Things To Note When Buying At Auction
There are various things that you need to be aware of when buying at a property auction.
You need to realise that the state of properties is often worse than the condition of properties you would typically go and see through an estate agent. This is for various reasons: people are often looking for a quick sale with properties at auction and those not in a suitable state for sale via an estate agent often go up for auction instead.
So this means you need to be certain about a property before bidding on it: ensure you go around it and get a survey done to get an idea of value and what state it is in: people have been known to spend a lot more on sorting out problems with a property bought at auction than the actual cost for the property itself - major issues can be extremely expensive to fix and lead to a huge loss, so you must do your homework when buying at auction.
One of the main things to be aware of is that you will be required to pay money at the end of the auction if you bid on a property and win. You have to pay a whole 10% of the sale value - that can be quite a significant amount depending on the value of the property you buy, so you will need to have the deposit available - remember this if you get tempted to get carried away and bid a lot more than you budgeted for: adding £10,000 to the price you pay for a property will require you to have an extra £1,000 available immediately to pay that additional 10%, so if you don't have the money, don't bid extra.
As well as that cost, remember that you will have to pay stamp duty too on your purchase just as you would with any property purchase, along with your legal fees, an administration fee to the auctioneer and a potential buyer's premium. You need to carefully look through the legal pack in advance to ensure there are no nasty surprise - for instance you might have to pay vendor's costs too, so ensure you realise this and have budgeted accordingly before making your bid.
The main element to consider financially is that you will need to stump up the remaining value of the property - the other 90% - within a period of just 28 days, so this means that if you are serious about bidding on a property (assuming you don't have mountains of cash just sitting in the bank) you will need to agree a mortgage with a lender once you've decided that you are going to attempt to buy a certain property at the auction.
This is why it is a good idea to get a feel for the auction process and attend one with no intention of bidding before going to a 'live' auction: get a feel for the process, and see how it works. Another interesting point is that you often see the same faces at auctions: and by attending several you can get a feel for who people are: are they serial investors, are they builders looking for their next project, and so on. Understanding people's backgrounds and motivation can help you determine your bidding strategy. Also note how many people leave the auction as it progresses, how well it is attended, what type of properties tend to sell best / have the most bidders, and so on.
More first-time house buying articles:
- Who Needs a Mortgage?
- Tips For Renting in London
- What is a Mortgage?
- Property Checklist for First Time Buyers
- Pros & Cons of Buying Property at Auction