A beginner’s guide to buying an auction property
Do you want to buy a property at auction, but don’t know where to start? Read our beginners guide and discover some essentials.
Types of Auction
Currently, there are two types of property auction – Traditional Auctions (Unconditional Auction) and Modern Auctions (Conditional Auction).
Traditional Auctions are what most people assume auctions to be, an auctioneer taking bids from a number of people, at a specified venue, including those bidding by telephone or online. Since Covid-19, these have taken place online, otherwise using the same approach as previously.
A guide price will have been given, together with a set reserve price which is the minimum amount that the seller is willing to accept. Those ready to bid will have had a virtual tour, usually through the agent’s website, and anybody wanting a physical viewing will have done so.
This type of auction runs online, usually for up to 30 days. Buyers can bid at any time. Some auction houses will charge a participation fee, although this is usually refunded, and the winning bidder will be asked to put down a reservation fee, which is usually 5% of the purchase price. The fee goes towards paying the estate agent and auctioneer.
Why sell a property at auction?
Buyers are attracted to the speed and ease of auctions. In addition, the seller might need to sell quickly. Some auction properties are sold because the seller simply cannot fix the issues with the property and is looking for a quick sale, for example, due to refurbishment or structural work.
Before the Auction
It is advisable to view the property in person and get professional advice from a surveyor, builder or architect. Knowing about any issues and how to fix them is essential.
Finances will need to be in place. If you’re planning on buying with a mortgage, you’ll need an Agreement in Principle (AIP) from a bank or building society.
Always make sure you have read the legal pack. This will have been put together by the seller’s solicitor and will include the Proof of Title and memorandum of sale. It should also list special conditions of sale, local searches and Land Registry searches too. If it is a leasehold property, there should be a copy of the lease. It is also advisable to have a solicitor to obtain answers to any questions you have about the property.
There is no set amount of time per lot. Once the closing bid has been made, the buyer will put down a 10% deposit, and the reservation fee (5%). Contracts will then be exchanged. The buyer then has 28 days to pay the remaining 90% of the purchase price and complete the sale.
If a buyer does not have a suitable mortgage in place, they can arrange a bridging loan. A bridging loan is a short-term funding option that can be used to purchase the property on the day of the auction, then repaid. More advice on a bridging loan can be found from industry experts such as Parachute Law.
If the property does not reach the reserve price during bidding, it will not be sold. Those interested can negotiate with the seller after the auction has taken place.