Buying Property at Auction
At NBM we are happy to assist you with the conveyancing aspects of buying a property at auction, and indeed, many of our clients buy their properties in just this way.
However, there are some pitfalls involved with buying at auction and we find that many sellers use auctions to get rid of “problem” properties to the unwary. To avoid being stung we would suggest that you follow the advice in this article.
Contact the auctioneers and request their catalogue. Most auctioneers hold regular auction sales with a catalogue printed some weeks in advance. Catalogues are almost always available online.
Go through the catalogue and identify the property or properties you are interested in.
Download the legal pack on the property or get the auctioneers to send you a copy of the legal pack. This should contain a copy of the title and official boundary plan, it should also contain copies of any documents referred to in that title. A good auction pack should also contain a recent official local authority search result and a range of other recent searches on the property. You should also look to see that the vendor has provided answers to a pre-contract enquiries questionnaire of some description. If the legal pack does not contain any of these items then we would not recommend that you bid.
View any properties you are interested in and take a copy of the official title plan with you to check the position and boundaries of the property match the deeds. Check that the description in the catalogue is accurate. If you can, we would recommend that you have the property inspected by a surveyor at this stage.
Research the property thoroughly and ask local estate agents and neighbours for their opinions.
Carefully read the special conditions in the auction contract. Many sellers insert provisions into the small print requiring you to pay a large sum towards their “costs”. It is usual practice for the conditions to require you to re-imburse the seller for the costs of the local searches. Watch out for any mention that you will be responsible for paying the seller any arrears of rent or service charges on completion. This often means that the seller’s tenant owes him a large sum of money which the seller will then try and re-coup from you and leave you chasing his tenant for the money. Do not accept a condition where the seller is trying to bring forward the completion date, the standard completion date is 28 days from the auction.
Make financial arrangements to ensure you have a 10% deposit ready for payment on auction day, You must pay the full 10% on the day, and have access to the remaining 90% within 28 days. It is usually only advisable to buy at auction if you are a cash purchaser, but if you are trying to buy with a mortgage you must ensure that you have a firm mortgage offer on the table before bidding at the auction. If you successfully bid at the auction and then cannot get the mortgage finance you will end up losing your deposit.
Be aware that buying at auction is a binding commitment and carries the same legal implications as exchanging contracts in a private sale. Make sure that if you are buying in joint names that both/all names of the buyers are written on the contract even if they are not all at the auction to sign personally. Take the signed auction contract (usually printed in the back of the catalogue) home with you and hand it over to your solicitor as soon as possible after the auction so that they can complete the legal formalities for you.
NBM offer a pre-auction document checking service. This is the best way to ensure that you are not buying a problem title. If you let us have the legal pack before the date of the auction and a payment of £120 we will report to you in full on the legal paperwork before the auction. We always try to do this by e-mail, but where time is short we will do so on the telephone. If you decide not to bid after the advice we have given you our fee for the service is limited to the £120 you have already paid. If you do go ahead and bid successfully then the £120 is carried forward and credited against the fees that we change you for the conveyancing work we do in connection with completing the sale.
Frequently asked questions
Is it good to buy a house from auction?
Yes if you are an experienced investor paying cash and looking for a specific type of property (e.g. you want something to renovate or add value to)
No if you are reliant on mortgage finance and do not have extensive experience in the property market and are looking for a home that you can move into straight away.
How does buying a house at an auction work?
The auctioneer will invite bids for the lot as advertised in the brochure and will accept the highest bid. When the hammer falls you have bought the property (unless the property fails to meet its reserve price,in which case the auctioneer will declare this) If you bid successfully then you have a set period (usually 28 days) in which to "complete" the purchase and pay for the house.
Why do properties go to auction UK?
For a variety of reasons, but the most common are:
Properties in poor condition which have not sold through the local estate agent as they need too much work to make them habitable.
Repossession sales by lenders
Problem properties which may have some flaw in the title or dispute which the seller does not want to have to give information about.
Can a first time buyer buy at auction?
Yes but it is very uncommon as auctions have a 28 day completion timetable so mortgage finance is not usually obtainable within the time limits.
What are the downsides to buying a foreclosed home?
Sometimes they are left in poor condition.
The information offered to the buyer by the seller will be very limited and may not reveal things to you that you probably ought to want to know about before buying
How do you buy a house at auction with no money?
This would not be possible as you are required to pay a 10% deposit tot the auctioneer as soon as the hammer falls and then the other 90% of the purchase price within a set period usually 28 days.
Can you buy a home at auction with a loan?
Yes but you will need to have cash available to pay the 10% deposit when the hammer falls. If you are buying with a mortgage it is vital to have the loan offer before you bid because if you do not have the money available to complete 28 days later you will lose your deposit.
How do you win an auction?
By outbidding the other participants.
What happens if a property doesn't sell at auction UK?
Most properties are put into the auction with a "reserve price" and if the bidding does not exceed the reserve price the auctioneer will not sell the property. If it does not sell then the owner is at liberty to sell it privately, put it in another auction or to negotiate with the auction bidders to see if a compromise can be reached.
How much does it cost to sell a house at auction UK?
COMMISSION – The auctioneers commission is around 2% + VAT of the final sale price and that’s only paid when the property successfully sells.
ENTRY FEE – Most auctioneers request an upfront catalogue/entry fee of around £300 + VAT or more, but it may be possible to postpone payment until after the property has successfully sold.
AUCTION LEGAL PACK – The seller’s solicitor is responsible for preparing the auction legal pack at the cost of £200 or more, which is payable before the auction.
How do auction houses make money?
By the commissions and fees that they charge. See answer above.
What does an auction house do?
Advertises the property for sale in its brochure and then conducts the auction of the property to the public on the auction date. After the hammer falls they take the deposit and hold it until completion when it is released to the seller.
Is it better to auction or sell a house?
Selling a house through an estate agent or privately is almost always better than selling at auction because of the higher prices achieved. Auctions are generally of use only where the property is difficult to sell through conventional means(e.g because of poor condition)