Buying Properties at Auction – Beginners Guide
With the reported increase in repossessions (although these actually aren’t as high as previously predicted) more and more people are looking at auctions as a good place to look for property bargains, and it’s true that there are a lot of plus points about purchasing from auction – you can can get a property at a fantastic price, and things will happen at quite a speed – if you win the auction then you’ll walk away knowing that the house is going to be yours in 28 days time. This is great when you think that most conveyancing transactions take a few months to go through from start to finish.
Whilst it’s a great idea on the face of it, there are a few really important things you need to be aware of before purchasing at auction.
Firstly it’s worth dispelling the myth that you’ll end up buying a property by just nodding your head or scratching your nose at the wrong moment. Auctioneers don’t want this to happen and if they are in any doubt as to whether you’re bidding they will generally ask you. If you are bidding though, make your own bids clear. Normally you won’t have to shout out the price you’re bidding – the auctioneer will just call out the figure and if you raise your hand and confirm it then you’ve bid at that price – if you’ve ever watch ‘cash in the attic’ then you’ll already know the procedure.
Most of the important stuff is related to the procedure – how things happen at auctions. But before I start going through that you need to bear in mind that although you can pick up a bargain, you can also pay over the odds for something. It really depends on who else is at the auction and how much they are prepared to pay. No-one there is going to stop you spending too much unless you have the self-control to stop yourself. the ideal advice is to set a limit that you’ll bid up to and don’t go any higher. Trust me, when you’re in the thick of bidding on something it gets pretty exciting (although perhaps I should get out more) – if you’ve bid on an ebay auction before then you’ll know that it can get quite exciting near the end, but here you’ve got all your bidding rivals in the room with you and an auctioneer who’s trained to try and egg you on into spending some more cash – “Come on now sir – don’t lose it for a few hundred pounds”
OK so, given that you’re thinking of purchasing at an auction what do you need to know?
When you’re at the auction and the hammer drops – you’re committed – you’re legally bound to buy that property at the amount you’ve bid. You’re also bound to pay over 10% of the sale price there and then (i.e. at the auction) as a deposit, and the rest of it will become payable 28 days later
B. Essential Steps:-
Because of this you need to:-
1. Check out the property first (i.e. before the auction) – the sellers are meant to put the title deeds, searches and any other relevant documents with the estate agents at least 7 days before the auction – so get them checked out. Most solicitors will check them out and do you a report on the deeds for a fixed price (we certainly do) – you can then go along to the auction with your eyes open. It’s important to do this stage because otherwise you could (for example) buy a house with no access to it, or where there is a boundary dispute, or other things that could cost you a fortune in the long run. Whenever you’re purchasing property in the UK it’s ‘buyer beware’ – if you buy a pup then it’s basically your problem.
You have to consider why the property is coming to auction – there are plenty of legitimate reason why people sell at auction – investors wanting to get rid of their stock, someone’s died and the house is part of the estate – anything where people just want a quick sale. However it could also be that there is a problem with the deeds and previous buyers have pulled out because of it – they might stick it to the auction on the basis that someone won’t notice the problem.
So make sure you get the deeds and documents checked out by a professional before the auction (the documents will usually be available at the auction just before bidding starts but that’s cutting it a bit fine to be checking them there. Nothing wrong with cutting it fine, but if it was me I’d like to know in advance that all is OK) .
2. The Deposit:-
VERY important. You’ve got to be able to produce 10% of the purchase price on the day as a deposit – a cheque is normally acceptable but check with the auction house first to make sure – they might insist on a bankers draft.
3. The rest of the money:-
You’ve also got to pay the rest of the agreed price 28 days after the date of the auction. If you don’t then the seller can keep your 10% deposit and sell the house to someone else!!!!! To get this in place you’ve either got to have the cash available, or get a mortgage offer in place. A mortgage offer will cost money in terms of arrangement fees, and valuation fees (the bank will need to send someone out to make sure the house is worth lending on etc – you’ll need to allow time for this to be set up and done before the auction – the last thing you want is for you to commit at the auction and find the bank won’t lend you the money). Also you can do all this and then lose out on the property – in which case the fees you paid to the bank is money down the drain. Another option on this is if you can arrange the money by a second mortgage on another property – people who own buy-to-let’s will often do this (i.e. they borrow more on their other properties and use that money to pay for another property). However if it’s your main home you’re purchasing (or you don’t happen to have loads of properties lying about!) this is unlikely to be an option.
C. What actually happens: –
When you go to the auction there will usually be a desk where the solicitors are sat. These are solicitors representing the people who are selling. They will have the deeds and document with them, so you can go and ask them any last minute questions. Don’t forget however they are acting for the seller not for you.
The auctioneer will start the auction. You sit down and wait nervously for your property to come up. You bid. You win (hurray!). Normally you would wait until the end of the auction before completing the paperwork. To do this you would go to the Solicitor who’s got the deeds. You’ll sign one copy of the contract and he will give you another copy of the contract signed by the seller, along with the other documents (searches guarantees etc) relating to the property. You’ll pay the deposit (sometimes to the solicitor, sometimes this is paid to the auctioneer). You’ll let the solicitor know who your solicitor is. You walk out of the auction hall incredibly excited, incredibly nervous or both.
You take your documents to your solicitor, who will then move the rest of the transaction forward – basically sorting out payment of the rest of the money. At this stage although you might want your solicitor to ask some additional questions about the property, the answers won’t affect anything – you’re already committed to purchasing it. It makes sense to use the same solicitor you used to check out the deeds at the start (you did do that didn’t you?), as they may well do you a deal on the fees – taking into account what you’ve already paid them.
If you’ve got any questions about auctions ask them by commenting on this thread – I’ll answer as soon as I can.