House auctions can be a great way to grab a bargain or buy a property quickly. In the past, auctions were mostly attended by cash buyers and investors looking for a project. Over time though, all types of buyers attend auctions, even if they’re buying a home using a mortgage. In this article, we’ll be looking at exactly how auctions work, so you can go in fully prepared and ready to buy your perfect home.
What is the process of an auction?
When selling at auction, the property will be listed online first either by an estate agent or auction house. Auction properties are normally online for around a month before the auction date. This gives interested buyers plenty of time to view the property and decide if they want to bid.
In a traditional auction, there is pre-planned day and time for it to take place. On the day, the auctioneer will encourage buyers to bid one after another. In a modern auction, you can offer bids online up until a specific date and time.
The common pattern in both types of auctions, the seller will set a reserve price. This is the lowest price that they would be willing to accept to make the sale. The highest bidder above the reserve price will win the property. If you provide the highest bid, you will be required to pay a deposit or reservation fee on the day of the auction and your pre-auction conveyancing should already be completed.
What are the different types of auction?
The traditional auction
Traditional auctions are also referred to as unconditional auctions. They are often favoured by experienced investors and cash buyers because they’re less flexible and have a shorter time frame. These types of auctions are mostly held at auction houses and all interested buyers will be there to place bids in front of each other.
If you win the auction, you’ll sign a contract with the seller and pay a deposit, which is usually 10% of the purchase price. Should you need to pull out of the sale, you will lose your deposit as you have already exchanged contracts and made the sale legally binding. You then need to pay the rest of the money for the property within 28 days and complete the purchase.
The modern auction
The modern auction, also called a conditional auction, gives the buyer more time and flexibility to purchase a property. In a way, it’s like bidding for an item on e-Bay. The auction is run online for up to 30 days and you can place a bid at any time.
If you make the winning bid, you then put down a reservation fee, which is typically about 5% of the purchase price. This covers the costs for the estate agent and auctioneer.
The process will take a total of 56 days, including 28 days to exchange contracts and pay a 10% deposit, and another 28 days to complete, which will involve your auction conveyancing. Thanks to this longer time frame, it is a lot easier to buy an auction property with a mortgage than it is in a traditional auction.
How can you prepare for a house auction?
Often there is around a month between a property being listed for sale and the start of the auction (modern) or the auction day (traditional). You will have to move fast to secure the house you want, but it is certainly all doable within the timeframe. The best thing you can do is do your research about the property, its value, and the auction process. If you’re well prepared going into it, you’re much more likely to be successful at an auction.
View the property before bidding
You should always see a house in person before you even consider making a bid on it. It can be advantageous to take an expert with you too such as a surveyor, builder, or architect. They can look everything over and give you their professional opinion on the cost of any potential renovation work. Don’t be afraid of arranging as many viewings as you need to feel sure about the house.
Organise your finances
If you intend to buy an auction property with a mortgage, you’ll need to have an Agreement in Principle (AIP) from a bank or building society. Also, you will be required to tell the lender that you’re using the loan to purchase a house at auction. The AIP will help you get to grips with your finances and plan your budget.
Research similar properties
Look at the property market in the local area so you have an idea of what a fair price would be for the house you’re interested in. You could also compare nearby houses to see how their value has changed over time. This will give you a good overview of the property’s worth and how it could become more valuable in the future.
Ask a solicitor to study the small print
The auction house should provide you with a free legal pack or pre-auction report relating to the house you’re interested in. It will have all the key details inside including searches, title deeds, and a list of fixtures and fittings. This is where seeking legal advice and instructing your solicitor is important.
They can review the legal pack, checking it’s legitimate and watertight. Having an experienced solicitor in your corner like any of our team at Toomey Legal will be especially useful if you’re successful at the auction and can hit the ground running with auction conveyancing and other key steps.
Don’t get too caught up in the guide price
The guide price at an auction is just that, a guide. Often houses being sold by auction will have an intentionally low guide price to encourage interest and draw in bidders. The property might sell for much more on auction day, so you should aim to find a balance between the maximum price you’re comfortable with and a price that feels like a good deal.
Pay close attention to the property leading up to auction day. The seller might increase the guide price just before the auction if they have already had a lot of interest.
Final thoughts
Hopefully this guide has given you a greater understanding of how auctions work to prepare you, if this is the route you’re going down to buy a property. If you’re buying a house at auction and need help with auction conveyancing in Newcastle, contact Toomey Legal today. Our team of professional solicitors are on hand to help the process go as smoothly and efficiently as possible, working to the quicker timescale of the auction process.