How to buy a property at auction Part 3: What happens after you win?
Published 13th May 2022
Buying a property at auction can be a nerve-wracking process and the atmosphere can be tense, but you have done your research and are ready to make your bid. Now it's time to read part three of our "How to Buy a Property at Auction" series which gives advice on what to expect on the day and what happens if you win your lot.
Q: How do I make a successful bid?
Bidding in person can be fast paced but auctioneers are skilled at reading the room to make sure no bids go unnoticed. Check the catalogue in advance to ensure you know when your lot is coming up and be ready to raise your bidding number.
The other option is to make a proxy bid. This is where you submit your maximum bid to the auctioneer who will then bid on your behalf up to but not above what you have agreed. You will need to have completed a Proxy Bidding Form and all your ID checks in advance. Bidding by proxy can be a good way to keep to a budget but if the bidding on the property exceeds your maximum, then your chance of winning the lot will end.
Q: What happens if you win the property?
If you win the property, the hammer will fall and straight away you are entering into a legal contract. The auction house will go through your ID checks and verification for anti-money laundering purposes. The deposit and any administration fees will need to be paid and you will be required to sign two copies of the memorandum of sale, plus any related papers which will need to be passed onto your conveyancer. Doing your research and instructing a conveyancer in advance becomes crucial at this point as there is no chance to change your mind.
Q: When does the deposit need to be paid?
The deposit is usually 10% of the purchase price and is payable on the fall of the hammer on the day of the auction. Some auction houses will take the deposit straightaway using the bank details you have provided. Others will take the deposit after the verification checks have been carried out. You can check this process with the auction house but remember, no matter what, you will be in a contract to pay the deposit and move forward with the exchange of the property regardless of any problems that come up.
Q: Is there an administration fee and how is this calculated?
It's standard practice for the auctioneer to charge an administration fee on top of the deposit. This covers the costs incurred for arranging the sale of the property. The fee can either increase in increments according to the sale price or be fixed at a flat rate. It is important to make sure you know how much the fees are, check if they include VAT, and most importantly, ensure you have the funds to cover them.
Q: What happens after the auction has taken place?
Standard auctions allow up to 28 days to complete the transaction so everything on your side will need to move quickly. If you can't meet the 28 days, you may be required to forfeit the deposit and lose the property. Modern auctions allow more time, up to 56 days from the auction date to the exchange of contracts. Either way, if you are relying on a loan from a mortgage provider, bear in mind that the lender is not legally bound to provide you with the finance to complete your purchase, even at the point of sale. If they pull out, and you can't arrange another mortgage in time, you could lose your deposit.
Also, consider that if you pay more for the property and there is a gap between the lender's valuation and the price you have paid, then you may need to pay for the difference yourself.
Q: How do you ensure a smooth auction experience?
The most important way to ensure your auction experience goes smoothly is to be prepared. Buying a property at auction is a speedy process with great opportunities but making sure you have all your ducks in a row is vital. Do your research and surveys on the property, instruct a conveyancer who early, get your funds in place, and always read the small print.
Part three concludes our auction series. If you want to refresh your memory on the previous instalments, you can go back to read Part one: Getting prepared or Part two: Preparing to make your bid now. We wish you all the best with your buying at auction journey!