Thinking of buying a property through an auction? This alternative method can be faster and cheaper than traditional private sales. But auctions move quickly, and you’ll want to be prepared to avoid making an expensive mistake. This step-by-step guide explains how the process works and what to expect.
The two auction formats
First, it’s important to know exactly what type of auction you’re taking part in. There are two main types:
- Traditional (unconditional): In this auction, if you win the bid, you exchange contracts straight away and complete the purchase within 28 days. You’ll pay a deposit (typically 10%) on the day.
- Modern (conditional): If you win, you have a 56-day reservation period to exchange and complete the sale. These auctions are more popular nowadays and involve a non-refundable reservation fee instead of a deposit, which is paid separately from the purchase price.
You can attend an auction house in person or use an online auction site. Take your time to compare different auction houses and their properties to see what auctions are coming up.
Preparing for the auction
Once you’ve found a property for auction that you’re interested in, consider arranging a viewing. You usually have 3 to 4 weeks from when a property is advertised to the auction date to do this. If you are seriously interested in a property, it might be worth hiring a professional surveyor who can inspect it to ensure there are no hidden problems.
Make sure to order and review the legal pack before the auction date. This contains documents like title deeds and conditions of the sale that could be important to read over. You may want to hire a solicitor to look over these in order to check for any unusual clauses or restrictions.
Arranging finance early is important, as auctions move quickly — you don’t want to lose your money because you weren’t able to secure a loan in time. An auction bridging loan is a popular method of finance that can cover the gap between purchase and long-term financing.
Finally, make sure you’re registered with the auction house so that you are able to bid. Some auction houses allow you to do this on the day, but many require you to register at least 48 hours in advance. When registering, be prepared to verify your identity with ID.
During the auction
During in-person auctions, you bid by putting your hand up, whereas online auctions will have a bid button. Bids rise in set increments — when no one is prepared to bid higher, the hammer falls, and the highest bidder secures the property.
To avoid getting caught up in the excitement and bidding more than you can afford to pay, you need a strict maximum budget. Take into account stamp duty land tax, renovation costs and any extra auction house fees.
If you are the highest bidder when the hammer falls, congratulations! The property is now yours! Be prepared to pay the deposit or reservation fee there and then, and sign any necessary paperwork.
