How to buy a house at auction
Buying a property at auction can be a great way to land a bargain with a quick sale, however it’s important to understand the process to be able to reap these benefits. That’s why we’ve put together this guide to buying at auction, to provide you with all the information there is to know to confidently make your bid and hopefully achieve a successful purchase.
It’s a common misconception that auction is only suited to experienced investors and that the process is an intimidating one, but actually today’s auction experience is suited to all property buyers, including first-time auction attendees and even first-time buyers in general.
While the competition can be fierce, so long as you are prepared in advance, have your budget set and are confident enough to call it quits if the bidding goes above your budget, then you’re more than prepared and qualified to purchase by auction.
Here are some steps to take to put you on the right path to successfully purchasing a property by auction:
Browse for properties in your desired area
Take a look online and carry out some research into both auctioneers and auction properties available in your area. If you already know the specific type of property you desire, whether it’s a flat, a house or a bungalow, you can usually narrow down your search using filters on a website’s search function. Using SDL Auctions search tool, you can drill your search down by property type, location, price, minimum and maximum beds and more, so you only see properties that you will genuinely be interested in.
View any property you’re interested in bidding on
While this has been a little tricky during the covid-19 pandemic, we do like to stress that viewing a property before placing a bid is very important. Although you may not successfully buy this property at auction, in the event that you are the winning bidder, viewing prior ensures that you won’t be disappointed when you come to own the property. Viewing helps to give you an idea of any damage to the property and inform any renovation works you may wish to carry out.
Consider having a survey carried out
If you have viewed the property and decided that you would like to bid on it, then having a professional survey carried out is recommended. This further informs any renovation or work that is required, giving you confidence that you won’t receive any nasty surprises on the day you get the keys. A homebuyers report is usually around £600, and it’s a little extra, around £1000 – £1500 for a full structural survey. This may seem like a lot of effort for a property that you aren’t 100% certain you will successfully purchase, but it will save you in the long run, as it will be completely clear whether the property will require any work or whether it is move-in ready.
Read the legal pack in full
This is the single most important piece of advice we can give. Read the legal pack in full for any property you wish to bid on, from cover to cover. Any reputable auctioneer will provide you with access to the legal pack with enough time in advance of the auction date. The legal pack includes crucial documents such as the title deeds, local authority and environmental searches, a fixtures and fitting list, the seller information and any relevant leasehold information.
To be extra safe, we recommend that you ask a qualified solicitor to look over this information with you, to explain anything you may not understand, or to identify any covenants or loopholes within the pack that may see you paying more than you were aware you had agreed to.
Understanding the guide price
Guide prices are based on the sellers likely reserve price and are disclosed to enable potential purchasers to decide whether to pursue their interest in a property. There is no guarantee that the final price will fall exactly within this bracket. If there are several bidders interested in a property, then competitive bidding will often result in a sale price beyond the guide price. This is why it is so important to work out your maximum budget and retreat from bidding if the price goes beyond this. Having control and remaining calm is key, while it can be disheartening to be outpriced, you will again find a property that you love and may just be more successful on the next occasion.
Prepare your finances – How much deposit do I need to buy a house at auction?
As with most house sales, a deposit is often required to secure a property by auction. This will be up to 10% of the sale price, and not a percentage of the guide price, which is again why we stress that budgeting is so important. Bear in mind your deposit amount at all times when bidding and ensure the price does not go above what you can afford.
If you are a cash buyer, then be sure to factor in any fees as well as the property price to your budget. As a cash buyer, you will likely have a more definitive idea of budget, so err on the side of caution and do not go above this.
If you are purchasing with a mortgage, then be sure to secure a mortgage in principal ahead of the auction day. If the sale type is unconditional, you will need to secure your mortgage and pay the funds in full within 20 business days of exchange. Once your deposit is paid, you cannot back out – please note you must pay your deposit on the day.
With a conditional sale, then you enter into a reservation agreement at the point the sale is agreed and are granted 20 days to can carry out any due diligence. Following this exclusivity period, you will then have a further 20 business days to complete the sale. This option is likely better for mortgage buyers, but mortgage buyers are still welcome and encouraged to purchase by unconditional sale.
What happens on the day of the auction?
Whether you’re joining a live streamed auction, bidding in a timed online auction, or attending a physical room auction (once Government restrictions allow), the process of bidding can feel overwhelming due to the competition, but be sure to keep calm. Keeping a cool head ensures you don’t make any rash decisions and enables you to logically increase your bids as you see fit.
Arrive, or log on to the auction site early to ensure you’re not late and you feel settled in ahead of the bidding process. Ahead of the auction day, you will need to provide two forms of valid identification, such as a passport or driving license and a utility bill, along with evidence that you can afford to pay the 10% deposit amount. This will need to be supplied ahead of the auction day if you are bidding in a live streamed auction or timed online auction. You can register in the room on the day if you are attending a physical room auction.
Then, it’s time for the bidding to begin. The auctioneer will begin with the starting bid and bidders can then declare their interest. Bidders can join in at any time in the process so be aware that those initial bidders aren’t your only competition. The seller will have set a reserve price, which is the amount that they are not willing to sell under. If the reserve price is not met, then the property will go unsold. This doesn’t always mean that your luck is out. Sometimes, you may be able to make a post-auction offer to the seller, so perhaps approach the auctioneer to discuss this.
If you’re nervous about attending your first auction, or you’re a regular attendee, the aim is the same – come prepared and you’ll be fine.
We’re not currently holding any physical room auctions, but please check out our upcoming live streamed auctions and daily timed online auctions to see if there’s a property you may be interested in. If you would like any further information, then please don’t hesitate to contact our friendly team who will be more than happy to advise you.