Buying a house at auction: What you need to know

Auctions are a great way to avoid lengthy and uncertain buying procedures – but be warned: as soon as the hammer falls you're locked into paying, so be prepared. Here's what to be aware of when you are buying a house at auction.

Paula Higgins CEO & Founder

How does buying a house at auction work?

When buying a house at auction, the auction takes place at a fixed time and date and the auctioneer will invite potential buyers to make their bids. The person who makes the highest bid on the day buys the property, as long as the reserve price is met. These house auctions are often referred to as unconditional and you must exchange contracts on the day and pay the deposit. You must complete 28 days later. If you pull out after exchange, you’ll forfeit your deposit and may be liable for other costs too.

This guide explores buying a house at a traditional auction. The Modern Method of Auction, also known as conditional auctions, work differently. You can find out more in our guides Modern Method of Auction explained and Modern Method of Auction: The pitfalls for buyers.

Buying at auction? Get your conveyancing solicitor lined up now.

How to find properties for sale by auction

There are two main ways of finding properties for sale by auction.

• Check property portals: Houses for sale by auction will often be listed on the main property portals like Rightmove. You can search as normal but using the auction filter. Alternatively, you can Google ‘auction properties on Rightmove’.
• Contact auction houses: You should also contact the auction houses that cover area where you want to buy. Ask for a catalogue and subscribe to their mailing list. For a list of upcoming property auctions, visit the websites of UK Auction List or Essential Information Group. And remember: there is usually four weeks between the publication of the auction catalogue and the auction – so if you like a place, act fast.

What to do before a house auction

If you’re considering buying a house at auction, here’s what you need to do before the auction.

1. View the property

Study the catalogue and make a shortlist of properties you’re interested in buying. Then contact the auctioneers and arrange an appointment to view the properties.

Keep an open mind: auction properties are often in a poor state, which is why you can get some absolute bargains. However, it’s a good idea to take a builder or architect with you so you have a better idea of what you’re letting yourself in for and how much it will cost if you end up owning the property. You’ll need to make sure you bid an appropriate amount and don’t pay over the odds.

2. Research other properties

Don’t rely on the guide price (the advertised price – see below). Ask local estate agents and neighbours for their opinions and compare it with other homes on sale locally so you have a realistic price in mind for when you go to auction.

3. Have a trial run

Before buying a house at auction, go and watch a few auctions and get to know how they work.

4. Decide on getting a survey

Buying a house at auction without doing a survey first could be an expensive mistake. For example, one buyer bought a home at auction in Scotland, only to have it condemned by the local council soon after the sale. Not only did he lose the property but he also had to pay for the demolition.

If you get a survey before making a bid on a property, if you don’t end up making the winning bid, you’ll risk losing the hundreds of pounds you spent on the survey. By comparison, if you buy a house without doing a survey first that ends up having major problems you may have spent hundreds of thousands of pounds on a property you wished you’d never bought.

5. Scrutinise the legal pack

Auctioneers should give you a legal pack for properties you’re interested in. This includes the title deeds, local authority searches, property information forms such as the TA6 and TA10 Fittings & Contents form, plus any relevant leasehold information.

We strongly recommend that you get a conveyancing solicitor to go through this carefully and raise any relevant enquiries and to look for any hidden covenants or loopholes that could end up costing you more than you bargained for. Ideally, you should get the answers to these queries before you bid. If there isn’t time, your conveyancer should explain the risks of going ahead with the purchase.

Get instant quotes from regulated and reviewed conveyancers that cover your area.

6. Ask to be kept informed

If you’re very keen on the property, you can ask the auctioneers to tell you if there’s any chance of it being sold before the auction.

7. How to buy a house at auction with a mortgage – auction loan financing

Buying a house at auction isn’t just for cash buyers. You can get a mortgage on an auction property. But there are extra steps you’ll need to take and factors to beware of.

If you’re buying a house at auction and need a mortgage, you should get a ‘mortgage in principle’ before the auction so that you can start the mortgage application process as soon as your bid has been accepted.

When you’re buying a house at auction, you’ll usually need to pay 10% on the day, this cannot come from mortgage funds. You’ll then have a month to pay the remaining 90%. This can be a very tight turnaround for getting a mortgage in place.

So you may consider taking out bridging loan to ‘bridge’ this gap in your financing. Bridging loans are very fast to arrange compared to traditional mortgages, so by taking one out you’ll be able to have the cash you need until your mortgage completes.

Bridging loans can also be used if you’re buying a house at auction that is unmortgageable which you intend to make habitable or lettable so a traditional mortgage can be arranged.

Don’t delay getting your finances in order. If you can’t get the cash together in time, you’ll lose your 10% deposit and you may have to cover the costs of re-selling the property, as well as any shortfall between the price you agreed and the final selling price. You may even be charged interest for every day until the property is sold.

Buying a house at auction? Use the experienced team of specialist brokers at Chartwell Funding for FREE advice when securing your bridging loan. Click here or call them on 01454 809 300.

8. Set your budget

It’s easy to get carried away when you’re buying a house at auction if you’re not careful. So it’s important to set your own maximum bid in advance, based on how much you can afford and how much you think the property is worth.

To entice buyers the guide price is usually set a lot lower than what the property is likely to go for at auction. It’s worth monitoring the guide price because if it goes up before the auction this might mean there is a lot of interest in the property.

How to win at the auction: what to do on the day

Here are our tips for buying a house at auction to help the day go smoothly.

1. Get there early: Try to get a spot where you’re comfortable and the auctioneer will be able to see you.
2. Keep calm: Some people find auctions exciting, others find them frightening. You need to make sure you can play it cool on the day.  
3. Make sure you know what you can afford: Don’t get caught in the moment only to find you’ve spent way more than you can pay. Remember: if you don’t get this one there’ll be more.
4. Can someone to bid on your behalf? If you can’t or don’t want to bid personally, someone else like an agent or solicitor can bid on your behalf. Some auctioneers will also accept phone bids or proxy bids.
5. Take your paperwork: You’ll need two forms of identification, such as a passport or utility bill, and proof that you can afford the 10% deposit.
6. If you don’t reach the reserve price don’t despair: If the house you want to buy at auction doesn’t go for the reserve price, the seller might decide to go for the highest bid once the auction is over. So, stick around and approach the seller at the end.

Pros and cons of buying a house at auction

We’ve looked at how the process works but before buying a house at auction it’s essential that you weigh up the pros and cons.

The advantages of buying a house at auction

• Auctions are great for people looking for unusual properties that estate agents wouldn’t know how to sell. And, if no one else has noticed its potential, you could find a bargain.
• Auctions have become increasingly popular with buyers who want to avoid the traditional house buying chain.
• When buying a house at auction, the sale is agreed as soon as the hammer falls. So, there’s no risk of everything falling through at the eleventh hour.
• And, you see all the other bids as and when they’re made. So there’s no chance of being gazumped.

Disadvantages of buying property at auction

However, there are some key disadvantages of buying property at auction that you’ll need to consider carefully including:

• One of the major risks of buying a house at auction is that if you don’t make the winning bid, you’ll lose any money you’ve already invested into researching and carrying out a survey on the property.
• If you’re really unlucky, you could spend all that time and money on making sure a house is worth bidding on, only to find that someone has bought the property before it goes to auction.
• However, an even bigger is risk is that if you have a problem with your financing or discover major flaws in the property after making a winning bid, you’ll lose your deposit and could face other costs if you pull out.

I’ve won a house at auction: What do I need to do?

When you’re buying a house at auction, you need to move fast if you make the winning bid. Here are your next steps:

Arrange your financing ASAP: If you need a mortgage to fund the purchase of the house you’ve bought at auction, go back to your mortgage broker now and make your full mortgage application without delay. If you need a bridging loan to fund the purchase, you’ll need to get the process started for this too. Use the experienced team of specialist brokers at Chartwell Funding for FREE advice when securing your bridging loan. Click here or call them on 01454 809 300.

Confirm with your conveyancer: You’ll need to tell them the sale has been agreed.

Arrange your insurance: You’ll need to get buildings insurance in place straight away.

Find local surveyors to discuss your options and get quotes now

Is buying a house at auction as a first time buyer possible?

Buying a house at auction if you’re a first time buyer is possible. You’ll have the added benefit of not needing to sell another property before buying a new one.

But buying a house at auction when you’re a first time buyer isn’t for the faint-hearted: you need to take the disadvantages of buying at auction very seriously. It’s vital that you do your research thoroughly to make sure you’re happy. With a normal house purchase you can pull out at any stage before exchange of contracts. But if you pull out of an auction purchase you’ll have to forfeit your deposit and could face other costs too.

Who pays auction fees: buyer or seller?

When buying a house at auction, the seller pays the auction fees. Other costs of buying a house at auction include

• Paying your solicitor or conveyancer
• Stamp duty
• On signing the contract, you’ll be responsible for insuring the property

How much does an auction house charge the seller?

The fees of selling a house at a traditional auction typically amount to around 2.5% of the price you get or the property, which is higher than the average estate agent charges. You may need to pay for advertising costs too.

Why do people choose to sell by auction? 

There are lots of reasons why people sell by auction including:

• If you’re looking for a speedy sale and certainty that a buyer won’t pull out of the purchase
• Demand from multiple buyers can help quickly drive up the price
• If you have an unusual or run down property you may find it hard to advertise to conventional buyers.
• If you need to sell up quickly.

For more information, read Selling a house at auction: A complete guide