Over the last few years, a surge in the growth of house prices has seen an increasing number of people looking to buy their homes through auction in order to save money.
The average house price has risen by £39,000 to £292,000 in the last year according to government statistics. With the auction market flourishing, it may be worthwhile to think about using an auction to buy your next home.
How can I buy a home through auction?
Property auctions are a great way of buying a home quickly, easily and smoothly. To find properties for sale at auction it’s best to look at online forums such as Rightmove and Zoopla. Alternatively, you can look in newspapers, or catalogues or use an estate agent.
To ensure that buying a home at auction is right for you it’s best to be aware of the advantages and disadvantages.
Buying a house at auction vs buying through an estate agent
The main difference between these two options is their impact on the property’s price. Properties sold at auction will have a guide price attached to them, whereas when you use an estate agent you will be quoted an asking price which is usually the minimum price that the seller of the property will accept. However, this is not always a true reflection of what the house will ultimately sell for.
Whether you go through an auction or estate agents there can also be bidding wars involved. When buying a property through an auction, the bidding for the property can sometimes start from a lower price than they are worth at normal market value, so you can often save a large amount of money.
Using an estate agent means you can gain access to properties which can be in a newer condition and already have residents living in them. Properties that are sold at auction tend to be a bit older, may need a lot of work done on them and won’t have residents living in them.
Properties that are being sold at auction will also have a link to the legal pack which will contain important information about the property. This pack means you can see detailed information about the property before making an offer. In contrast, going through an estate agent will mean that you will only get this information after you have had your offer accepted by the seller.
The speed of the transaction will also differ. Using an estate agent to buy a property will typically take longer than going through an auction. Buying a property through an estate agent will usually take 3 months, whereas going through an auction will mean your purchase will be completed in a distinctly shorter timeframe. In most auction purchases, you will only have 28 days to finalise the purchase.
In modern auctions, you still place a bid but you are not committed to purchasing the property. In a Modern Auction, the purchase is conditional up until the exchange of contracts.
Modern auctions are mostly carried out online and buyers have 56 days to complete the transaction meaning that the buyer will have more time to get a mortgage agreement. Before bidding at auction, buyers will have secured a mortgage in principle and met the lender’s criteria for affordability. A non-refundable fee will need to be paid to show that buyers are definitely going ahead with the purchase which is usually 5% plus VAT.
For modern auctions, you’ll need to register in advance and sometimes will need to pay a fee of around £1,000 + VAT. In some cases, properties may also have a buyer’s premium attached to the auction price.
Traditional property auctions take place in person or online and are done over a specific amount of time.
Before the auction, properties will be advertised either in a catalogue or online. Contracts are exchanged straight after the auction is finished and the bidder who has won the property has to pay a 10% deposit. Sometimes, there is also a buyer’s premium to pay and/or a contribution towards the seller’s legal and agents’ fees which are added to the purchase price. Following the exchange, the buyer usually has to complete the property in 28 days.
Advantages of buying at auction:
- The process is much swifter. The sale is more likely to complete quickly.
- The contracts will be signed straight after the auction, so you can be confident that the sale will go through.
- When buying at auction you are not part of a chain.
- You could save money buying at auction, as most houses are put up for auction at less than market value.
Disadvantages of buying at auction:
- If you pull out of the sale after the auction you will have to pay multiple financial penalties.
- There could be hidden issues with the property which could mean that you may find it hard to sell or finance in the future.
- Due to the bidding that takes place at auction, you could find yourself paying a much higher price than you may have wanted to pay.
- The mortgage lender could decline to lend meaning that you could lose money should you not be able to arrange alternative finance.
Buying a house at auction can be riskier than going the traditional route of using an estate agent but it can have many benefits.
If you do decide to go down this route, it is a good idea to research the property before the auction, understand the terms and conditions of the property sale and research the auction’s rules and the process involved. Doing this will help you feel confident and will stand you in good stead when you go to auction.
It’s also good to speak to a specialist. Our auctions team can help to guide you through the process and advise you at each stage. To receive a quote, email firstname.lastname@example.org