you buy it, but it is prudent to do so. If you are buying a property at auction that is in a state of disrepair, a survey can be even more important.
The age and condition of the property you are considering will dictate the kind of survey you need.
Our guide, What type of home buyers survey should I have? can help you.
On auction day
- Bring the right paperwork: Photo identification and proof of residency (such as a passport and utility bill)
- Keep a cool head: Stick to your budget and never bid more than you can afford.
- Get a decent seat: Arrive early and sit somewhere with a good view of the room and the auctioneer.
- You do not have to be there in person: Speak to the auction house if you wish to bid over the phone.
How can we help?
If you are planning to buy a property auction, we can assist with a pre-auction legal review and rapid conveyancing geared towards the typical 28 day completion process.
Call us now to speak to our auction conveyancing team on 0800 612 0377.