Property auctions are perhaps one of the most overlooked aspects of buying a new home. While they are generally mostly used by investors and property developers, auctions can offer a change of pace for budding homeowners too. As with every aspect of buying a home, property auctions have their pros and cons. We have put together this list of benefits and pitfalls to help you determine whether auction buying is the right choice for you.
Perhaps one of the main benefits of buying property at auction is the speed of the process. Typically, buying a home through estate agents can take months, with hundreds of documents to sign and questions to answer. At auction, a property purchase can be completed in weeks rather than months. Once you have won the bidding process, the house is yours.
Contracts are exchanged on the spot, and you will have to pay 10% of the purchase price as a deposit. From there, total completion is not likely to take longer than a month, compared to the months you would be waiting on a regular sale. For those wanting to buy a property fast, auctions should always be considered.
Additionally, when buying a home through standard means, the deal is at risk of falling apart at any time. This is due to the exchange of contracts being one of the last aspects of the purchase, or any of the parties choosing to pull out at any time.
This is avoided at auction, as once the hammer falls on a property, the deal is done, and there is no backing out from either side. While this can cause issues if the buyer has not done their research into the property beforehand, we will get into that later.
When you are bidding on a property through estate agents, it can sometimes be hard to read the competition. At auction, the buying process is much more transparent. Being in the same room as other bidders allows you to read the mood much easier.
You will also have the knowledge that you will only need to bid one increment higher than the competition. This means that a bidding session will not be outdone by one party bidding much higher than the other.
Quite frankly, buying a house at auction is a very straightforward process. Provided you have done your research into properties you are interested in, the whole thing can be a breeze. If you intend to bid, all you need to do is bring along an acceptable UK ID, your solicitors details, and an appropriate way of paying the required 10% deposit.
This typically includes a cheque, debit card or bankers draft. Additionally, there are multiple ways of actually bidding on the property you are interested in. If you cannot be there in person, you can bid by proxy.
This entails giving the auctioneer a specified budget limit, so they can place bids for you up to this limit. You also have the choice of bidding by phone or online.
By their very nature, property auctions are designed to be quick and easy for everyone involved. From potential buyers and sellers to investors and auctioneers, everyone who takes part in an auction does so because they are looking for a fast and simple way of either buying or selling a property.
At an auction, there are likely to be a much larger range of properties actually available. Many property owners prefer to sell their properties at auction rather than the traditional route. This is because - you guessed it - it is quicker. Typically, auction houses will hold around one a month, each one covering both residential and commercial properties.
With such a wide array of properties available, the trick is to know how to find the one you want. Take a look through the catalogue as far in advance as you can, and investigate any that pique your interest. It is important to do your research into any and all properties that you are considering, even if they seem different to what you are looking for. With so many to choose from, you never know what you might find.
Buying property at an auction does not come without its pitfalls. While it offers a quick and easy way to either buy or sell a property, this one-hundred-mile-an-hour process can cause problems of its own.
Because of the fast-paced nature of property auctions, it is very easy to be impulsive with the buying process. Whether you get suckered into a bidding war, or decide to bid on a property that has caught your eye on the day without doing your research, this is the nature of the environment.
It is also very easy to go over budget at auction if you get swept up in the moment. If you are pulled into a bidding war over a property you like, it can be very easy for property buyers to consider adding an extra £5K to their budget and before you know it, you have gone over budget and are stuck with a property that will drain your funds. Sticking to your budget is a very important part of the discipline that auction buyers need to be successful.
This is actually a positive for property sellers, as what could be better than two buyers engaged in a bidding war over your property? If the property you are selling is caught up in a bidding war, you are likely to see both parties bid higher than the amount you expected to earn from it. As a buyer, if you have the ability to shut off your impulsive tendencies and stick to your plan, you might find yourself exploiting the impulsiveness of rival buyers.
As soon as the hammer falls on a property at auction, the winning bidder is required to put down a mandatory 10% deposit immediately. As soon as the winner is declared, there is no going back. The falling of the hammer signals the closing of the sale, and the winner cannot back out.
This is why it is vital not to go over budget on your bidding. If a buyer wins a property by bidding above their budget, this means that they will have to pay more than they expected as a deposit. Getting ready with your finance is simple enough to do if you plan ahead, but being organised is essential.
Perhaps the biggest issue with the speed of an auction is the lack of time it gives buyers to get their ducks in a row. Buyers will have less time to get a survey done on the property they are interested in, and less time for your solicitor to go over everything. Usually, an auction will take place three weeks after the property catalogue is released. Three weeks is quite a short time to get all the recommended due diligence done, and puts heavy pressure on the buyer.
This pressure means that some things can fall through the cracks. If a survey is not completed in time, it may be that you end up paying more than the property is worth. Additionally, it does not give enough time for your solicitor to fully understand the legalities of all the properties you are interested in.
All in all, property auctions are a fast and simple way to buy or sell a home. This fast-paced nature comes with benefits and pitfalls, and it is up to you - the buyer - to decide whether it is the best way for you to find your new home. Browse our other auction-related articles to get prepared!
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