Buying a property at auction can give you access to some great properties and investment opportunities, but it can be a fast-paced and intense experience. Being prepared is key so to help guide you through, we have put together a two-part Q&A guide on what to consider.
Part one covers what to think about before you place your bid, from navigating through the terminology, to the various types of professional advice you might require. Part two covers guidance on what to expect on the day itself and making that bid.
Good luck and don’t forget, we’re on hand for you to contact us with any questions about your conveyancing needs and to guide you through your auction buying journey!
Q: How different is buying a property at auction versus buying from an estate agent?
Timescales:
When a property goes to auction, there can sometimes be just a matter of days between the property’s release and the auction day itself. Buying a home through an estate agent, can take weeks, if not months, to prepare and complete. Auctions are about swift and fast sales to secure the property you want.
The property price:
When buying a property via an estate agent, the agent will set an asking price. The property will be expected to sell on or around this amount. Negotiations will take place behind the scenes and the price is influenced by factors such as the number of interested parties and the buyer and seller’s situation.
At auction, a reserve figure is agreed between the seller and the auctioneer. This is the lowest figure that the lot can be sold for and is kept confidential between the seller and the auctioneer. The lot is given a guide price which potential buyers will see and gives an indication of the value of the property and the expected selling price.
Locality:
Estate agents will more typically deal with properties within a particular area so that they can pass on their knowledge of the local market to sellers and potential buyers. Auctioneers, have a much wider reach with buyers being able to bid online, but the buyer will need to carry out more of their own area investigation rather than having the guidance of an expert.
Changing your mind:
Once the gavel falls, it’s a done deal with the buyer and seller legally bound to the transaction. This removes the chance of gazumping or long, drawn-out negotiations, but there is little room for changing your mind. Getting your ducks in a row before the auction is vital. Property research, getting finances and conveyancing in order is essential as failure to do so could be a costly mistake.
Q: What is the reserve price and the guide price?
The reserve price is a confidential price between the vendor and the auctioneer, and it is the lowest amount the vendor is prepared to sell the property for. The Auctioneer cannot sell the property for a lower price than the reserve. The guide price is the price the public will see and is where the bidding starts. An appealing guide price will get buyers interested and is the starting point to work up from. A competitive atmosphere can help to drive up the guide price which is good news for sellers.
Q: Should you view the property before the auction?
If you can, then the answer is yes! Due diligence is always essential at auction because it’s up to you to make sure your purchase is sound before you enter into a contract.
Most Auctioneers will organise open house viewings that do not need to booked in advance, but you need to check when these are as it may be the only chance to view the property. If a property is tenanted or a multi-let it can be more difficult to view, but Auctioneers will usually help to address these issues. Organising an independent survey and house valuation is also advisable. Taking a builder or an architect to view the property can also be very helpful as they may spot issues that could make you change your mind.
Q: What legal documents do I need to be aware of?
It is the vendor’s responsibility to prepare an auction pack to pass to the auction house for prospective buyers. The Auctioneer will then produce a catalogue which gives information such as title details, leases, searches, planning permissions and plans. A Property Information Form is also included which covers any works carried out on the property, any disputes and insurance issues, as well as general information such as parking arrangements.
Be sure to also check for any Addendum Sheet, as this where the seller could have made alterations to the original catalogue which could affect the feasibility of the property. And always remember to review the Auctioneer’s Common Auction Conditions and Special Conditions of Sale.
Q: What professional advice do I require?
As a buyer, you should check through all the information in detail to ensure you are happy with the condition of the property and are fully aware of any concerns or constraints relating to the lot. But professional advice can also be vital to having the best experience possible.
Instruct a conveyancer:
A conveyancer will review the legal documentation that accompanies the property and provide you with the expert legal advice you need before the hammer falls and you become bound by the Contract of Sale. This is where Home Legal Direct can help! We will partner you with one of our vetted conveyancing firms and help make this part of the process that little bit easier.
Getting your finances in place:
Making sure you can afford the property is essential. If you need a mortgage, then get a full valuation or, if time is short, at the very least get an agreement in principle. This is where a lender takes basic information and your credit score to come up with a figure they would in principle be willing to lend.
Checking the condition of the property:
Getting a survey and building advice is also important as this will affect the bid you wish to make at auction. Properties can have a lot of hidden issues some of which are cosmetic to put right but some can be more costly such as subsidence or dry rot problems.
Remember, as soon as the hammer falls, you are legally liable for the property. If your offer is accepted, you are contractually obliged to pay 10 per cent of the purchase price immediately, with usually only 28 days to pay the remaining amount. If you can’t pay this, you will lose the property as well as any money you haveve already paid. In some cases, you also risk having to cover any re-selling costs and interest for as long as it takes to resell the property.
Have any questions?
Call us today for advice to find the right conveyancer for your auction purchase!
Part two will be coming soon so keep an eye out!