Many buyers are familiar with purchasing property through an estate agent. However, the auction process can be less well understood. This guide outlines the key steps and considerations involved in buying property at auction.
Preparation and due diligence
Before bidding, it is essential to carry out thorough due diligence. This includes viewing the property in person, where possible, to assess its condition and reviewing the legal pack, which is made available prior to the auction. This pack contains important documents such as title deeds, searches, and any special conditions of sale including additional fees payable by the winning bidder. Understanding this information is crucial to making an informed decision and avoiding unexpected issues later.
Making a bid
Bidding can take place in several ways: in person at the auction venue, online via the auctioneer’s platform or by telephone, arranged in advance. Some auction houses may require bidders to register and pay a fee or partial deposit beforehand, so it is advisable to check the requirements early.
There are two main types of property auction:
- Traditional auction: The winning bidder is required to pay a 10% deposit within 24 hours and complete the purchase within 28 calendar days (unless otherwise stated). The deposit is deducted from the balance to pay at completion of the purchase.
- Modern method auctions: This allows more time, with 56 days to complete. Instead of a deposit, the buyer pays a reservation fee, typically around 5% of the purchase price however this is paid in addition to the purchase price and is not included in the purchase price if you apply for a mortgage or bridging loan.
Understanding the type of auction is important, as it affects both the financial commitment and the timeline for completion.
Why consider buying at auction?
Residential Buyers – auctions can offer opportunities to purchase properties with potential, particularly those in need of renovation. These properties may be difficult to mortgage in their current condition, which can reduce competition and offer better value.
Investors – the speed of the auction process is attractive to investors looking to acquire and develop multiple properties. If the total cost (including renovation) is lower than market value, there is potential to increase rental yield or resale profit.
Risks and Considerations
There are risks associated with buying at auction, including undisclosed issues with the property, loss of deposit or reservation fee if the transaction is not completed within the required timeframe, and financing delays, which can jeopardize the purchase. It is advisable to consult a mortgage broker early in the process to ensure that funding is in place and deadlines can be met.
Conclusion
Buying property at auction can be a viable alternative to traditional methods, offering speed and potential value. However, it requires careful preparation, financial readiness, and a clear understanding of the process. For the right buyer, it can be a worthwhile opportunity.
