A guide to buying property at auction
Grabbing a property bargain at auction can be a wise move for savvy property investors. Although it seems like a simple prospect, it can be tougher than you think as emotions run high and decisions have to be made quickly and in the heat of the moment.
Once the hammer drops, you must exchange instantly and will usually be legally obliged to complete the transaction within 28 days.
We want to ensure you’re well prepared and able to reap all the benefits of buying at auction while mitigating the risks. With that in mind, in this article, we’re going to break the process down and will even give you some pro tips for success.
The process of buying at auction
The process for buying property at auction differs greatly from purchases made through an estate agent.
Firstly, an offer agreed at an auction, as mentioned above is legally binding. This means that if your bid is successful, you are legally obliged to complete the purchase.
Failure to complete can result in financial penalties for the buyer, meaning you have to be sure before entering the auction.
This does have a major advantage as a buyer in that you can be sure that you won’t be gazumped but does pose a risk too.
What should I consider before bidding on a property?
There’s no way to completely remove risk from the equation when looking to buy at auction, but you can reduce it dramatically.
As you are legally bound to complete on any property won at auction, it’s crucial that you know what you’re letting yourself in for. There are a few key steps that you should take before bidding on a property.
Always go for a viewing
Viewing the property will give you a real insight into the condition of the property and may alert you to any obvious issues.
Of course, there may be issues that aren’t so easily identified. There is a way to spot them, but it comes at a price…
Instruct a survey
Instructing a survey will give you a true guide to the value of the property and, depending on the type of survey instructed, may alert you to any potential issues with the property.
Although this can safeguard you against buying a property with serious problems, it means that you’re committing money to a property and may ultimately be outbid.
When you’ve already spent money, that can mentally commit you to winning the auction, which can be bad move.
Set a maximum price that you’re willing to pay
To avoid overspending due to the time and money already spent, have a ceiling price in mind before starting, and stick to it!
If you have spent money on a property survey, you may feel more committed to the purchase and pay more than the actual value. As the bidding creeps up, you may have a natural tendency to get into a bidding war.
What do I need to have in place before I attend the auction?
Before stepping foot in the auction house, you would be well advised to get a few key things in order. By looking into the following prior to the auction date, you will give yourself the best chance of success, should you be the highest bidder.
Generally speaking, a traditional residential or buy to let mortgage will take longer than 28 days to complete, meaning they aren’t suitable for auction purchases. Even if you find a lender that says they will be able to complete within 28 days, it will be very tight, with little to no room for error.
Bridging loans are the preferred option for most auction winners as they usually complete in 5-14 days – well inside the 28-day deadline.
Whichever route you choose, make sure your application is approved in principle before you attend the auction. You should be ready to start the finance application as soon as the hammer drops.
You’re responsible for the property as soon as the auction is won, so you will need to make sure your buildings insurance is ready to put ‘on risk’ prior to bidding.
Should anything happen to the property, such as a fire, you are still legally obliged to complete at the agreed price.
A good solicitor
In order to complete a property purchase quickly, you need a solicitor who is able to work quickly. It is ideal to have a solicitor in place before the auction. Check with them upfront that they can deal with auction purchases and if using a bridging loan, that they have an understanding of them.
There are a number of factors that could delay completion, such as waiting for local authority searches to come back and the solicitor’s workload.
Should you buy at auction?
Buying at auction can see you pick up some property bargains, but the key to success is preparation.
If you’re willing to put in the legwork and you have the right professionals around you, buying at auction could lead to major savings.