Purchasing a property is one of the biggest purchases you will ever make in your life – so it can understandably be a little daunting. Buying property by auction offers an alternative to the traditional method of house buying and could potentially get you a good deal. However, this process can be complex and full of uncertainties. This definitive guide aims to walk you through the essentials of buying property by auction in the UK.
If you would like to discuss your circumstances or requirements with one of our experienced auction property solicitors, please call us on 0800 086 2929, email info@elitelawsolicitors.co.uk or complete our Free Online Enquiry Form to arrange an initial discussion.
What is the process of buying property by auction?
Buying property by auction is a little different than buying from a seller directly. With that said, it is quite a straightforward process that tends to incorporate the following steps:
Pre-auction research
The first step is to find an auction that offers properties that interest you. This can be done through websites, newspapers, or direct contacts with estate agents. Once you find an auction, get a catalogue and scrutinise the properties on offer.
Pre-arranging finance
Before going to the auction, you must have your finances in order. This means having a deposit ready (usually 10% of the property value) and knowing how you will fund the remaining 90%. Remember, if you win, you are legally bound to buy the property.
The auction day
Arrive early on the auction day to get a good seat and familiarise yourself with the atmosphere. Bidding can be done in person, by phone, or online, depending on the auctioneer’s terms. If you are the winning bidder, you will have to pay the deposit immediately.
Post auction
Once the hammer goes down, the property is yours. You will typically have 28 days to complete the sale by paying the remaining amount. Failure to do so may result in the loss of your deposit and additional penalties.
What factors should I consider when buying property by auction?
When it comes to choosing the right property to bid for at auction, there are a few main areas to consider. These include:
Location and type of property
Knowing what you are looking for in terms of location and type of property can help narrow down your choices. Study the local property market, consult local estate agents, and consider your future plans, like whether you are buying to live, let, or sell in the future.
Budget constraints
Know your budget and stick to it. The excitement of an auction can sometimes drive people to bid more than they can afford.
The legal aspects of buying property by auction
Always consult an experienced solicitor to go through the legal packs provided by the auction house. This can help you avoid properties with complicated legal issues that may cost you in the long run.
The costs involved when buying property by auction
Apart from the purchase price, consider additional costs like stamp duty, auctioneer’s fees, renovation costs, and solicitor’s fees.
What are the pitfalls of buying property by auction?
Although buying property by auction can offer some incredibly good deals, there are some associated risks to be mindful of. These include:
Risk of overpaying when buying property by auction
The competitive atmosphere in auctions can drive prices up, and you might end up paying more than the property is worth.
Legal complications
If you do not do your due diligence, you may end up with a property that has legal issues such as unresolved property disputes or planning restrictions.
‘As is’ condition
Properties are usually sold in an ‘as is’ condition at auctions. Therefore, you need to be wary of potential defects or necessary repairs which might not be immediately visible.
Uncertainty
Unlike traditional methods of homebuying where you have time for surveys and negotiations, auctions can be unpredictable. You can sometimes miss out on better opportunities, or worse, end up with a property that requires more work than anticipated.
Lack of consumer protections when buying property by auction
Certain consumer protections that are usually associated with private treaties do not apply to auctions, putting the onus of due diligence solely on the buyer.
Should I arrange a viewing before I bid to buy a property by auction?
Absolutely. A viewing is an essential step if you are considering buying property by auction. Pictures and descriptions are not enough to base such a significant financial decision on. A viewing will allow you to assess the property’s condition, its suitability for your needs, and to estimate any potential repair costs. Ideally, take a builder or an architect with you to give a professional assessment of the property’s condition.
What will I find in the auction pack?
An essential step in preparing for buying property by auction is thoroughly reviewing the auction pack or legal pack. This set of documents provides crucial information about the property and the terms of the sale. Ignoring or overlooking any details in the auction pack can lead to costly mistakes. Here’s what you can typically expect to find:
- Title Deeds
- Local Authority Searches
- Property Information Questionnaires
- Fixture and Fittings List
- Leasehold or Freehold Information
- Environmental Searches
- Special Conditions of Sale
- Energy Performance Certificate (EPC)
Should I undertake any searches?
In the process of buying property by auction, conducting searches is not just advisable but often essential for a well-informed decision. When you buy a property at auction, you are buying it ‘as is,’ which means any problems or challenges that come with the property will become your responsibility upon purchase. Searches help you uncover these potential issues before you commit, thereby aiding in risk assessment and price valuation. Some of the searches you should look into include:
Local Authority Search: Conducting your own local authority search will give you information about planning permissions, upcoming zoning changes, or other local government plans that could impact the property’s value or utility.
Environmental Search: An environmental search will provide you with details about soil contamination, flood risks, and other environmental factors that could affect the property.
Land Registry Search: A land registry search confirms that the seller actually owns the property and has the right to sell it. It will also provide important details about the property boundaries and any third-party rights over the property, like public pathways or utilities easements.
Water and Drainage Search: This search will tell you where your water will come from, how wastewater is managed, and whether there are any public drains on the property that could affect any future construction or landscaping plans.
Additional Searches: Depending on the property’s location, you might also need more specific searches like mining, chancel repair, subsidence, or radon gas searches. Consult your legal advisor to identify what additional searches may be pertinent.
Can I order a building survey if I am buying property by auction?
The short answer is yes, you can – and often should – order a building survey when you are considering buying property by auction. A building survey gives you a detailed report about the condition of the property. It can reveal structural issues, potential maintenance concerns, and needed repairs that could significantly impact your bidding strategy. There are several types of surveys you can opt for, each offering different levels of detail:
Condition Report
This is the most basic type of survey, highlighting urgent defects and potential issues but not going into great detail. It is suitable for newer properties or homes that appear to be in good condition.
Homebuyers Report
More detailed than a condition report, a homebuyer’s report provides insights into issues like damp, subsidence, and potential electrical problems. It also often includes a property valuation.
Building or Structural Survey
This is the most comprehensive type of survey and is particularly recommended for older properties, or those in apparent disrepair. It provides an in-depth analysis of the property’s condition, including its structural integrity.
What funding options are available when buying property by auction?
Buying property by auction comes with its own set of financial requirements that differ significantly from the traditional property-buying process. Being the highest bidder means you are legally obligated to buy the property, so securing funding beforehand is crucial. Here is an overview of the various funding options available to you:
Buying auction property by cash
Paying with cash is the simplest and most straightforward method. It is also the most attractive to sellers as it involves fewer complications. If you have the liquidity to cover both the deposit and the full purchase price, this is an ideal option.
Mortgage
Getting a mortgage for an auction property is possible, but it comes with its challenges. You will need to:
- Get a mortgage-in-principle agreement before the auction to understand your borrowing limit.
- Complete the full mortgage application and have it approved between the auction date and the completion date, which is often within 28 days.
Due to this tight timeframe, mainstream mortgages may not always be viable for auction purchases.
Bridging Loans when buying property by auction
Bridging loans are short-term finance options specifically designed for situations like property auctions. These loans can typically be arranged much more quickly than traditional mortgages. The idea is to use a bridging loan to purchase the property, then refinance with a traditional mortgage or sell the property to repay the loan.
Joint Ventures
Entering into a joint venture with another party can provide you with the financial capacity to bid at an auction. This could be a family member, friend, or business partner. The terms would need to be carefully negotiated and legally documented to protect all parties involved.
What should I take to the auction?
When you are buying property by auction, preparation is key. Being well prepared not only increases your chances of securing a property but also helps to ensure that the process goes as smoothly as possible. While each auction may have its own specific requirements, here is a general list of things you should consider taking with you:
Identification and registration documents
You will typically need at least two forms of identification, such as a driving licence and a passport, to register to bid at the auction. Some auctions may also require proof of residence, like a utility bill. Check beforehand to see what is required for registration.
Auction catalogue and research material
Bring along the auction catalogue and any research you have collected. This can include notes on the properties you are interested in, as well as any comparable sales data, survey reports, or legal documentation you have gathered.
Financial documents
Depending on the auction house’s policies, you may need to provide proof of funds to show you are capable of paying the deposit and purchase price. This can be a bank statement or a letter from your financial institution confirming your financial standing.
Deposit payment
If you are the winning bidder, you will be required to pay a deposit immediately, often around 10% of the purchase price. Confirm the acceptable forms of payment with the auction house beforehand.
Mortgage-in-principle or loan details
If you are planning on using a mortgage or loan to complete the purchase, bring all relevant documentation with you. This can be a mortgage-in-principle letter or loan agreement, which can serve as additional proof of funds.
Legal advisor or agent
If it is your first time buying at an auction or if the property has complicated legal requirements, it may be beneficial to bring along a legal advisor or experienced property agent to assist you in making informed decisions on the spot.
What will happen on the day of the auction?
The auction day is the culmination of all your research, preparation, and planning. Knowing what to expect can help calm nerves and enable you to act decisively when it is time to bid. Here is a general overview of what usually happens on the day of a property auction:
Arrival and registration
Auctions usually recommend that you arrive at least 30 minutes to an hour before the scheduled start time. This allows you to complete registration, get your bidding paddle or number, and take a seat. You will typically need identification and possibly proof of funds for this process.
Review auction items
Many auction houses will display information on the properties being auctioned, either on large screens or in printed material available on site. Take this time to review the details once more, particularly any last-minute addenda or changes to the lots you are interested in.
The bidding begins
Properties will be auctioned in the order they appear in the auction catalogue. When the lot you’re interested in comes up, bidding will start, usually at a low price to encourage participation. The auctioneer will specify the increment by which the bids will rise.
Making a bid to buy property at auction
To bid, you will need to raise your paddle or make a clear signal to the auctioneer. If you are the highest bidder, the auctioneer will confirm this by hitting the gavel and declaring the property ‘sold’. At this point, the sale is legally binding.
Paying the deposit
Once you have successfully won a bid, you will need to pay the deposit immediately. This is usually about 10% of the sale price and can generally be paid via check, debit card, or sometimes cash. Make sure you have sufficient funds to cover this.
Completing paperwork when buying property by auction
You will be escorted to a separate area to complete the necessary paperwork. This includes confirming your identity, finalising payment of the deposit, and agreeing to the timescale for completing the sale.
After the auction
After the auction, you will typically have 28 days to complete the sale, though this can vary. This is the period when you will need to arrange for the remaining funds to be transferred and finalise any mortgage or other financing.
Who insures the property following the auction?
Once the auctioneer’s gavel falls, and you are the winning bidder, you are generally considered the new owner of the property. From that moment, the responsibility for insuring the property usually transfers to you, even though the full purchase price may not yet have been paid and the ownership is yet to be formally transferred via legal documents.
Given that the legal obligation generally shifts to the winning bidder, it is crucial to arrange insurance for the property immediately after the auction. If something happens to the property between the auction date and the completion date – like a fire, vandalism, or natural disaster – you would typically be responsible for any loss or damage.
When will I be expected to pay the purchase price?
One of the most critical aspects of buying property by auction is understanding the payment obligations. Unlike traditional real estate transactions, where the process can stretch out over months, auctions often require immediate action, both in terms of paying the deposit and the remaining balance. Here is what you need to know about when you will be expected to pay the purchase price after winning a property at auction.
Immediate deposit payment
As soon as the auctioneer’s gavel falls, signalling that you are the winning bidder, you will generally be expected to pay a deposit immediately. This is usually a percentage of the final purchase price, often around 10%. The payment methods and exact amount will be specified in the auction catalogue or announced before the auction starts.
Completion period for full payment
After the initial deposit, you will have a set timeframe to pay the remaining balance. This period is known as the ‘completion period,’ and it typically ranges from 14 to 28 days, although it can sometimes be longer. The specifics will be outlined in the auction documentation and legal pack.
Can I change my mind after placing a successful bid?
One of the most pressing questions that potential bidders have is whether they can change their mind after placing a successful bid at a property auction. The short answer is generally no – once the auctioneer’s gavel falls, you are in a legally binding contract to purchase the property.
What happens if I buy a property by auction but cannot pay?
Pulling out of a successful auction bid comes with significant financial and legal repercussions, including:
Forfeiture of deposit
The immediate deposit you pay (usually around 10% of the purchase price) is generally non-refundable. You will likely lose this money if you decide not to go through with the purchase.
Legal action
The seller has the right to take legal action against you for breach of contract. This could lead to a claim for damages and may include additional legal fees.
Additional costs
Depending on the terms of the auction and any subsequent resale of the property, you might also be responsible for covering the difference if the property sells for less than your winning bid, along with any costs associated with re-auctioning the property.
Be prepared when buying property by auction
One of the most important things to remember when buying property by auction is to go prepared. Use this guide to perform your due diligence and make sure that you know all you can about the property you want to buy.
How we can help with buying property by auction
How we can help with buying property by auctionBuying property by auction is an excellent way of circumventing the usual problems associated with purchasing a property. Fewer fees and no chains mean sales are usually completed quickly and painlessly. This process runs smoothest when both buyer and seller are properly prepared and well-informed. Understanding the content of legal packs and the results of any surveys is essential for a buyer looking to make a smart purchase.
Our expert auction property solicitors have a thorough knowledge of buying property by auction. They are aware of what to expect and the pitfalls to avoid at a property auction. Our solicitors have years of experience both producing and interpreting legal packs and guiding clients through the auction process. We have been awarded the Law Society’s Conveyancing Quality Scheme Accreditation which demonstrates our knowledge and expertise in all aspects of residential conveyancing.
One of our experienced auction property solicitors will have an initial consultation with you, free of charge, to discuss your situation in more detail. Once we understand your circumstances better, we can provide you with a clearer understanding of how we can help you. We will also provide you with a price quotation and a choice of funding methods at the outset.
If you would like to discuss your circumstances or requirements with one of our experienced auction property solicitors, please call us on 0800 086 2929, email info@elitelawsolicitors.co.uk or complete our Free Online Enquiry Form to arrange an initial discussion.
The content of this article is for general information only. The information in this article is not legal or professional advice. If you require legal or professional advice you should obtain independent expert advice from qualified property solicitors such as those within our firm.
