Love life in the fast lane? Then property auctions could be for you. It’s an adrenaline-fuelled ride that’s not for the fainthearted. But, when all is said and done, you might find it less of a rollercoaster than you expected. In fact, property auctions can often have fewer twists and turns than buying the conventional way via an estate agent.
How do property auctions work?
Property auctions are becoming increasingly popular. And it’s not all thanks to the accessibility of online auctions and the popularity of shows like Homes Under The Hammer. It’s because, contrary to popular belief, you can now buy a wide variety of properties. Auctions aren’t just for repossessed or dilapidated homes.
As a result, property auctions are no longer the preserve of investors and cash buyers. If you’ve ever wondered ‘can you get a mortgage on an auction property’ then the answer is yes. First-time buyers and those looking for family homes often participate, so you shouldn’t feel out of your depth.
How do online property auctions work?
The emergence of online auctions, which give you more time to complete, have also made property auctions more appealing. You simply set up an account, provide your payment details up front, and then make bids in real time from the comfort of your own home. It’s very cushty indeed.
If you’ve used eBay before then modern auctions work in a similar way: you simply bid over a period of time (usually a week) and the highest bidder secures an exclusive option to buy. However, you can’t just put in the highest bid at the very last moment and walk away as the winner. An online property auction is usually extended when eleventh hour bids are made. This gives rival bidders a fair chance to respond.
Where to find auction properties
Whether you go down the online or traditional route, it’s remarkably simple to buy property at auction. Simply look for a local auction house (make sure it’s NAVA Propertymark registered), ask for a catalogue, arrange a viewing, and then look through the information pack provided before the auction begins. This pack includes vital info like the searches, title deeds, and fixtures & fittings details.
If you’re attending in person rather than buying online, buying via telephone or by proxy, simply turn up on the day with some ID, your solicitor’s details, plus means of paying the necessary 10% deposit should you lodge the winning bid. Sit somewhere you can observe the whole room (somewhere near the back is usually good for this). A poker face is optional.
You can often land your perfect pad at auction. And you can often do so at a very attractive price. Those looking for good fixer upper properties should be licking their lips in anticipation. What’s more, you can also find excellent top-end luxury homes at a property auction, too. Jeeves would be very impressed.
The main advantage, however, is that you avoid the complication of chains. You won’t encounter lengthy delays and less can go wrong due to third parties or bad communication. It’s also a more transparent process. There’s no second-guessing what the seller might expect, there are no negotiating tactics from estate agents, and there’s zero chance of being gazumped.
The other massive advantage is that you’ll save time. Lots of it. Buying at a property auction takes weeks rather than months because searches and preliminary surveys are usually done in advance. This speeds up the legal process considerably. Indeed, transactions have to complete within 28 days at traditional auctions.
Sadly, however, time can be the enemy, too. In fact, it’s sometimes a real push to transfer mortgage funds and complete the necessary formalities in the four weeks allotted; therefore it’s a good idea to get as much as possible sorted before the auction actually starts.
What’s more, there’s no going back when you win an auction. You’re legally committed to the property right away and need to pay 10% of the sale price immediately. If you subsequently decide to back out then you’ll lose this deposit. Ouch.
Consequently, buying via a property auction isn’t without potential hazards. You might lose your job, or your mortgage company might throw a substantial spanner in the works. Beware that they often find it difficult to value homes that need a lot of updating, and they won’t lend on properties that lack a functioning kitchen or bathroom at all.
Finally, bear in mind that Consumer Contracts Regulations won’t protect you when you buy at auction. You’re also far from guaranteed to pick up a bargain. If more than one person is interested in a home then a bidding war can escalate quickly. The ultimate sale price can end up substantially more than the reserve price, which is often set low to entice early bidders.
Hints and tips
As a result, it pays to go into the process with your eyes wide open and know precisely how property auctions work. You can get a mortgage on an auction property but make sure it’s agreed in principle before you bid, and always take a surveyor, architect or builder with you on viewings so they can estimate how much any necessary works will cost.
It’s also worth talking to local estate agents to pick their brains over a home’s likely value. You can look at the property portals to get an estimate but these aren’t always accurate. It’s also worth instructing a solicitor to look through the paperwork provided by the auction house in advance to pre-empt potential problems.
Finally, always have a bidding strategy in mind before a property auction starts and never go higher than the maximum figure you had in mind beforehand. This is absolutely crucial, especially if you have a mortgage lined up. Paying more than you can borrow is a recipe for disaster. Bridging loans can dig you out of a hole but the interest rates can be very expensive.
The bottom line is that property auctions are a great way to buy whether you’re a first time buyer or looking for a forever home. It’s simpler, faster and more transparent. However, be careful to avoid the potential pitfalls and always stick to your limits. Those obsessed with winning at all costs usually lose in the long run.