What Are The Risks Of Buying A Property At An Auction?
If you’re buying property in the UK, there’s a diverse array of options to do so. From traditional avenues like working with an estate agent to find the right home to modern alternatives like shared ownership and government schemes, the UK property market accommodates a spectrum of buyers. One option many people overlook, though, is the chance to buy a property at auction. What is a property auction? What are the benefits and risks of purchasing a property this way? This quick guide will help you find the answers to your questions.
What Is A Property Auction?
A property auction is a public sale where properties are sold to the highest bidder. You’ll typically find these auctions held by various auction houses or property firms. Many different kinds of properties are marketed at these auctions including residential homes, commercial buildings, land, and other real estate assets. Properties up for auction may vary, but so do potential buyers. Individuals looking for a home attend these but so do investors and developers.
What Are The Benefits Of Buying A Property At Auction?
If you’re shopping for a property at an auction, benefits abound. One thing many buyers like about properties at auction is the fact that the purchase process is so fast. Property auctions tend to facilitate a quick and efficient purchase process, with the entire transaction typically completed within a relatively short timeframe. Once a bid for a property is won, you can typically take possession of that property within 30 days.
Another serious benefit of using a property auction to find the right home is the fact that you could get a great deal on a property. Properties sold at auction are often available at prices lower than the market value, which provides you (potentially) with a chance to pick up a property for less than you might have to pay on the open market. If you’re an investor looking for an attractive avenue to expand your property portfolios or you want potential renovation or development projects, this really is a good way to buy.
One last reason this can be such a good way to buy a home is that there’s a level of certainty you don’t get with traditional real estate transactions. Once the hammer falls at an auction, the sale is considered legally binding, so you know the property is secured without the risk of a chain collapsing, which is a common concern in traditional property transactions. You also know you won’t be subjected to a gazumping offer where a seller accepts a higher offer from another buyer after initially accepting your offer.
What Are The Risks Involved?
For as many benefits as there are to buying a property at auction, there are a few risks involved too. One of the biggest is that you have a fairly limited window to handle your own due diligence. The timeframe for conducting comprehensive property inspections and research is fairly small if you’re headed to an auction, and that could lead to a lack of sufficient information about the property’s condition, legal status, or any potential issues. Even if you get a great deal, it may not seem quite so great after you get in the property and discover problems.
Competition can be a real risk, too. While this may be the first time you’ve familiarised yourself with property auctions, rest assured that many people have been using them for years to scoop up great properties. In some cases, competition at auctions can result in a lower purchase price, but in others, it can lead to a bidding war that drives the price higher than initially anticipated, which may mean you overpay for a property.
There are also often some legal complexities involved in buying a property at auction. Some properties on the block might come with legal issues or complications, such as outstanding debts, boundary disputes, or planning permission concerns, and that can create some real challenges for you after you’ve made the purchase.
If You Decide Purchasing At Auction Is Right For You
If you decide the rewards outweigh the risks of purchasing a property that’s up for auction, learning how to bid on an auction property is essential. The very first step in learning how to bid on property auction options is to familiarise yourself with the various auction houses. Before you can bid, you must register with the auction house or the appointed auctioneer. Registration usually requires providing proof of identification and, in some cases, proof of funds or a mortgage agreement in principle. Once you’re registered, you should get notifications of upcoming auctions with the company. When you do, you’ll begin seeing properties for sale. If you see one in which you’re interested, thoroughly research it. Take a look at the auction catalogue, inspect the properties you’re most interested in, and carefully examine the auction pack for each one you are thinking about buying. If you complete your due diligence, and you’re happy with the property, it’s time to learn the finer points of how to bid at a property auction. Many people develop a property auction bidding strategy that works for them. That should involve determining your maximum bid and setting a clear budget. Don’t forget to factor in the additional costs of buying a property like the auction fees involved, the legal fees you’ll pay your solicitor, and potential renovation expenses the property may require you to perform. On auction day, be prepared for competitive bidding, and don’t go over your pre-determined budget. When the property you are interested in is presented, raise your hand to show you want to bid on the property, nod to the auctioneer, or use the bidding paddle the auction house gave you. Whatever you do, make certain your bid is clear and easily identifiable by the auctioneer. Maintain a clear and confident bidding style to stay engaged in the process. If you are the highest bidder when the hammer falls, the property is considered sold to you. Be ready to pay the deposit immediately and provide your details for the necessary paperwork. In most cases, if you are the winner, you will need to complete the purchase within the specified timeframe, typically 28 days, and pay the remaining balance.
Bidding At An Online Auction May Be Different
It’s important to note that many property auctions happen online these days. While the initial part of the process isn’t different – the part where you register with the auction house and do your due diligence, the rest of the auction process is different, so your strategy must be different, too. To be successful here, you must learn more about the bidding procedures and rules specific to the online auction platform. Ensure you are aware of the specific timing of the auction and any requirements for placing bids. Property auction online bidding processes are different for different sites, so make sure you know the site well before you ever register your first bid. During the auction, log into the online platform and locate the property you wish to bid on. Follow the instructions the platform provides to place your bid. This may involve clicking a button to submit your bid at the desired price point. Be prepared for some competition, though, as these auctions can be just as hot as the ones in person.
A Few Strategies To Consider
Whether you’re going to bid in person or online, there are a few different strategies you may want to consider when you bid at a property auction. Some buyers just set themselves a maximum bid. They just determine the highest price they are willing to pay for the property and stick to this limit to avoid overbidding in the heat of the moment. Others use a strategy where they start with a solid opening bid. Making an early and assertive bid can sometimes deter other bidders, which creates an impression of confidence and seriousness. This strategy aims to set a high bar for subsequent bidders to match or exceed, and that could mean you win the property you want right after the auction opens. Another strategy you can use is to wait until the end. If you wait until the final moments of the auction before placing your bid, you can observe the competition and make a calculated decision based on the bidding activity throughout the auction.
Are You Ready To Buy A Property At Auction?
Purchasing a property at auction in the UK can be a dynamic and potentially rewarding experience if you’re looking for a fast, efficient way to buy a property. While auctions allow you to secure properties at competitive prices with a higher degree of certainty, it also requires careful preparation, thorough research, and a clear understanding of the associated risks and challenges. If you think you might want to purchase at auction, the single best thing you can do is begin researching auction houses, their internal processes, and how they might meet your needs as a buyer. Then you can determine if this is the right way for you to purchase a home.