It’s often said that buying a house is one of life’s most stressful tasks. Even when you think the last bit of paperwork has been signed, something else pops up that needs checking, sending off, or paying. Then factor in after all this, the chain breaks, and that dream house is no longer going to be yours.
These are just some of the reasons many people look to secure properties at auctions these days. It’s a faster process and can be significantly cheaper than buying through a traditional estate agent. However, should you be the highest bidder when the hammer falls, the house is yours and you are then committed to buying it.
The question is though, how do you buy a house at an auction? Do you simply turn up, keep bidding until you can bid no more and hopefully win? Or is there much more to it than raising your hand and hoping nobody else does after you?
What to do before you buy property at an auction
Before you head off to the nearest auction house in the hope of securing a house for less, there are a few things you should get yourself up to speed with. The first is to understand that in many cases auction properties may be the type in need of quite a lot of refurbishment work. This is not always the case though and that is why it is highly advised you put in some research before turning up at the auction house.
Find an auction house
Once you have an idea of the area you would like to live, you can start looking for auction houses or online estate agents that will be selling properties in that area. Once you have found them, request a catalogue. You’ll be able to see the properties on offer, a guide price and other information that relates to each property. At the same time, it would also be worthwhile subscribing to any mailing lists they offer; property can move fast and this will be one of the best ways to stay fully informed of additions to their listings or changes to any already listed property. If anywhere in the catalogue pricks your interest it is wise to act upon it.
Organise a viewing
As we mentioned earlier, some properties will require a bit of work done to them once purchased and it is important that you know if the one you are interested in falls into this category. Once you have organised a viewing through the auction company, look into a conveyancer coming with you. This way, they can assess the property for any defects and give you a guide on what the costs of bringing the home back to life may be. This is extremely useful as if you had a budget already in mind, these costs could push you above what you deem affordable. Some people choose to blind buy properties at auction and rely solely on the property description, but understandably this has its risks.
Get a valuation and research the local area
Now that you have an idea of the costs involved you should seek a valuation from a local estate agent. This will give you a truer indication of the value you are getting from the auction and what you would likely see as an ROI should you choose to sell the property.
Read the legal pack
You will be able to obtain a pack from the auctioneers that detail all you need to know relating to the fixtures and fittings of a property you’re interested in, the search results, and anything relating to the lease where applicable. This is a vital pack of information, so it is essential you check through it. Bidding, and winning without knowing the information contained in the pack could see you owning a house that has several issues that are expensive or time consuming to rectify.
Check the finances
If all the above steps have been completed and you are confident that you want to proceed, you should assess the finances. Auctions operate quickly so you will need the funds ready. If you are buying an auction property with a mortgage you will need to make sure you have your mortgage in principle secured. Purchases are normally completed within 30 days on an auction property so you will need to ensure your lender can work to that timescale.
In addition, when you win an auction, you will need to pay a 10% deposit on the house right away.
It sounds fairly obvious to ensure you have the funds in place but many people have been caught short and penalties for not completing a purchase on an auction-won property can be very severe.
Should all the above be in order, you are ready to move forward.
How does a house auction work?
Now that you have done the groundwork you are in a good position to get bidding. However, knowing the type of auction you are involved in would be vital before you proceed. There are two types and whilst fundamentally similar, there are a few differences between them.
When browsing for suitable properties, you may have seen them listed as being sold via the traditional or modern auction method. In both, properties will appear online approximately a month before the auction. This will allow anybody that is interested to get a viewing booked and carry out any due diligence.
If the property you are interested in bidding on is listed as being part of a traditional auction it simply means that the auction will take place on a set day where the interested parties can submit bids. Picture an auction on TV and this is what you can expect. A series of fast bids coming in until somebody wins.
In a modern auction, things are done online, and you can submit your bids up until a predetermined day and time. The sellers will have set a reserve meaning if no bids come in matching or above that amount, then the property will not sell. Once the reserve has been met or exceeded and no more bids are forthcoming, the auction is won and the process of paying and finalising the property purchase can begin.
What are the differences between traditional and modern house auctions?
A traditional auction is normally carried out at an auction house and all those looking to bid will attend. Unlike an online auction, it is completed in a relatively short period. You attend, you bid and, if successful, you win. Upon submitting the winning bid and having the hammer fall, you will exchange contracts. You are now legally obligated to complete the transaction. You will then pay your 10% deposit with the rest to be paid within 28 days. If for any reason you try and break the agreement, you will lose your deposit and possibly any other fees and also be penalised.
At modern auctions, things are a little more flexible in the approach to bidding. Rather than be concluded in the same room as everyone else in a fairly quick timescale, a modern auction takes place online. They run for 30 days in most cases and you can bid any time during this period.
If at the end of the auction, you have the winning bid, you will put down a reservation fee. This is normally 5% of the purchase price. From here you have 56 days to have everything completed. A 10% deposit will need to be paid within 28 days and contracts will be exchanged. After this, there are the remaining 28 days to complete the full process. This method is often preferred by those that are looking to purchase with a mortgage thanks to its lengthier timescales for everything to be completed.
What happens during a house auction?
Whether it be online or in an auction house there are a few similarities in what you need to do, what you need to have, and what you should think.
Remember your max bid value
It can be very easy to lose sight of how much you can afford. An auction, whether online or in person can be exciting, fast-paced and easy to find yourself making mistakes. Keep a plan in mind and stick to it.
Have any required paperwork ready
Whether bidding online or in an auction house, you will need to provide ID in order to bid. This should also include your proof of residence. If you are planning to use a mortgage, you will need your MIP too as well as proof of deposit funds.
What happens when I win a house auction?
If you have won a house via auction, aside from fulfilling the completion within the required timeframe you must also get working through the other aspects that normally come with buying a house.
You may have already had a conveyancer view the property with you but that would not mean a survey being completed. This is an important step, especially if you bought the property via the modern auction method. Why? Because you could still potentially pull out of the purchase should the survey uncover anything major. If buying via the traditional method, you may not be able to pull out with the same ease but at least you will be fully aware of issues.
Getting a mortgage secured on an auction property
You should already have your MIP (mortgage in principle). With this you can now see go to the lenders. They will then assess that the value required matches the value for the property. If they are happy, they will organise your mortgage offer. Remember, timescales are important here due to the terms of the auction. Make sure any mortgage provider is able to operate at a speed that matches the requirements of the auction whether it be traditional or modern.
Consider home insurance
There is no difference to insuring an auction-bought property or one purchased via more traditional means. So, therefore, if you would normally insure a home you have bought, do it here too!
Can I pull out if I have won a house at auction?
This is somewhat of a grey area and in most situations, you cannot. You are legally bound to purchase the property. You could, in theory, pull out but you may find yourself liable to a variety of huge costs. In a traditional auction, you would lose the deposit and pay admin fees, in a modern auction, you would lose your reservation fees and your deposit.
Should it be a case of stalling, perhaps you have doubts, you will need to remain aware that auction properties must be completed within a timeframe. If you are not completing within that time, the penalties are large. You could find yourself having to pay the costs for the resale of the house, any shortfall between the price you agreed and its new sale price, plus interest for every day it takes to resell the property.
How much will it cost to buy a house at auction?
With any house purchase, there are fees to pay and an auction is no different. An auction house will charge you a fee, typically a few hundred pounds. You will then also have to factor in any solicitor/conveyancer costs as well as the stamp duty for the house.
Should you see securing an auction property as the most affordable and best option for you, speak to us. We buy any house for cash meaning you can go to an auction house ready to bid. Operating as a cash house buyer we make it easy for you to push your property plans forward. Contact us today to see how we can help.