How does buying a house at auction work?
If you know what you're doing, you can bag a bargain at a property auction. But there's a lot to get to grips with, especially if you're a first-time buyer. Read on and we'll walk you through it...
Buying a property at auction certainly isn’t for everyone. But it can be a very cost-effective and quick way to get your hands on a home.
Here’s a look at the good and bad of buying at auction and everything else you need to know, whether you're a first-time buyer or looking to move from your current home.
How does buying a house at auction work?
Buying a house at auction works much like an auction for antiques or collectibles. It’s just that your outlay is likely to be much bigger and you'll own a house when the gavel goes down.
Ahead of the auction, the estate agent or auction house that’s running the auction will list the property or properties up for sale online. They’ll typically list them about a month in advance.
Depending on the auction format that the auctioneers choose, there may be a designated time and date for the auction to take place, at which point you’ll submit your bid, or there may be a cut-off date and you’re free to submit your bid online at any time beforehand. This is the more modern way of running property auctions.
In both types of property auctions, there will be a reserve price that’s set by the seller, which is essentially the lowest price that the seller is willing to accept. If bids fail to reach the reserve, the property won’t be sold.
If you table the highest bid, you’ll win the property and will be obliged to pay a reservation fee, also known as the deposit. This is due on the day of the auction.
How much does it cost to buy a house at auction?
If you're successful, you'll need to pay:
Your 10% deposit on the day, or a minimum deposit for low-value lots.
Auction house charges, such as admin charges, buyer's premiums, and other fees (if applicable) listed on the property's details or Special Conditions of Sale.
Conveyancing fees
Stamp duty (but you may be exempt if your property is beneath the thresholds and you meet the right conditions)
Buildings insurance, which you should take out as soon as possible after exchanging contracts
How much less do houses go for?
According to HomeSellingExpert, properties at auction sell for between 10-15% less than their market value.
It's not uncommon for properties to sell for more than their market value, so you can still get a good deal if you
Who pays the auction house fees?
In open bidding auctions the fees are usually paid for by the buyer.
In sealed bidding auctions the fees (such as the commission) often fall to the seller.
How much deposit do I need?
A 10% deposit is most common, but for lower-value lots the auction house will set a minimum deposit.
Will I need to pay cash?
It's not mandatory to pay cash - you can use other forms of financing, like bridging loans and traditional mortgages if the property is mortgageable.
Whatever form of financing you choose, you'll still need to pay the deposit immediately after winning the bid.
Do I need a solicitor to buy a house at auction?
You will need a solicitor as buying a property at auction means you're legally bound to buy the property after your bid has won.
This differs from traditional home purchase through an estate agent as you have until the exchange of contracts to perform your due diligence, conduct surveys and searches, and withdraw if a dealbreaker presents itself, such as:
Restrictive covenants
Existing tenancies
Encroachments
Enforcement notices
When you buy a property at auction, you need to do all your due diligence upfront because you can't back out without forfeiting your deposit.
If you back out of a property purchase at auction you'll forfeit your deposit, so it's important to engage a solicitor before you bid on a property.
Why do people choose to sell a house at auction?
There is a lot to be said for selling a house auction. Here’s why sellers might choose to auction their home:
It’s a fast way to sell: The timeframe for completed sales is typically much faster than selling in the traditional way. So if you’re looking to sell a house quickly that you may have inherited, for example, an auction is a good way of doing so
Auctions are easier for the seller: Because auctions work to fixed timeframes, things progress almost "automatically". This saves sellers the stressful experience of chasing solicitors and estate agents to try and push the sale along
Seller may not have money for repairs: If a property needs a lot of expensive work, the seller might opt to offload it via auction to effectively pass the outlay to the buyer
How to succeed when buying a house at auction
Getting the right property at the right price requires doing some groundwork and keeping your cool during the auction. Here’s some handy tips to give yourself the best chance..
Sign up for mailing lists: Make sure you’re on auction houses’ mailing lists, so you get notified of properties going to auction in the area you’re looking to buy. This will ensure you get up-to-date auction catalogues, too
Fix viewings: If there’s a property you like the look of, make sure you get a good look at it ahead of the auction. And if you can, take an expert with you, such as a builder or surveyor
Do all your financial groundwork: Ensure you’ve got a mortgage in principle or alternative financing in place before the auction. You should also find out what deposit is required and what forms of payment are accepted. As a rule, you’ll need to pay 10% deposit when the hammer falls
Do your due-diligence up front: Hire a solicitor to support you before and after the purchase, and ensure there are no nasty surprises after you're legally-bound to buying the property
Work out a hard-and-fast budget: It’s easy to let ‘animal spirits’ take over and get carried away at the auction. But if you’ve got a firm budget in mind, that’s less likely
Don’t pay too much heed to guide prices: It sounds obvious, but remember that they’re only there as a guide. And bear in mind, that they’re often set low to pique interest
Pay attention to the small print: Different auctions apply different terms of sale, which you’ll need to adhere to. So get a copy of the terms and conditions and enlist a solicitor to look over them. That way, you know when payments are due and you won’t get a nasty shock on the day - or, worse, after you’ve had a bid accepted
Attend an auction beforehand: As a first-time buyer, you’re unlikely to be too familiar with the ins and outs of property auctions. So make sure you attend one in the name of research. That way you’ll know how they typically work
Get to the auction early: Try and get to the auction at least 20 minutes before it gets started. That’ll give you time to familiarise yourself with any changes to the terms of sale that could be announced on the day
Bring supporting documents: You’ll need photo ID and proof of residence if you’re going to make a bid
Remember there’ll be other chances: If a property doesn’t sell at auction, you may be able to buy it privately. And don’t lose heart, if you miss out on a property, there will be other auctions
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