Buying Houses at Auction - Everything You Need to Know

Buying property at auction sounds pretty exciting, and it can be a good way to begin your journey of property investment. But there are a few things you should know before thinking about buying houses at auction.

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What are Property Auctions?

A property auction is a structured event where properties, such as houses, flats, and commercial spaces are offered for sale through a competitive bidding process. It provides an alternative method to the traditional process of buying through negotiations with sellers and estate agents. Property auctions can be a good way to get a bargain or buy a property quickly.

How do Property Auctions Work?

Auction properties are usually posted online a month prior to the auction. This window provides potential buyers with the opportunity to examine the property and make an informed decision about whether to attend the auction.

There are two types of property auction; traditional and modern. In a traditional auction, also known as an unconditional auction, a specific day and time are designated for the event. During this time, the auctioneer invites interested bidders to participate, with bids being placed in rapid succession.

In modern, or conditional auctions, bids can be submitted online until a predetermined final date and time, much like bidding on eBay. Traditional auctions are less flexible and have a much shorter time frame than modern auctions, which can accept bids for up to 30 days.

In both scenarios, the seller establishes a reserve price, which serves as the minimum amount they are willing to accept for the property. The property is awarded to the highest bidder who surpasses the reserve price. If you emerge as the highest bidder, you will usually be required to make a deposit or a reservation fee on the day of the auction itself – normally 10% of the final sale price.

What Kinds of Properties Are Sold at Property Auctions?

Many sellers who are looking to sell a property quickly favour auctions as a selling format. This could be good for you as the buyer, as you could get a great deal, or it could be a way for a seller to offload a problem property. This doesn’t necessarily mean that it’s a bad deal or that you will get ripped off, some properties just require more development than others, which is often what property investors look for when buying houses at auction. Some specific kinds of property are often sold at auction, such as pubs, churches, commercial properties, and land or development opportunities.

Property Auctions vs Conventional Sales

Property auctions and conventional property sales present distinct approaches to buying and selling. In a property auction, the process revolves around a competitive bidding environment, with potential buyers placing bids on the property within a specified timeframe. Property auctions offer speed and a competitive atmosphere, which could result in some amazing deals, but require fast decision-making.

Conversely, conventional property sales involve a negotiation-driven process. Properties are listed with an asking price, and buyers and sellers negotiate through offers and counteroffers until an agreement is reached. Interested buyers have the opportunity to visit the property during open houses or scheduled viewings. The negotiation process occurs privately, with communication facilitated through real estate agents. Once an offer is accepted, a sale agreement is drawn up, followed by a due diligence period that includes property inspections, financing arrangements, and title transfers. This traditional process usually takes longer than the swift auction process.

The Pros and Cons of Buying at Auction

Pros:

Property auctions offer tons of potential for finding properties at lower prices due to a competitive bidding environment.

Auctions are a quick way of buying a property, which can be ideal for investors. The seller wants the property sold fast, and you don’t have to waste time negotiating with estate agents, waiting for them to come back to you, and so on.

The auction process is transparent, which can provide a level playing field for buyers.

You could also get a once-in-a-lifetime chance to secure a unique or unconventional property.

Cons:

There are risks associated with buying property without thorough inspections. Not every auction property gives the chance for a viewing or a survey beforehand.

In the excitement and drama of an auction, it’s easy to get caught up in bidding wars and end up overpaying for a property.

There are some legal and financial complexities that buyers need to navigate – you will need to have the deposit ready to go, on the day of the auction. You will lose this deposit if you end up backing out or changing your mind. Some auction sales require payment in full within 28 days for a traditional auction and 56 days for a modern auction.

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Preparing for a Property Auction

Do as much research as you can about the property up for auction. If you have the chance, visit the property beforehand, taking a surveyor, builder or architect with you who can give you an idea of the cost of any required work. Look at similar properties and find out what a realistic price would be, so you know if you are getting a good deal. It’s also a good idea to go along to some local property auctions before you are planning on bidding, so you can familiarise yourself with the process and the environment of an auction. Take the time to go through the terms and conditions of sale before taking part, and have a solicitor look through the fine print to make sure you don’t get any surprises on the day. It’s sensible to have a solicitor or conveyancer in advance who can help with legal documentation before considering buying houses at auction.

Set a budget, and stick to it. It’s easy to get caught up in the fast pace and frantic bidding wars at an auction, but keeping your budget in mind will reduce the chance of future buyer’s remorse. Bear in mind any administration fees, potential renovation costs and legal fees when setting your budget, Speaking of a budget, make sure your finances are in order when buying houses at auction. If you are relying on a mortgage or loan to buy the property, always double check the full amount will be available to you by the payment deadline.

Winning the Auction – What’s Next?

Once that gavel goes down, congratulations, you’ve won! So what happens next? Once you have paid your deposit and made sure your finances are in order, it’s time for a survey. This will help you find out if there are any repairs that need doing or any other potential issues. If you are using a mortgage to buy the property, the bank may ask for a property valuation, which can be done at the same time as a survey. You should also take out an insurance policy which begins on the same day you take ownership of the property, which is usually the same day as the auction. We did say it was fast! Given that the ownership transfer is instant, you should also have your solicitor or conveyancer ready to facilitate the transfer of legal documents.

What Happens if the Property Doesn’t Sell?

This scenario is not unheard of, where a property doesn’t get any bids above the reserve price. In this situation, it’s common for the auction house to ask any interested buyers to make them an offer after the auction. If this happens, don’t be afraid to make an offer below the reserve price – the seller is going to be highly motivated to sell after the property’s poor performance at the auction.

So in conclusion, property auctions can be a quick and relatively easy way of investing in property, and there are some really unique finds out there that you might miss out on otherwise. But do your due diligence first, make sure your finances are in order, get some legal assistance, and make sure you stay within your budget. Happy bidding!