Your Guide to Buying a House at Auction
Buying a house at auction can be a great way to find the house of your dreams at a great price. But there are a lot of things to consider, from auction finance to finding the right property. Learn more right here.
Keyword(s): buying a house at auction
You've done your homework, scouted your areas and decided - now's the time to take the plunge into the world of buying a house at auction.
If you're a budding landlord, consider that more than 20% of the UK population live in rented accommodation, which is more than double the figure of a decade ago. The demand for rental properties has never been higher.
Auctions can also be a great way to snap up a home for yourself for a great price!
Before buying a house at auction, there are a few things you must do, so that buyer's remorse isn't on the menu. Either visit our auction finance page or read on for our guide.
Starting Point: Do Your Homework
Auctions are exciting, high-pressure environments. It's vital that you go in with a clear head, having done your research beforehand, knowing exactly what you're willing to pay.
First, you'll need to get hold of a copy of the auction catalogue. From this, you'll be able to narrow down properties you might be interested in. Take time to arrange a viewing. All parties investing in the property should attend.
As most properties being sold at auction require modernisation or structural work, it's wise to take along a trusted builder or architect to advise you on the potential renovation costs.
A full structural survey would also be a wise investment. Although you would lose out if you don't pursue or win the property on the day, it could save you a lot of expense in the long run.
Step Two - Read the Legal Pack
As anyone who's ever watched 'Homes Under the Hammer' will tell you, once you're serious about a property, the next stage is to examine the legal pack.
This is a set of documents that the seller must produce ahead of the auction. It includes, among other things:
- Special Conditions of Sale
- Official Copy of Register of Title
- Law Society Property/Fixtures and Fittings/Lease Information Forms
- Land Registry and Local Searches
The devil is in the detail. Take time to sift through these items, and take legal advice. Potentially costly information could be lurking in this sea of legalese that may make you think twice about buying the property.
Even if there's nothing scary in there, it's still important to be familiar with the specific terms surrounding the sale of the property.
This will help you to calculate the cost of future finance, and the potential return on investment if you are buying the property with a view to letting it out.
Step Three: Count the Cost
As soon as the auctioneer's gavel bangs down on your winning bid, you are legally obliged to pay for that property.
Therefore, it is vital that you have properly counted all of the costs beforehand, and have finances in place well before the auction.
Factors to consider include:
- Auction house fees (could be up to ?1000, but you must check before the day of the auction)
- Additional fees outlined in the legal pack, such as vendor's fees
- Solicitor's fees
- Fees to management companies and freeholders
Once you have entered into the contract to buy the property, you are legally responsible for it. Therefore, sort out buildings insurance straight away.
Step Four: Have Your Finances Ready
Auction houses require an upfront payment of 10% on the day of the auction. The remaining 90% is usually payable 30 days from the date of the auction (confirm with the auction house ahead of the day).
What can you do to ensure you're ready to go on auction day?
If like most of us you are not a cash buyer, then it is vital to have a mortgage in place before the auction.
Remember that in these more challenging times, mortgage lenders are very wary before committing to lend on properties. Many will insist on a survey before giving a mortgage in principle for the property.
This being the case, make sure that this has been done ahead of time, and that there are no lingering concerns over finance before the auction.
If you are not able to pay the balance in full by the end of the 30 days, then you will forfeit the 10% you have already paid and lose the property. You may also be liable for additional costs, so make sure you do not end up in this position.
Depending on your circumstances, a bridging loan may be an option to pursue. If you are in the process of selling your existing property, this may be an option to explore to have the finances you need in place.
Step 5: How to Buy Property at Auction
You've done your 'due diligence', your finances are in place and the day for the auction has finally dawned.
What will actually happen at the auction house?
It's a good idea to attend an auction before the one you intend to buy at to familiarise yourself with the process and feel.
You'll need to register beforehand, so make sure you have two forms of ID with you, and proof of your finances to show that you can pay the 10% - in cash - on the auction day.
Before the auction, decide on your ceiling figure and stick to it. Write it down where only you can see it so that you don't get confused in the heat of the moment. Once bidding starts, stick to your guns. Don't get carried away.
Remember, the guide price can be very misleading, so don't base what you expect to pay on this. Do your research, take stock of your finances and the market, and only pay what it is worth and you can afford.
Buying a House at Auction - The Takeaway
The key to buying a house at auction is preparation, preparation, preparation!
With your homework done, there's no reason why a property auction can't be a great way to get yourself a bargain.
At AdMainBridging, we can help you to find bridging finance to suit a wide range of circumstances. We can help source bridging loans for both commercial and residential clients, including those who have bad credit.
Click here to apply for bridging finance today!