The appeal of purchasing a property at auction is understandable. Right now, the average price of a residential property in the UK is edging close to £300,000. Play your cards right at auction and you could pick up a decent fixer-upper home for less than £50,000.
Even so, purchasing properties at auction is not without its challenges or risks. Purchasing properties outright for cash brings a great many advantages, but is not always the right choice for all homebuyers.
How Property Auctions Work on the Day
Contrary to popular belief, what happens at auctions on the day isn’t all ‘spur of the moment’ stuff. Property auctions are planned months in advance, and comprehensive details of all lots for sale are published ahead of time. This means that by the time the day of the auction arrives, attendees know exactly what they intend to bid on, and how much they are willing to spend.
Hence, extensive research holds the key to successful property purchases at auction. When the time comes to bid, you should know everything there is to know about the property you are bidding on. If not, you might find yourself walking away with much more (i.e. less) than you bargained for.
Be mindful of the fact that if your bid is successful, you will need to pay a 10% deposit on the spot. After which, the remaining balance will need to be paid within 28 days. You, therefore, need to ensure you are pre-approved for an appropriate loan or mortgage ahead of time and that the funds will be made available within this four-week deadline.
Bridging finance is one of the most popular funding solutions for auction property purchases, which can be arranged and accessed within a few working days.
What Are Legal Packs?
The ‘legal pack’ that accompanies a property going under the hammer at auction contains all essential legal paperwork and documentation. All of this may be difficult to make sense of without extensive legal knowledge, which is where the help of a solicitor can prove invaluable.
It is always advisable to hire a solicitor to inspect the legal pack on your behalf, as far in advance of the auction as possible. If any key details are missing from the legal pack, your solicitor will need to request them from the seller, which may take some time.
Asking the Right Questions
The more you know about the property you intend to purchase at auction, the better. This is where asking all the right questions can make a real difference. Based on both the legal pack and the result of your own viewing of the property, you can then ask as many questions as you need to fill any remaining gaps.
Why is the property being listed for such a low price? How many years are left on the lease? Why did the property fail to sell on the conventional market?
You could also speak to several other homeowners in the area, who may be able to provide you with valuable information about the property and its surroundings.
If a Property Fails to Meet Its Reserve Price
Homes and residential properties are always listed at auction with a reserve price. This is to ensure that they do not sell for less than the seller is willing to accept. If the reserve price of a property is not met, the sale falls through.
Should this happen, it is always worth speaking to the seller (or their representative) directly. If they are keen to sell their property as quickly as possible, they may be willing to offer you a discount.
For example, if a property is listed with a reserve price of £100,000 and only received bids up to £80,000, it will not be sold. At this point, you could try offering the seller £90,000 for the property and technically score yourself a £10,000 discount for purchasing it privately for cash (perhaps with a bridging loan).
