Below are some steps to take to ensure that you are prepared for the auction and what comes after it.
Buying a house at auction has become a popular venture for investors and those looking for a quick purchase. Not all auction properties are from mortgage repossessions. Sometimes vendors decide, for one reason or another, to auction their property because they want a quick sale. It is vital to remember, although it is possible to save money this way, not every auction property is going to be a bargain in the long term. Consider the below points carefully:
Before you start
Visit the auction house to get a feel for the process and how it all works. The auction house can be a very competitive environment, so it is important to make sure you are fully prepared and ready for when you come to bid on a property you like.
Study the reserve prices in the catalogues to see how they compare with the eventual selling price at auction.
Some people who will be at the auction will be experienced property developers / investors and it can be quite daunting for a first timer.
What properties are available at Auction
There are many property auctioneers operating in the UK. By registering with a few local auction houses, they will keep you up to date with their listings. The website www.eigroup.co.uk provides details of property auctions nationwide. Their website boasts that it is “The only place you will find virtually every property auction in the UK”. UK auction list is also worth a visit at https://www.ukauctionlist.com/
We do not have any affiliation to any of the above sites. There may be others worth exploring.
Before you start to look at property, it is a good idea to have your mortgage “Decision in Principle”, which means that a mortgage provider has confirmed how much money they agree to lend you on the basis that the property you intend to buy meets their criteria. You should have your mortgage will be ready to go when you start bidding.
Research your potential purchase
Once you’ve found a property that you’re interested in, you should then research the neighbourhood and make sure you know the area you are buying in.
By reading the local papers and checking online for school, planning, and crime reports you should get an idea of what it is like. Speak to local residents and shopkeepers to get an honest live view of the area. See if there are any local pages on social media too.
There are 3 main ways people plan to use properties:
- If you are planning to live there, make sure the location matches the lifestyle you want to lead. Also, try to meet your prospective neighbours if possible.
- If you see the property as a buy-to-let investment, make sure it will be suitable to present to the lettings market. Investigate the local rental market by checking out letting agents’ windows to see what property moves quickly, and working out the typical yields you can expect.
- If you are planning to renovate and remarket, make sure you have a cost-effective plan of action, the relevant tradesmen available and tailor the renovation to your target market. Speak to estate agents and ask them to give you an estimate of the value now, and the likely value once it has been renovated.
Arrange a Survey
Ensure you visit the property physically before you bid to ensure it matches the description put forward by the agents. It might seem obvious, but not everyone does this. This is a huge thing to take a risk on, so be safe and get a Chartered Surveyor to look at the property with you.
A Surveyor can:
- Identify potential structural problems
- Give you an idea of the cost of any renovation work to be carried out
- Using local knowledge, properly estimate the value of the property
You cannot rely on the mortgage lender’s survey; they only carry out a basic valuation to confirm they can recoup their losses, if you were to default on your repayments. Get an independent survey on the property for a full and detailed assessment of its condition.
Find a conveyancing solicitor
The buying process moves very quickly for properties purchased at auction, so ensure you have a specialist Conveyancing Solicitor lined up to oversee all the legal requirements of your purchase.
All properties at auction have a legal pack. Pass a copy to your solicitor to assess before you attend the auction and consider making a bid. The legal pack needs to be assessed before auction because at auction you exchange contracts and after this the Sellers Conveyancing Solicitor is unlikely to reply to any enquiries. The Deeds it may contain clauses that could change your mind about buying, such as suggesting issues which may cause problems getting a mortgage or selling on in the future, or there may be issues with the searches.
Stick to your budget
Set yourself an upper limit that you are prepared to pay, before you go to the auction. DO NOT get carried away and over-bid – auctions can get competitive but don’t overstretch your budget for the sake of winning.
Be sure to account for in your target price the cost of any renovations and any Stamp Duty charges payable, especially if you already own property, as these will be higher than the usual charges for first time buyers.
Making an early offer?
Some vendors are willing to consider offers for the property before the auction goes ahead. If you are planning to bid at the auction, there is no reason why you shouldn’t make an offer early. If the listing information says ‘unless previously sold’, this usually means they will accept early offers, and if it doesn’t it may be worth enquiring anyway.
Where the property doesn’t sell at auction many vendors will allow the auctioneer to trade at the reserve price on their behalf up to 24 hours later. With this in mind it may also be worth looking at recently expired auctions.
In all events make sure you have reviewed the auction sale pack and consulted a Solicitor for the reasons explained above.
Finalise your mortgage
Where you make a winning bid, you are now legally bound to purchase the property and you must exchange on the same day. The mortgage in principle that we spoke about earlier now needs to be secured and ready to complete within the contractual time, usually 28 days, so you will need to call both your solicitor and your mortgage lender straight away.
Points to remember:
- You will be expected to put down the 10% deposit on the day of the auction, as the purchase is legally binding at the point of sale, so remember to bring a valid payment method and two valid forms of I.D.
- If you do not have the funds for the property on the day of completion, you will forfeit your deposit, which is likely to be 10% of the property’s sale price.
- Confirm the details of your Conveyancing Solicitors before you leave the auction so that vital documents can be sent directly to them.
- The balance, stamp duty and solicitors’ fees are usually required at least 24 hours before the completion date – ask your Solicitor for a completion statement as soon as possible so that you can gather your funds.
If you have not already instructed a Solicitor prior to the auction (which is highly recommended), then ensure you contact your specialist Conveyancing Solicitors on the day that you are successful to start the proceedings.
A day lost in the Auction process can be costly. Your Solicitors will already be under massive pressure because an auction usually has a 28-day turnaround, whereas a usual conveyancing transaction is around 10-12 weeks from receipt of the contract papers.
If you would like a free consultation or to discuss how Exclusive Legal can assist you in your conveyancing needs, please contact us via the website or call us directly.
Exclusive Legal can also help with Auction purchases. Contact us on 0161 711 1969.