Buying a house at auction: What 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

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.

But auctions aren’t just for the experts with insider knowledge. Over the past decade, they’ve 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.

Downsides to buying a house at auction

Even though things are completely transparent when buying a house at auction, just like in any other buying process, you could get involved in a bidding war. If you lose out, you will lose any money you’ve already invested into researching and carrying out surveys 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.

How are the costs of buying a house at auction?

The costs involved when buying a house at auction include:

• An administration fee to the auction house, which is typically between £200 and £300
• Paying your solicitor or conveyancer
• Stamp duty
• On signing the contract, you’ll be responsible for insuring the property

How do I find an auction?

Decide on the area you’re interested in and contact the auction houses that cater to that area. Then, 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.

Before buying a house at auction

1. Research

• 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.
• You need to make sure you bid an appropriate amount and don’t pay over the odds.  Take a builder or an architect with you to any viewings 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.
• 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.
• Go and watch a few auctions and get to know how they work.

2. Consider a survey

• One buyer in Scotland bought a home 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. So make sure you know what you’re buying – a homebuyer’s report will cost about £600 and then more if you want a structural survey, too. You’ll lose this if you decide not to buy the property or if your bid is unsuccessful.

3. Scrutinise the legal pack

• Auctioneers will often give you a legal pack for properties you’re interested in. This includes the title deeds, local authority and environmental searches, fixtures-and-fittings list and a seller’s information form, plus any relevant leasehold information.
• Consider asking a solicitor to look over this for any hidden covenants or loopholes that could end up costing you more than you bargained for.

4. Don’t expect to pay the guide price

• 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.

5. Get your finances in order

• If you are not a cash buyer and need a mortgage, get a ‘mortgage in principle‘ sorted before the auction so that you can start the mortgage application process as soon as your bid has been accepted.
• As the hammer falls, you’ll have to pay 10%. Then, you’ll only 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.
• You must get 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.

We’ve partnered with the experienced team of specialist brokers at Chartwell Funding to bring you FREE advice when securing your bridging loan. Click here or call them on 01454 809 300.

On the day of the auction

1. Keep calm

Some people find auctions exciting, others find them frightening. You need to make sure you can play it cool on the day.  

Make sure you know what you can afford and 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.

2. Get there early

Try to get a spot where you’re comfortable and the auctioneer will be able to see you.

3. Make sure you have everything you need

You’ll need two forms of identification, such as a passport or utility bill, and proof that you can afford the 10% deposit.

4. 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.

Buying via the modern method of auction

In recent years, a new type of auction has become popular known as the modern method of auction. Used by some estate agents, the modern method of auction allows buyers to bid on a property online. The buyer will pay a non refundable reservation fee but will have a longer completion timescale, giving the buyer time to sort mortgage finance. Take a look at out guide on the pros and cons of online property auctions