When you think of items sold at auction, you might think of jewellery, cars or even stupidly expensive collectors’ items and artworks. Your first thought isn’t necessarily homes.
However, 10,000s of properties are sold at auction every year; due to the advantages that property auctions can have for buyers in particular.
In this article, Conveyancing Partner Michelle Petersen outlines how to buy a property at auction including the advantages, how to prepare and how to get a mortgage.
Why buy a house at auction?
Buying a house at auction can be a quicker and more stress-free way of buying a home, when compared to the traditional route.
The usual purchase process takes around twelve weeks from the day the offer is accepted to the exchange of contracts, and a lot can go wrong in that time.
Whereas, at auction, once the hammer falls you have effectively exchanged contracts.
What are the advantages of buying a house at auction?
In addition to a speedy process, buying property at auction has some other benefits.
For example, once the property has been sold to the highest bidder, contracts are signed immediately and neither party can back out. This, again, differs from the traditional route which allows parties to back out even after exchange of contracts.
Although it’s unlikely that a seller would want to pull out at this stage, being bound to complete the sale will likely give you some peace of mind as a buyer!
Other advantages
House auctions also give you complete transparency, as your able to see and hear the other bids come in. There’s no pressure to put your offer in first, or at all, as there might be with other purchase methods.
Auctions can also have great deals and ‘hidden gems’. There’s a variety of options, and they’re all in one place often at a great price.
What are the risks of buying a property at auction?
In traditional property purchases, it can often be ‘first come first served’ if the buyer’s offer is acceptable. However, at auction, being the first bidder isn’t going to do you much good if you’re outbid.
If someone bids more than your budget, you’ll lose out. Or, you might, in the heat of the moment, bid more than you have – which can cause bigger issues when it comes to paying.
In property auctions, you need to have your money ready to pay a deposit on the day and will have a certain number of days to pay the full price after that. Having money at the ready might not be achievable for some people, especially if their money is tied up in property or assets.
How much does it cost to buy a property at auction?
As well as the price of the property itself, there are some additional costs involved in buying at auction.
You’ll likely have to pay an Administration Fee, which is a charge that covers the auctioneer’s costs and is usually paid at the same time as the deposit.
This charge can vary in price but should be disclosed to you by the auctioneer beforehand, either verbally or in an information pack.
Some properties sold at auction also include a Buyer’s Premium. Again, where applicable, details will be disclosed before the auction takes place.
To find out how much conveyancing will cost you, use our conveyancing calculator here.
Cost Saving
Despite the potential charges involved, there are some cost-saving methods which you could use to save yourself some money on your purchase.
For example, ISAs are Government backed savings accounts that can help you raise funds for a deposit. Find out more here.
Getting a gift or a loan from parents towards a property can also help reduce spend. We’ve written about the ‘Bank of Mum and Dad’ and how to use it correctly here.
Do you pay stamp duty if you buy a house at auction?
Stamp Duty Land Tax (SDLT) is a tax that is paid when you purchase a property, similar to VAT that you might pay on everyday items.
Stamp Duty is payable on houses bought at auction. However, there are various situations where you might pay less SDLT. Read about those in our dedicated Stamp Duty article here.
What are the legal requirements for buying a house at auction?
After a successful bid, you’ll need to sign a legally binding contract which effectively confirms your purchase.
If you back out, before or after the contract is signed, you’ll lose your deposit and might have to pay the seller’s costs.
You are not legally required to get a survey on the property; however it can help you to identify any potential issues. Find out more about surveys here.
What is the difference between buying a property at auction and buying a property off-market?
Off-market property is property that isn’t openly up for sale, meaning its not marketed or advertised anywhere.
Whereas auction property is sold on-market, as its openly up for sale via auction.
People mainly buy and sell property off-market:
- If they already have a buyer in mind
- For confidentiality reasons if, for example, they don’t want their neighbours to know that they are selling
- If they don’t want their asking price to be public until after the property is sold
An off-market seller may also list their property just to test the waters before selling on the market.
How to prepare for a house auction
The first thing you should do is request a catalogue; this will give detailed information on each property up for sale, guide prices and any additional costs that might come with purchase.
Again, you’ll need to make sure that you have money readily accessible to use as a deposit; and that a valuation is carried out by your mortgage lender before the day of the auction.
You will need to register your personal details, your solicitor’s full name, phone number and address before entering the auction room.
Lastly, make sure to take with you your photo ID and proof of residency.
How to bid at a house auction
If you’re attending an in-person auction event, you will be asked to bid either by raising your hand or a paddle.
You can also bid over the phone or via video call for virtual auctions.
There may be an option to submit a maximum bid and have the auction system or auctioneer bid on your behalf until you are outbid. This is similar to the maximum bid function you might have used on eBay.
How do I get a mortgage for a house at auction?
Property auctions aren’t just for cash buyers and you can get a mortgage on some auction homes.
Mortgage lenders generally have multiple criteria that you and the property itself need to meet before they will lend on the house. For example, employment status, income and the condition of the home are all important factors.
The first step to get a mortgage is to agree in principle with the lender how much you can borrow. If suitable, you can then look for mortgageable properties to purchase at auction.
Lenders will carry out a valuation and a property search before auction.
Learn more about mortgages in our home-buying guide. Download your free copy here.
What does a solicitor do when buying a house at auction?
As your solicitors, we would request a legal pack from the auctioneer, before the auction takes place, which contains all of the legal documents for the property. We would carefully study this pack on your behalf to ensure there are no hidden or special conditions that may affect you.
You wouldn’t want to be caught out by a condition that requires you to pay extra, such as the seller’s legal fees, for example.
We can also assist in carrying out property searches and reviewing the title deeds to ensure the property is suitable for your use. Lastly, we can provide cost-saving advice such as Stamp Duty and Government schemes such as Help To Buy.
Essentially, we’d handle all of the legal aspects of buying the property for you and ensure that everything is completed correctly! We would report to you on the auction pack before the auction so you are armed with all the information to make an informed decision at the auction
Specialist Conveyancing Solicitors
Our bright and experienced Conveyancing Team is one of the largest in the area, and they would be happy to assist you in the purchase of a property at auction, and even the sale of your current property (where applicable)! Please feel free to direct any questions our way.
To get in touch, you can call us on 01202 499255 or fill out the form at the top of this page. We offer a free initial chat for all new clients.
We’ve also put together a complete guide to buying a home for first-time buyers (and anyone who wants a refresher on the process), which can be downloaded for free here.
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