25 August 2023 by Esin Taze

Buying Property at Auctions

Buying a property at auction can be appealing to many people but what are the advantages and disadvantages?

Auctions will work better for buyers and sellers who want to avoid the traditional conveyancing transaction and the lengthy time it takes from offer to exchange of contracts. With auctions, your sale or purchase is agreed as soon as the hammer falls. This avoids the risk of losing your sale or purchase at a late stage of the transaction or even just before exchange of contracts – as sometimes happens!

At auction, you will hear the other bids for the property.  By contrast, if you were to make a bid for a property through an estate agent then you will not be privy to the other offers which have been made for the same property.

There are of course transactional costs associated with buying or selling a property at auction.  These costs could include the administration fee payable to the auction house, buyers’ premiums, your solicitors’ fees and any other disbursements incurred when normally buying or selling a property.

You will need to do the research yourself to find an auction house in the right area and then contact the auction house to enquire about the procedure for buying or selling through them. The auction house will also publish an auction catalogue four weeks before the auction so, if you are interested in a property, you would need to act fast!

Helpful Pointers before buying at auction

  • Arrange to inspect the property before the auction takes place.
  • Auction properties can be in a poor state of repair, have title defects and many other issues (which is often why they are being sold at auction).
  • Try to get a clear idea of the property’s market value, so that you don’t get pulled into a bidding war and pay above what the property is worth or what you can afford!
  • Speak to local agents, surveyors, and builders about the property, and the price and conditions neighbouring properties have been sold for, so that you have an idea of what the property is actually worth or could be worth if it was in a better state. Auction guide prices are often set low to bring in bids – so be wary of the guide price, as this does not often mean you will get a bargain when buying at auction.
  • Go to auctions regularly so that you understand how they work and what to look for before you commit to an auction property.
  • Obtain a homebuyer’s survey or a full structural survey report on the property before you commit to a purchase. This is so important as the survey report will advise you if there are any major structural issues with the property. If you decide not to place a bid on the property following the survey, you will lose the money you spent on the survey but better that than to lose on hundreds of thousands of pounds on a property that you cannot then sell or have to spend even more to make structurally sound!
  • The auction house will prepare a legal pack for the property, which includes things like the title deeds, searches, seller’s property information form, fittings and contents list, and the leasehold information form and the management pack if the property is a flat. They don’t always include the management pack with leasehold properties – and this could potentially be a red flag. If the pack is available, you should instruct a solicitor to look over it before you go to auction, to advise you of any onerous covenants, loopholes, length of term and anything else that could change your decision to make a bid on the property.
  • Most buyers at auction are cash purchasers but, if you need a mortgage, then you really should get an offer in principle from a lender before the auction – this is so that your finances are ready for the purchase and there is little risk of you not being able to obtain a mortgage offer.
  • You will have to pay the 10% exchange deposit once your bid is successful at auction (i.e. when the hammer falls). You will then have a month within which to pay the remaining 90% of the purchase price. If you are unable to, you will lose your 10% exchange deposit, the property, and any other funds you have invested in the purchase of the property. You may need to cover the costs of re-selling the property and any losses between the price you agreed to pay and the final selling price. You could also end up paying interest at a daily rate until the property is actually sold.

The Disadvantages of Buying or Selling at Auction

As you will hear other bids on the property, you could also find yourself in a bidding war which you had not prepared yourself for. If your bid is not successful, then any money you had put into the research of that property would also be lost. But remember there will always be more properties going to auction – so if one property doesn’t work out, then the next one might.

Auctions can be quite daunting for those who are inexperienced, so it’s best to get comfortable with the auction procedure before making bids to buy a property. People can get carried away, so remember what your budget is and stick to it – otherwise you could commit to a financial decision that you cannot afford. Similarly, if you are selling at auction and a buyer who does not have sufficient funds is successful at bidding, then this would mean that the completion is delayed beyond what you anticipated – if indeed it takes place at all. There is also the risk that there are no bids incoming and the property does not sell at auction, in which case you will need to look into the option of selling on the open market.

We would strongly advise anyone selling or buying at auction to consider the above and to contact our expert Residential Real Estate team for guidance.

 

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