Auctions present an interesting alternative to hiring a real estate agent when buying or selling a property.
This is because:
- Homes sold via auctions tend to be in bad shape, so they have low prices
- Most people buying homes via auctions love renovation projects
- You can get rid of a property quickly through an auction
- Auctions are straightforward, unlike dealing with realtors
However, auctions are a double-edged sword. Sure, they can be quite advantageous to both buyers and sellers, but they can also be a costly venture. For one, the rules surrounding auctions are relatively strict and inflexible. Secondly, auctions can be tedious and time-consuming for both buyer and seller.
If you want to make the most of auctions, you need to arm yourself with as much information as possible about the process. Here is a step-by-step guide for both buyers and sellers at auctions.
Buying in an Auction: What You Need to Do
Find an Auction
If you want to buy your next home or real property via an auction, you need first to find the right auction. You can start by searching online for auctions in the neighbourhood you want to purchase property in. Consider also visiting the websites and portals of various auctioneers and going through their catalogues to find a property that interests you.
View The Properties
Once you find an auction, shortlist the properties you might consider buying. Then take the time to view the homes so you can make your pick.
When viewing auction properties, keep in mind that many might require a bit of fixing before you can live in them. You should, therefore, view them with an open mind. However, this is not to say that you should not have some deal-breakers. For instance, be wary of houses that have structural issues, infestations, or other serious problems.
Make Mortgage Arrangements
With an auction, property sale and transfer happens within a set time frame, usually within 28 days. If you are the successful bidder of a property but cannot raise the purchase price within the specified time, you stand to lose your deposit and the house. Therefore, it is wisest to make mortgage arrangements before you bid for a property.
The best way to do this is to have an agreement in principle with your lender before bidding. That way, even if you are not successful in your bid, you will not have bound yourself to the mortgage. If you bid successfully, you will be sheltered from losing the home due to a lack of money.
Consider the Guide Price
Sellers usually give a guide price to enable interested buyers to gauge the worth of the property. As a buyer, however, do not be too reliant on this price. It is often set at the lowest possible amount to spark more interest in the home.
If you notice the guide pricing increasing steadily as you near the auction day, many people are interested in the property. You can, therefore, reasonably expect it to go for much more than the guide price.
Take a Close Look at the Legal Pack
It is common for sellers to have a solicitor prepare a legal pack before the auction. This typically includes the title deed, terms of the sale, and other legal documents. Once you set your heart on a particular property, take it upon yourself to go through the legal pack in detail. Read the small print.
And when you are done, have your solicitor go over it again. You may discover loopholes in the contract that might have cost you a lot in the long run.
Survey The Property
Consider also hiring a professional surveyor to examine the property before you make your bid. The survey can reveal details about the house that the untrained eye would miss. Sure, this might cost you money, but it is better than buying a home only to discover that it has structural or other core issues.
The Bidding Process
There are multiple ways to bid on a property:
- In-person- where you physically go to the auction and place your bid
- By proxy- where someone else bids in your stead. With this option, you must instruct your broker what your maximum bid is and place 10% of this maximum bid as a deposit.
- By phone
Once the hammer falls and you are declared the successful bidder, you then move on to completion and exchange of the property. This can happen in two ways:
- The traditional way; where you give a 10% deposit after the auction and then complete the purchase within 28 days.
- The modern way- where you pay a reservation fee, then complete the transaction within 56 days. You forfeit the reservation fee if you don’t finish the purchase within the set timeframe.
Selling in an Auction: A Guide
Find the Right Auctioneer
The first step in selling your property via an auction is finding the right auction house. You could choose either a local or national auctioneer. A national auction house is advantageous because your property will get more exposure. However, this is also likely to be more expensive than a local auctioneer.
Check the Auction Fees
Auctioneers typically charge an entry fee to cater to the logistics of the auction. You may part with hundreds or even thousands of pounds for your property to be listed in the catalogue. Usually, the auction fees tend to be higher than what a real estate agent might charge.
Double Check Your Listing
Ask to see the details of your property before the catalogue is printed. Confirm their accuracy because a small mistake at this stage could mean that no one shows up for your auction.
Get Your Legal Pack
As a seller, you want to have your legal pack ready before the auction. Instruct a solicitor to draw up the contracts for you. That way, when the auction is complete, it will be quick and easy to enforce the terms of the agreement.
Set a Reserve Price
Talk to your auctioneer about the lowest price you will accept for the property. This is called the reserve price. You can also set a guide price, which will act as a pointer for buyers of how much you value the house.
Go to the Auction
You can opt to attend the auction or not. If you don’t go, the auctioneer will call to tell you the outcome of the auction soon after completion.
After the sale, the buyer has to complete the purchase within a set number of days. You will receive your money, less the auction fee, shortly after the payment period ends.
Buying or selling property through an auction is quick, effective, and relatively straightforward. However, it also has some drawbacks, like the possibility of getting a problematic home or paying hefty auction fees.
If you decide to forge ahead with the process after weighing the pros and cons of auctioning, you will find that it is not as complicated as you might imagine. Just follow the steps in this guide, and you are good to go.
Best Wishes, Susan