Buying a house at auction
There are a handful of ways you can buy a property. One such method, which can prove quick, easy, and profitable is buying at an auction.
At auctions, you bid on the property you desire to acquire. If you win the bidding war, the property will be yours. However, there are certain essential things you should be aware of before you go about it.
What are the benefits of buying at auction?
- Profitable – Easy to find properties at auctions which will have unnoticed potential. By making some improvements to the property, you can increase its’ value and profit on resale.
- No property chains – If you are not buying at an auction, chances are you will come across property chains which can make your house buying experience quite stressful.
- You cannot be gazumped – Once the hammer falls and your bid has been accepted, the property is yours. There can be no further bidding so there will be no chance of the deal falling through. Click here if you want to know more about being gazumped.
- Faster – the seller’s solicitor will have prepared a legal pack for the property in which you are interested. This legal pack will include details regarding the property such as title, leases and searches. This will make the conveyancing process faster as compared to the normal seller-buyer situation.
What are the disadvantages of buying at auction?
- Risks of losing investment – If you have gotten any surveys carried out on the property and later on are unable to win in the bidding war at the auction, all the money you invested in the surveys will be of no avail.
- Risks of overpaying - At auctions, properties are usually sold to the highest bidder. In this bidding process, the bids can cross the actual value of the property. If you do not back out at the right time, you will end up paying more than the property is worth.
- Renovation works - Auctioned properties can be in serious need of renovation works. This may prove to be a substantial amount. Therefore, visit the properties in the catalogue which you are interested in..
- No Guaranteed title - Auction houses do not usually promise that the property is free from legal issues. If you end up buying a property with legal issues, say for instance that has a tax lien, you will become responsible for it once the property is yours. Therefore, you should ensure that you have carried out the necessary local authority searches and surveys of the property before you bid on it.
Guide prices can be misleading - The price stated in the catalogue is usually the lowest price expected by the seller. Properties can go higher than the guide prices.
What is the cost of buying at auction?
- Administration fee - The auction house will charge a fee for allowing you to participate at the auction. This usually is a couple of hundred pounds.
- Conveyancer fee - You will need a solicitor or a licensed conveyancer to take a look at the legal pack of the properties you are interested in.
- Stamp duty - You might have to pay stamp duty. Click here to find out if you have to pay for it.
- Life insurance - After the hammer falls and you signed the contract, you have to take out life insurance.
Important things to keep in mind before you buy at auction
1. Visit an auction - If you have never been to an auction, then go to one. You will get an idea about the process of how auctions work. Auctions can get very competitive. If you familiarise yourself with the atmosphere at auctions, you will be in more control of yourself when you go to auction to buy.
2. Research - You need to do thorough research of properties you are interested in. Arrange visits to those properties with the auctioneer. You should also try to get an estimate of the market value of the property from a local estate. This way you know when to stop bidding. You do not want to pay more than the property is actually worth.
3. Surveys - It will be beneficial for you to carry out surveys of the property you are interested in. You do not want to risk losing your new home or face legal issues once you move in. Click here to find out what kind of surveys you need.
4. You need a conveyancer - Get a solicitor or a licensed conveyancer to take a look at the legal packs. They will be able to advise you the best on the legal issues with the property. Once you have this information, you can make the best decision regarding that specific property.
5. Guide prices can be misleading - You should not think that you will not have to pay more than the guide price. As states above, that’s usually the lowest expectation of the seller.
6. Know how much you can pay - You need to figure out exactly how much you can afford to pay. Do not cross your budget because you have to pay a deposit on spot. You will have to pay hefty penalties if you cannot buy a property once your bid has been accepted.
7. Do you need a mortgage? - If you need a mortgage to pay for the property you will be purchasing at an auction, then you need a mortgage in principle sorted out before you go to an auction with the intention to purchase.
8. Deposit - If the hammer falls and yours was the last bid, then you have to pay a deposit, usually 10% of the bid.
Buying at an auction can prove to be a faster, efficient, and profitable way to go about purchasing your next home. That is if you know what you are doing. Auctions can get highly competitive; therefore, it is essential that you maintain your composure.
Please note that the information provided on this page:
- Does not provide a complete or authoritative statement of the law;
- Does not constitute legal advice by Net Lawman;
- Does not create a contractual relationship;
- Does not form part of any other advice, whether paid or free.
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