How to buy a house at auction
Buying or selling a home at auction is an increasingly popular option but preparation is the key to success. Richard Watson, head of auctions at Knight Frank, explains all you need to know before the bidding starts...
Anyone who has sat through an episode of the BBC series Homes Under The Hammer will understand the thrill of the auction room. Even in a post-pandemic world of virtual on-line auctions, there’s the heady anticipation of deals to be made and the exhilaration of hearing the hammer fall.
There are very few places where you can actually see the property market in action, watch people transact and be there when the sale happens. That normally all takes place behind closed doors. Auctions however are totally open and transparent. Anyone can take part or watch.
Why are house auctions popular?
There has seen significant changes in the auction market over the past two decades. Using auctions to buy and sell residential property is hugely popular right around the world from the USA to Australia and South Africa, but here in the UK we have historically lagged behind.
Now that is changing. Where once auctions were overwhelmingly a place for professional property investors only, there are now a far greater number of owner-occupiers looking to buy. This is the main change, the transition to non-professional buyers. We are seeing a marked increase in numbers from first-time buyers to people looking for a project.
What is the process for buying a house at auction?
Registering to bid for a property at an auction is straightforward. Once your ID is verified and your payment method received you are ready to go. If you plan to bid for a property, the best professional advice is to get all the official papers in order in advance. That includes conducting searches, carrying out surveys and if necessary, arranging a mortgage offer in principle.
Most auctions are conducted under unconditional contracts, a traditional process that is legally binding and generally offers twenty days for the purchaser to complete. Typically, contracts are exchanged on the day of the auction with completion following four weeks later.
Knight Frank increasingly uses reservation agreements. Here too all the information is completed upfront but these give the purchasers two months or more to complete the deal. This breathing space between the auction and completion can be something that both sides prefer.
Both unconditional contracts and reservation agreements ask for a deposit, generally 10% of the purchase price, to be paid on the day of the auction.
What are the benefits of buying and selling a house at auction
Speed and certainty are two key reasons why people choose to buy or sell at auction. For sellers fed up with the hassle of complex chains and purchasers changing their mind, an auction offers a known deadline.
A frequent story I hear from sellers is that they’ve had two or more offers fall through and are fed up with delays. While they do not necessarily need to sell quickly, they want to move on with their lives, and speeding up the process has a clear benefit.
The seller dictates all the terms of the contract, deciding what percentage the deposit should be and the length of time between the auction itself and the final completion date. They can also set a minimum reserve price and be certain that the property will not sell for less than they are happy to accept.
The key benefits for the buyer include having time to collect all the information upfront. On the day of sale itself, an auctioneer will guide buyers through the process.
The sellers’ solicitor does all the legal paperwork. The buyers’ solicitor just needs to check it all over. We provide a thorough list of what we recommend buyers should do before the auction date, all the searches and surveys. Follow our advice and auctions will be fun and fair.
What type of properties are sold at auction?
Along with their increasing popularity, auctions also offer an ever-wider range of property types for sale. Where once they were seen as selling only bargain basement properties for distressed sellers, now they are used at every price point. Over the past year, Knight Frank Auctions have completed sales ranging from rural land plots for £100,000 right up to an £8 million freehold trophy home in London’s Covent Garden.
Can you buy a house at auction with a mortgage?
Another common misconception is that you cannot buy at auction with a mortgage, but that is simply not the case. Indeed, Knight Frank Finance can broker the right mortgage product on your behalf, doing the legwork for you.
What are the pitfalls of buying a house at auction?
It’s true that for buyers, just as with any property purchase, there is no guarantee that your final bid will be successful. You have to do all the work upfront and it is possible you will get outbid, losing out on the fees you’ve paid. However, unlike the traditional conveyancing market, any element of uncertainty is removed in an instant as the hammer falls.
Sellers choose auctions as a cost-effective and timely way to sell a property where they want to be free of all the running costs and can pass these financial savings on to buyers who in turn, can see that they have bought at a good market price.
Buying at auction is quick, secure and hassle-free. The entire process is transparent and online auctions offer great flexibility for potential purchasers. Buyers can be totally confident that they will not be gazumped and sellers know the fixed exchange and completion dates before bidding starts.