House auctions have been around for a while, although most people go down the conventional route, it’s still a popular way to purchase a property with a shorter turn-around. You’ll often hear properties at auction going for a lot less than the area’s going rate, while this could be for a variety of reasons. From disputes over land agreements or desperate need for renovation to possible repossession.
How Do House Auctions Work?
The auction will take place in a designated auction room or potentially, within the property up for bid. There will be a starting bid and then the auction will begin. Prospective buyers should set an upper limit on what they are happy to purchase the property for (and ensure they stick to it!)
Once the auctioneer drops his hammer to signify the end of the auction – you now own the property! A 10% deposit of the agreed amount will be paid by the buyer to the auctioneer and after this, the vendor must start legal proceedings to process the property.
Typically, turnarounds are completed within 28 days, however, you should always check the terms prior to bidding, particularly if you are planning to mortgage the property.
Don’t forget there will always be other fees involved with the cost of moving, including building insurance, stamp duty, solicitor’s fees, valuation and survey fees. So, ensure you’ve taken all these into account when deciding your final budget.
Prior to the Auction
If you are interested in the property auction process and may possibly purchase a house this way in the future, it’s recommended to sit in on house auction, so you can understand the processes involved. Property auctions can be quite intimidating so it’s best to go in over-prepared rather than under-prepared and make a costly mistake.
Auction catalogues are usually released up to 3 weeks prior to the auction, this is when you can start your preparation. Pick your favoured properties and make sure to go visit them (standard practice, visit the property you are interested in at different times of the day). Should you find a property you would like to place a bid on, it’s recommended to have a full structural survey carried out and the property valued in advance. At this time, non-cash buyers should approach their bank or preferred mortgage supplier to ensure you can get the funding for the purchase.
The vendor’s solicitor will have prepared a Legal Pack for each property. These will usually be available to read prior to the auction and contain all information on title deeds, special conditions of the sale, details of pre-contract enquiries and property search results. You must familiarise yourself with the Legal Pack of any property you would potentially be placing a bid on.
Should you decide you do not want to proceed with the purchase after your final bid has been accepted, you will likely lose your 10% deposit. Buyers can also be taken to court to recover vendor’s expenses and even be expected to pay the difference if the property sells for less than your bid amount.
Grabbing A Bargain
The best way to see how much saving can be made is to look at previous final costs of properties sold by auction. Then compare with the average cost of house prices in the area sold around a similar time. There are always going to be areas more expensive than others, particularly in London areas and the South-East UK. Take, for example, North London properties. On the standard market, the average cost is around £750,000. North London property auctions could save you up to a third on average – definitely no small figure.
Many properties sold by auction will require some sort of renovation, this could end up costing you well over your budget if you haven’t planned for it. Make sure to investigate any potential property thoroughly, getting some professional construction/builder quotes where necessary. Of course, if the house has been decently looked after and was an unfortunate repossession, you may only have to touch up the aesthetics – but this will also likely drive the price up as everyone bids.
There are definitely potential savings to be made when purchasing property via house auction, the key is being prepared. Going in with a level-head, having checked and understood all property information and making sure you stick to your pre-set budget will help you greatly. Once you’ve made your financial preparations, ensure you are knowledgeable about the condition and potential improvements the property may need – It’s time to enjoy the thrill of the auction!