What to Know When Buying a Property at Auction
Buying a property at auction can be a great way to get on the property ladder and avoid lengthy and uncertain buying procedures. With the possibility of getting a property quickly at a lower price, buying an auction property is a tempting prospect for first-time buyers, those looking for an investment property, and property flippers. House auctions can be exciting and intimidating, but can be worth it with some preparation. In this article, Eden Hawk Financial Solutions will walk you through the basics of buying auction properties, the differences between traditional and online auctions, and some practical tips for success.
How do Property Auctions Work?
Property auctions are live events arranged by an auction house where properties are bought and sold in a public forum. Unlike the traditional house-buying process, auctions allow buyers to compete against each other in real-time by bidding. The winning bid that meets or beats the reserve price gets the property. The whole process of buying property at auction moves fast, often taking just minutes, so you need to be ready before you go.
A house auction usually has a guide price, which is an estimate of what the property might sell for, and a reserve price, which is the minimum the seller will accept. This is not a fixed price, but just a starting point for bidding. Keep in mind that you should factor any auction fees into your budget. Auctions are run by auction houses or estate agents, either in person or online, for prospective buyers who can’t attend in person.
Finding properties to buy at auction involves keeping track of upcoming auctions and being prepared to act fast, since there are usually only a few weeks between the auction catalogue being published and the auction itself.
What Kinds of Property Auctions Are There?
Traditional (Unconditional) Auctions
Once the hammer falls in a traditional auction, the sale is legally binding. Buyers must pay a deposit, usually 10% of the price, on auction day and the balance within 28 days. This type of auction is fast-paced and buyers need to be ready with finance and legal paperwork before they attend. This option is great if you are a cash buyer and can pay right away.
Online (Conditional) Auctions
Online auctions are a modern method that is becoming more popular. They offer flexibility for both sellers and potential buyers. In a conditional auction, the winning bidder gets an exclusive window, usually 28 days, to get financing. A 5% reservation fee is usually required to hold the property and extends the transaction time frame compared to traditional auctions.
Some buyers also accept proxy bids, where someone, often one of the auctioneers, bids on your behalf if you can’t bid personally, or telephone bids in advance.
How to Prepare for a Property Auction
Inspect the Property
Before you buy property at auction, always inspect the property in person and be prepared to ask the same questions you would for an open market property. Get to know the condition of the property and determine why it is being sold at auction. While auction properties are often cheaper than the market value, many require renovation work, which can drive up the cost to much more than the sale price.
Get an Agreement in Principle
Having an agreement in principle for a mortgage before the auction starts can give you an edge as a bidder. It shows you’re financially ready to complete the purchase if you win.
Research the Local Market
Knowing the local market is key to setting a realistic budget, especially if you’re a first-time buyer and unsure what to expect. Look at recent sales of similar properties to work out your bidding strategy.
Get a Solicitor to Check the Details
A solicitor can review legal information, including the auction legal pack for the property, and highlight any restrictions or hidden covenants that come with the sale. Reading and understanding the legal pack is crucial to make sure you’re fully informed before you bid.
Set Your Money Limit
Decide on your maximum bid before the auction to avoid emotional bidding and overspending. Stick to your budget and don’t pay more than you can afford to stay financially stable.
Get Your Paperwork Ready
Make sure all your documentation is prepared, including two forms of ID and proof of funds, ready to submit once the auction is over. It is very important to have your financing and paperwork prepared before buying a property at auction, as you could be charged interest.
What to Do When You Win
Get a Survey
When you make the highest bid and win the auction, get a survey done on the property. This will give you peace of mind and highlight any structural issues that need attention ASAP.
Get a Mortgage
Finalise your mortgage application and provide your lender with all the required information to complete the purchase within the time frame.
What if I Pull Out?
Once the gavel falls, the sale is legally binding. If you pull out after winning an auction, you will lose your deposit and any reservation fees. Please consider this carefully as it can have financial implications and affect future property purchases.
Pros and Cons of Buying at Auction
Choosing to buy at auction has its advantages and disadvantages. The advantages are potentially lower prices and a quick purchase because the seller is eager to sell the property. Bidders need to be aware of the risks, including limited time for due diligence and properties that may need significant repairs.
How can a Mortgage Broker Help?
A broker can assist you throughout the auction process. They can help you find the most suitable deals so you can bid with confidence. They can also guide you through the complexities of auction purchases and give you advice specific to your situation for a hassle-free experience.
Final Thoughts
Buying at an auction can be a rewarding experience for first-home buyers, investors and property flippers. Knowing the process, being prepared and working with experienced professionals will increase your chances of success. Remember, the key to the auction circuit is preparation. If you’re interested in buying at auction, contact Eden Hawk Financial Solutions today.