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Buying a house at auction – the pros and cons

Purchasing a property at auction is growing in popularity – and, with a wide choice of properties on offer, a speedy home-buying process and the chance to bag a property bargain, it’s easy to see why. However, there are risks involved when you buy a home under the hammer and it’s undoubtedly a case of buyer beware...

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Thinking of buying your home at auction?

When it comes to buying property, auctions are becoming a popular choice – and not just with investors and property developers. In 2020, nearly 40% more property by value was sold at auction, compared to 2019. And, with house prices rising at the fastest rate in 17 years – sitting at an average of £238,831, according to Nationwide’s April 2021 house price index – it’s a trend that looks set to gain momentum.

This shift of property buyer behaviour also means that bidding is likely to be more competitive, with two and three-bedroom semi-detached houses currently being snapped up the quickest, according to Rightmove. So, if you decide that buying a home at auction is the way forward for you, once you’ve selected an auction – they’re easy to find on sites such as Rightmove and Zoopla – it’s vital to be prepared.

To ensure you’re auction-ready, there are some essential steps to take:

  • Get hold of the viewing catalogue
    Usually available in print and online around three weeks prior to the auction, each property will be listed with a guide price. This is different from the reserve price (normally kept confidential), which is the minimum price the seller will actually accept. Be aware that guide and reserve prices can change up to and on the day of an auction.
  • Register with the auction house
    This usually involves completing a short online registration form that enables you to take part in the auction.
  • Arrange to view the properties
    Book viewings through the auctioneer or agent. Take a builder or surveyor with you to get advice on the cost of necessary repairs to help you decide how much to bid.
  • Arrange a mortgage in principle
    Your mortgage adviser can help with this. If your bid is successful, you’ll only have a set number of days in which to exchange and complete so you’ll need to have the right mortgage in place.
  • Check the legal pack
    This includes documents such as the conditions of the sale and the results of local authority searches. Study this carefully and send it to your solicitor to look over.
  • Get a property survey done
    This is very important, particularly if you’re looking to buy a property to renovate. The vendor may be trying to sell on a property with serious structural issues.
  • Get an independent valuation
    This is to check that you won’t be paying over the odds.
  • Decide on your price limit
    Find out what similar properties in the same area have recently sold for.
  • Arrange buildings insurance – Once you exchange contracts, you’re legally bound to buy the property, so you’ll need buildings insurance from the day you exchange. Mortgage lenders will require you to have buildings insurance in place as a condition of lending.

How does the auction process work?

On auction day, make sure you:

  • Take the right paperwork
    This includes photo ID and proof of residency (such as a passport or driving licence and utility bill), details of your solicitor and means of paying the deposit (cheque, debit card or banker’s draft).
  • Get a decent seat
    Arrive early and find a spot with a good view of the auctioneer. Obviously this doesn’t apply if the auction is held remotely.
  • Listen out for last-minute changes
    Before bidding begins, the auctioneer will check that everybody has a copy of the addendum sheet and will read out any alterations to the catalogue details.
  • Make sure your bids are clear
    Once bidding begins, potential buyers will be asked to make their bids, either by raising their hand or paddle, so that the auctioneer can easily identify them.
  • Don’t get caught up in the moment – Always stick to your budget and never bid more than you can afford.

If you can’t be at the auction in person, you can bid remotely:

  • By proxy – The auctioneer will place bids on your behalf up to your specified limit
  • By telephone – The auctioneer will call you so you can bid live over the phone
  • Online – You can also bid live from your PC or tablet

If your bid is successful, you’ll usually have to pay:

  • 10% of the sale price on the day, as a deposit
  • The remaining 90% around 28 days later – if you don’t pay this you’ll lose the deposit and the property
  • An administration fee to the auction house – usually between £200 and £300
  • Stamp Duty Land Tax
  • Conveyancing solicitor fees
  • Survey costs
  • Buildings insurance

If you've found your ideal property and have done all the appropriate research, it’s possible to make an early bid before the auction. If you’re successful, you'll need to work extra fast and enlist the help of an experienced mortgage adviser and solicitor.

If a property doesn’t sell at the auction, the auctioneer will ask any interested buyers to make a private offer afterwards, so you can still make a bid then.

What are the two property auction methods in the UK?

There are two ways that exchange and completion can take place at a property auction – the ‘traditional method’ and the ‘modern method’.

  • If you successfully bid at an auction that uses the traditional method, you’ll exchange contracts and pay a 10% deposit immediately after the auction finishes. You’ll then have 28 days to complete.
  • With the modern method, you don’t have to exchange contracts straightaway. Instead, you pay a fee to reserve the property, which is non-refundable if you pull out. The cost of this varies, but it’s normally a percentage of your bid. You then have 56 days to exchange contracts and complete the purchase.

Are some property auctions held online?

Allsop, the UK's largest property auction house, held its first online-only property auction in 2018, successfully selling six out of seven commercial lots. While online-only residential auctions are not yet common in the UK, it's a trend that’s likely to flourish in the next few years. Interestingly, in an online-only auction, a late bid can result in the clock being extended by a minute, and a sale is only complete when there have been 60 seconds of silence.

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What are the advantages of buying a house at auction?

Buying at auction is relatively straightforward. Other advantages include:

  1. Speed
    You can move quickly with the entire home-buying process being completed within a set number of days (often 28) after the auction.
  2. Transparency
    You’ll be able see the other bids for yourself and there’s no risk of gazumping.
  3. Fairness
    There’s no pressure to get your offer in first, as with other property buying methods.
  4. The deal’s done
    The process is not affected by lengthy delays from other parties or breakdowns in communication.
  5. More choice
    There’s also usually a wider range of properties and it’s possible to find some real gems, such as an undervalued home with planning permission or that renovation project you were looking for.
  6. Reliability
    Contracts are signed as soon as the auction is over.

What are the disadvantages of buying a house at auction?

Everything has to be done really quickly – from arranging a survey to asking your solicitor to check the legal pack. Other things to watch out for include:

  1. Do you have all the funding in place?
    If your bid is successful, you’ll need to be able to pay the 10% deposit there and then and the remainder shortly after.
  2. Will you go over budget?
    Set yourself a limit as it’s easy to get carried away on the day
  3. Will the price change?
    The guide price is often set low to generate interest and is not an estimate of the likely sale price. A rising guide price can mean there’s lots of interest from competing buyers and the property you’ve got your eye could sell for a great deal more than you expected.
  4. Buyer beware
    Defective properties with structural problems, short leases, defective covenants (such as no legal right of access) or restrictive covenants (such as how the property can be modified or extended) are often sold through auction.
  5. You may not win the bid
    If someone outbids you, you'll have lost time and the money you’ve spent on surveys and solicitors.
  6. What’s done is done
    Remember, once the hammer falls, there’s no going back.

Can a mortgage broker help me buy at auction?

The key to successfully buying a property at auction is speed and good organisation. An experienced mortgage adviser will be able to work to very tight time frames to arrange an appropriate mortgage in principle, as well as talking you through the whole process. This could make all the difference to your chances of getting that property gem at a great price.

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About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.