You can go online and immediately find scores of houses for auction. Whether you are looking for a home, a holiday getaway or an investment opportunity, is this the right path for you? Many buyers are attracted by the chance to obtain a property at a low cost; many owners are encouraged by the thought of selling their home on a faster timeline than they could with an estate agent in a typical process.
Let’s look at some factors for which you should be prepared.
Properties at Low Prices
If you look at online auction sites, you will find a bargain hunter’s dream come true. A London flat for £160,000 (who knew you could get a property in London for less than £200,000!), a quaint two bedroom cottage in Cornwall for £50,000, a spacious six bedroom townhouse in Lancashire for £25,000, a two bedroom terraced house in West Yorkshire for £10,000 or a £5000 four bedroom terraced house in Ayrshire.
But you also need to understand what a ‘bargain’ means when it comes to these homes. That £5000 home is uninhabitable, that £25,000 needs six bedrooms worth of renovation – and more throughout. You get the idea. These are fixer-uppers in the most extreme sense of the word. They appeal to certain buyers who don’t mind undertaking the expense of repairing, improving and getting the property up to good condition.
Be very aware of what you are getting yourself into.
More – and Tough – Competition
One interesting consequence of the pandemic has been an uptick in interest and action in terms of houses for auction, both on the side of the buyer and seller. Transactions have grown, and there is more competition than ever. Average people will be competing against professional investors and cash buyers, who have a great deal of experience in these situations.
Higher Prices
As interest in auctions grows, so do prices. While you can still score unbelievable bargains (keeping in mind what ‘bargain’ means!), you may see prices tick over market on some of the more desirable properties. While there are plenty of fixer-uppers to be had, you may also see some of these properties grow in terms of cost as well.
An Accelerated Process
When owners list houses for auction, one of the big attractions is that they can achieve a relatively fast sale. On the buyer side, be aware that this means an accelerated process for you. If you make the highest bid and win the property, you will have to pay a deposit or reservation fee on the day of the auction.
For a traditional auction, you will exchange contracts and put down a 10% deposit that day. You then have 28 days to complete the sale and pay the remainder of the money. If you walk away, you do so without your deposit.
For a modern auction, you will pay a 5% reservation fee on the day of the auction. From there, you have 28 days to exchange contracts and pay a 10% deposit. Then, you have an additional 28 days to complete the purchase and pay the remaining sum. A modern auction allows for a bit more flexibility and time when it comes to the purchase, which can allow those who need financing to get that in order.
If you do need a mortgage, make sure you have a mortgage agreement in principle before the auction. You will also need to thoroughly view the property and the legal pack (i.e. important documents pertaining to the property being sold) and arrange for buildings insurance.
Fees
Depending on the auction house, there will be a buyer’s fee. Typically, this is about £1000 + VAT. Some properties are also subject to a buyer’s premium, which is disclosed prior to the auction. The buyer’s premium is a charge on top of the hammer price (i.e. the winning bid) that is paid by that bidder. There may also be fees associated with searches, legal and selling costs. Be sure to enquire about all of the potential costs before deciding to participate in an auction.
There is a great deal to know about houses for auction before you dip your toes in the water. Are you ready?
