Buying a House at Auction

Buying a house at auction can be an exciting and potentially rewarding experience. However, it also comes with its own set of challenges and risks. This article aims to provide a clear and concise overview of the auction process for people wanting to buy a house at an auction.

Why is a House Put into an Auction for Sale?

Houses are often put into auctions for several reasons:

1. Speed and Efficiency: Auctions can be a quicker way to sell a property compared to traditional methods. Sellers who need to sell quickly, such as those facing financial difficulties or needing to relocate, may opt for an auction.
2. Problem Properties: Properties that have issues, such as legal complications, structural problems, or are in poor condition, might struggle to sell through conventional means. Auctions attract experienced investors who are more willing to take on these challenges.
3. Repossessions: Homes that have been repossessed due to missed mortgage payments are commonly sold at auction by lenders looking to recoup their losses.
4. Best Price: Some organisations are obligated to obtain the best price for the sale of a property.  By selling the property at auction they can show that they have obtained the best price.

What Things Should a Buyer Look Out For?

When buying a house at auction, it’s crucial to be well-prepared and vigilant. Here are some key considerations:

1. Inspect the Property: Always inspect the property before bidding. Auctions typically sell properties “as-is,” meaning you cannot ask the seller to make repairs.
2. Understand the Market: Research the local market to avoid overbidding. Knowing the typical sale prices of similar properties can help you make informed decisions.
3. Prepare Your Finances: Ensure you have a strong preapproval letter from a mortgage lender if you plan to finance your purchase. You’ll also need cash for a deposit and down payment.
4. Review the Legal Pack: Obtain and review the auction legal pack, which includes important documents like the title deed and any special conditions. This can help you understand any potential legal issues or additional costs.

When Does a Buyer Become Contractually Bound to Buy the Property?

The moment the auctioneer’s hammer falls, the highest bidder becomes contractually bound to purchase the property. This means that the buyer must complete the transaction within the specified timeframe, usually 20 working days. At this point, the buyer is legally obligated to proceed with the purchase, and backing out could result in significant financial penalties.

What Are the Likely Costs Involved for a Buyer?

Buying a house at auction involves several costs beyond the hammer price:

1. Buyer’s Premium: This is an auction commission added to the final sale price, typically a percentage of the hammer price.
2. Legal Fees: This is for reviewing the auction legal pack before the auction and conveyancing fees if you are the successful bidder.
3. Stamp Duty Land Tax: Depending on the property’s price and your personal circumstances, you may need to pay Stamp Duty Land Tax.
4. Survey Fees: It’s advisable to get a survey done to assess the property’s condition, which can cost several hundred pounds.
5. Insurance and Financing Fees: Buildings insurance and any fees associated with arranging auction finance should also be considered.
6. Seller’s Fees: The seller may add special conditions to the auction contract requiring you to pay some of the seller’s costs – which may include the cost of providing conveyancing searches and the seller’s own legal costs. You must read the auction conditions and the Legal Pack very carefully.

Buying a house at auction can be a great opportunity, but it’s essential to be well-informed and prepared. By understanding the reasons properties are auctioned, knowing what to look out for, being aware of the costs involved, and recognizing when you become contractually bound, you can navigate the auction process with confidence.

If you would like us to help you navigate the auction process, please contact our Auction Team.