Buying a home at auction - What do I need to know?

Property auctions are a popular way to find a property bargain. Before you bid, however, make sure you fully understand the process and the risks involved.

The benefits of buying at auction

Buying a property at auction means avoiding the usual lengthy buying process. As soon as the hammer falls, the winning bidder exchanges contracts on the property. Completion must then happen within 28 days.

The process is much faster and more certain than buying a house through the open market.

Unusual, quirky or defective properties are often sold through auction, as are repossessions and probate properties.

Auctions can be an opportunity for buyers to snap up a bargain.

The downsides of buying at auction

Before bidding, you would be wise to carry due diligence to ensure the property is structurally and legally sound.

This could mean carrying out a full building survey and a legal appraisal before you bid.

Any adverse findings in the due diligence process should inform the price that you are willing to pay.

The cost of this due diligence would be speculative. If you are subsequently outbid (or decide not to bid) at the auction, this investment will be lost.

The risks of buying a property at auction

Property auctions have grown in popularity over recent years, and competition for good properties has increased. Nevertheless, it is still possible to find a bargain.

Buyers should be on their guard, however. You should be careful nor to get emotionally invested in the property, just because it appears to be a bargain.

Auctions can be a dumping ground for defective properties:

• with structural problems
• that have not been suitably maintained
• with short leases
• with defective legal titles (e.g. no legal right of access)
• that are unregistered
• with restrictive covenants

Tips for buying a property at auction

Contact local auction houses

Contact as many auction houses as you can find that sell property in the area you wish to buy in. A quick internet search will help you locate local auction houses.

Subscribe to the auction houses’ mailing lists, and request the latest catalogues produced on the properties available.

You can also find details of most properties to be auctioned across the UK at EIG.

There is also an increasing number of online property auctions where you do not have to attend the auction in person.

Auction catalogues are usually available a month or so before the auction date, so you will need to act fast if you see a property of interest.

If you have never attended a property auction before, why not sit in on a few to get a feel for how they work.

Ensure your finances are in order

If you buy a property at auction, you will usually have to pay:

• 10% of the sale price on the day, as a deposit.
• The remaining 90% around 28 days later (if you do not pay this you will lose the deposit and the house).
• An administration fee to the auction house (usually between £200 and £300)
• Stamp Duty Land Tax (SDLT)
• Conveyancing solicitor fees
• Survey costs
• Buildings insurance

If you require a mortgage, you should approach a lender that can work to the auction time frame. Ask the lender for a Decision in Principle (DIP). A DIP will help speed up the process once your bid is successful.

There are a few specialist mortgage lenders who can work to very tight time frames. If you are in a real hurry, there are other options available including specialist auction finance and bridging loans.

Read more:

Stamp Duty Land Tax (SDLT) Calculator

Arrange property viewings

Once you have identified a property you are interested in, arrange a viewing through the auctioneer or agent. If you need to, view the property more than once.

It is a good idea to take a builder, surveyor or architect with you if you can.

Homes bought at auction are often in disrepair. Get as much advice as you can on the cost of necessary repairs or development. This will help you decide how much to bid and to work out whether your plans stack up financially.

Get a property auction legal pack review

It is now standard practice for the auction house to offer a legal pack for properties ahead of the auction.

An auction legal pack will normally include:

• Official Copy of Register of Title
• Land Registry, Environmental and other Local Searches
• The Special Conditions of Sale
• Property Information Form
• Fixtures and Fittings Form
• Leasehold Management Information (flats)
• A copy of the Lease (flats)
• Tenancy Agreement (if tenanted)
• Copies of Planning Permission Documents

Properties with serious legal defects await the unwary at auction. Short leases, landlocked properties, restrictive covenants - are typical of such legal issues associated with auction properties.

With a standard conveyancing transaction, buyers can carry out their due diligence on a property after an offer has been accepted. If they discover a serious issue with the property, they can renegotiate, or pull out before contracts are exchanged.

With an auction, however, you exchange contracts as soon as your winning bid is accepted. This means that if you subsequently find that you are buying a property with serious legal defects, you must still complete on the property. If you don't, you'll lose your deposit (normally 10% of the sale price) and you could be sued.

With no option but to complete, you might then find that the property is no longer mortgageable after the legal issues are discovered.

Without Auction Legal Pack Review, you are bidding blind. A review offers low-cost peace of mind, helping you make an informed bid, so you'll know:

• what you are actually bidding on
• how much you want to bid
• whether you want to bid at all

Find out more about getting an Auction Legal Pack Review

Don't rely on the guide price

The guide price on a property selling at auction is often set on the low side in order to generate interest.

Expect to pay more than the guide price, which may increase before the day of the auction. Keep an eye on this - a rising guide price can mean a lot of interest from competing buyers.

Get a property survey

Buying any home without a survey leaves you exposed to the risk that the property has serious structural defects. Auction properties are often defective, and buying without a survey is not recommended.

The age and condition of the property you are considering will dictate the kind of survey you need.

Read more:

What type of home buyers survey should I have?

On auction day

• Bring the right paperwork: Photo ID and proof of residency (such as a passport and utility bill)
• Keep a cool head: Stick to your budget and never bid more than you can afford.
• Get a decent seat: Arrive early and sit somewhere with a good view of the room and the auctioneer.
• You do not have to be there in person: Contact the auction house if you wish to bid over the phone.