Auction buying is growing in popularity – and, with a vast selection of homes available and a quick home buying process and the chance to get a bargain property is easy to see why. There are risks when buying a house with a hammer, and it’s undoubtedly a risk for the buyer to be aware…
Are you thinking of selling your home at an auction?
In the case of buying properties, auctions are now an increasingly popular option – and not only for investors and property developers. Around 40% of properties auctioned off in 2020 was due to its worth, in comparison to the year 2019. This trend seems to be gaining momentum, given that the house price has risen by the fastest rate over the last 17 years (at an average of £238,831 as per Nationwide’s April 2020 house price index).
Rightmove states that bidding on homes will be more competitive as semidetached homes with two or three bedrooms houses are selling rapidly. So, if you decide to purchase a home at auction is the best option for you, after you’ve decided on an auction – they’re easily accessible on websites like Rightmove and Zoopla – it’s vital to be ready.
To ensure you’re auction-ready, there are certain steps to take:
Check out the catalog for viewing
Usually published in printed form and on the internet around three weeks before the auction, every property is listed with a suggested price. This price is different than the reserve price which is typically hidden and is the lowest price the seller can accept. It’s possible for the guide and reserve prices to change at any moment.
Register with the auction house
It is usually a matter of filling out a short online registration form that enables you to participate in the auction.
Schedule a visit to the property
You can arrange viewings with an agent or auctioneer. To estimate the cost of repairs, have a surveyor or builder with you. This will help you determine the price you must place your bid.
You can arrange a loan in the principle
Your mortgage adviser can help with this. You’ll be given a time limit to exchange and complete your bid , if successful.
Check the legal pack
They include documents like the conditions and terms of sale and the result from searches conducted by local authorities. Be sure to read it carefully before sending the documents to your lawyer to review.
Have a survey of your property done
It is vital, particularly if you’re looking to buy a property to improve. The seller might be trying to sell a home with structural issues.
Get an independent appraisal
This is so you can ensure that you’re not paying excessively.
Choose the price you will pay
Find out what comparable properties in the same neighborhood have recently sold for.
Organise building insurance. Once you have exchanged contracts you are legally bound to purchase the property. You’ll require buildings insurance as soon as you exchange contracts. To be able to lend mortgage lenders will demand that you carry insurance for buildings.
What exactly is an auction?
On auction day, make sure you:
Make sure you have the right paperwork
The documents you need include a photo identification, proof of residency (such an identity card, passport, driving licence or utility bill) and information about your solicitor and how to pay the deposit (cheque or debit card, or banker’s draft).
Get a decent seat
Get there early and choose an area with a clear perspective of the auctioneer. This doesn’t apply to auctions held remotely.
Keep an eye on any last-minute adjustments
Before bidding begins the auctioneer makes sure that everyone has a copy the addendum page. The auctioneer will also review any amendments to the catalog details.
Be sure to make your offer crystal clear
Potential buyers will be required to raise their hands or paddle after bidding has started so that the auctioneer is able to determine their identity.
Don’t get caught up by the moment – Always stick to your budget, and never offer more than you are able to afford.
You can also bid via the internet if you are unable to be present at the auction
Through proxy, the auctioneer will make bids for you, up to your specified limit
Telephone – You can bid over the telephone by calling the auctioneer
Online – You can also make live bids on your laptop or desktop.
If your bid is successful, you’ll have to pay:
10% of the sale price on the day, as a deposit
You will be required to pay the remainder of 90% within 28 days. If you do not do so, you will lose your deposit and your property.
An administration fee to the auction house, usually between £200 and £300
Stamp Duty Land Tax
Conveyancing solicitor fees
Survey costs
Insurance for buildings
If you’ve found your ideal property and have done all the necessary study, you can place an early bid prior to the auction. You will need to work quickly and seek the guidance of a knowledgeable lawyer and mortgage professional in the event that you’re successful.
If a property isn’t sold during the auction the auctioneer may ask anyone who is interested to submit a private bid afterwards, so you can nevertheless make an offer.
What are the two different property auction techniques in the UK?
There are two ways that completion and exchange can occur at a property auction – the ‘traditional method’ and the more modern method’.
If you bid successfully at an auction that uses the traditional method, you’ll swap contracts and make a deposit of 10% as soon as the auction ends. The auction will then close and you’ll have 28 days to finish the transaction.
Modern methods mean that you don’t have to swap contracts in a matter of minutes. Instead you have to pay an amount to hold the property, which is non-refundable in the event that you decide to pull out. The amount you pay can differ in price, but it is usually a percentage of your offer. You then have 56 days to exchange contracts and make the purchase.
Online property auctions are a possibility?
Allsop, the biggest property auction house has sold six of seven commercial lots during its first online-only property sale in 2018. While residential auctions conducted online aren’t widely used in the UK however, this is an option that’s expected to increase in the coming few years. A late bid in an auction can cause the clock to be extended for a minute. The sale is complete only after there’s been at least 60 seconds silence.
What are the advantages of purchasing a home through auction?
It is easy to buy at auction. Other benefits include:
Speed
It is possible to move quickly, with the entire home-buying process being completed within a set amount of days (often 28) following the auction.
Transparency
You’ll be able to see all bids, and you don’t need to fret about gazumping.
Fairness
Like all other property buying methods, there is no pressure to submit your offer first.
It’s official!
This process does not suffer from lengthy delays from different parties or disruptions in communication.
There are numerous possibilities
There’s also usually a wider selection of homes and it’s possible to locate certain gems that are truly worth the money for sale, like an undervalued home with planning permission or that home improvement project that you’ve been searching for.
Reliability
Contracts are signed when the auction is concluded.
What are the cons of purchasing a house through auction?
It is essential to complete everything quickly, from organizing a survey to asking for your lawyer to look over the legal pack. Other things to keep an eye for are:
Do you have access to all funds?
If you win your bid, you’ll have to pay the 10% deposit immediately and the rest soon afterward.
Will you go over budget?
It’s easy for people to get carried by the time of the day.
Is the price going to change?
The guide price is usually set low to generate interest and is not an estimate of the potential value of the property. The rising guide price could indicate that there’s plenty of demand from other buyers, and the property you are interested in could be sold for more than you anticipated.
Beware of the buyer
The properties that are in a state of depreciation due to structural issues such as short leases, deficient covenants (such as the lack of a legal right to access) or restrictive covenants (such in the way the property is able to be modified or extended) are usually sold at auction.
It is possible that you will not be successful in the auction.
You’ll be wasting your money and time if someone outbids and you’ll have no option but to pay them.
What’s done is
Keep in mind that when the hammer is dropped, there is no turning back.