Guide to buying a property at auction
Buying a house at auction can land you a bargain, but it always pays to do your homework first, says Ian Peach.
Buying a home at auction is not just the preserve of the hardened property investor or developer. Home buyers looking for a bargain and to buy and complete in double-quick time are a common sight in the auction sale room, but it is not for the fainthearted.
As soon as the auctioneer’s hammer falls the successful bidder has contracted to buy the property and is legally obliged to complete the transaction in just 28 days. The parties are at liberty to agree an earlier completion should they choose. The key to successfully buying at auction is preparation and homework.
A good place to start is our step by step guide:
- Experience the saleroom – Buying a home at auction is a very different experience from going through an estate agent. It can be a fast-paced environment, with the auction lots shifting quickly. The auction room can be an intimidating place for those who have never experienced it before. My advice to anyone considering buying a property at auction would be to visit some sales before you buy in order to get a flavour of the atmosphere and the procedures, as well as to get an insight into the values of properties being sold.
- Choose a local auction house – Just like a local estate agent, a local auction house will provide expert and invaluable local knowledge. Ask to be added to their mailing lists for future sales and obtain sale catalogues. The sale catalogue is where your buying journey will begin.
- Have your finances in place – It sounds a simple and obvious reminder, but make absolutely sure you have the funds available at the time completion falls due. The fall of the auctioneer’s hammer seals the contract to buy and at that time a buyer is required to lodge a deposit equivalent to 10% of the price of their winning bid with the auctioneer before they leave the auction. The remaining 90% falls due at completion, so if you require mortgage finance it is essential to get ahead of the game and ensure the funds are available in time for completion. Do not assume that your conveyancer can comply with the multitude of obligations imposed upon them by your lender as there can be factors beyond the conveyancer’s control that impact upon the ability to draw the loan on your behalf in time. A good rule of thumb is to ensure your liquidity for the purchase monies before you enter the auction room on the day you intend to bid. The speed of completion is part of the attraction of buying at auction, but is also the downfall of many. Remember also that lenders will want to value a property themselves before agreeing to a mortgage, and that too can cause delay. The consequences for failing to complete upon a winning bid can be serious. It is likely you will forfeit your deposit and you will also risk a claim for damages from the seller under the terms of the sale contract you have entered into.
- View and inspect the property – Something else that may sound obvious, but we see all too often buyers buying at auction without even having first viewed the property. Make sure you view the property and are comfortable with what you are looking to purchase. If the property needs work, do consider taking a surveyor or builder with you to provide advice and cost estimates. Viewings will usually be conducted by the auctioneers. This provides you with the opportunity to put questions to them and for them to recognise you as a serious buyer.
- Auction legal packs – Properties sold at auction will be accompanied by an auction pack, which are usually available in advance of the sale. The information in these packs can vary widely, and it pays to have your solicitor check them through, paying close attention to any special conditions attached to the contract. For example, it is not uncommon for the buyer to be responsible for reimbursing all of the seller’s costs, and that will need to be budgeted for. Some of the more routine property searches are usually included in the legal pack, but additional bespoke searches may need to be completed if time allows in advance of the auction date. Some law firms, including our own, will provide a pre-auction report upon the legal papers providing the opportunity for any queries arising to be raised with the seller’s solicitors in advance of the auction date.
- Know your budget – and stick to it The sale room can be exciting with bids sometimes coming in thick and fast. Things can get even more fast moving when telephone or online bidders are involved, and in those circumstances the auctioneer works harder tracking the bids in the room itself as well as those coming externally.
When the adrenalin kicks in, it can be all too easy to get carried away, so our advice is to set your maximum budget and stick to it. It’s worth considering bringing a trusted partner or advisor along with you on the day itself to rein you in from a temptation you might regret. In our experience auctioneers are, in the main, a friendly bunch and are more than happy to help and provide some advice.
It is increasingly common for auctioneers to have their preferred solicitors who are used to dealing with auction properties on hand in the sale room to offer more general advice to buyers and sellers. Do keep in mind that they cannot offer advice upon legal packs for any lots that are being sold on the day.