Buying a House

A Guide to Buying a House at Auction What to Expect

Buying a house at auction can be a great way to secure your dream home or buy an investment property. To make sure your auction experience is a positive one, it’s crucial to understand the ins and outs of the process. In this article, we delve into the key steps and factors involved in purchasing […]

Buying a house at auction can be a great way to secure your dream home or buy an investment property. To make sure your auction experience is a positive one, it’s crucial to understand the ins and outs of the process. In this article, we delve into the key steps and factors involved in purchasing a house at auction and look at the advantages and disadvantages of buying a house at auction, so that you know what to expect.

How Do House Auctions Work?

House auctions are public sales where properties are sold to the highest bidder. They can be competitive, with properties being advertised online or by a local estate agent about a month before the auction to drive interest. There will be a guide price set, which is not the final price and only a guide, as well as a reserve price, which is often kept private. This is the lowest price the seller is willing to accept, and the seller can change this before the auction. The auction takes place at a set date and time, and the transaction is considered to be legally binding as soon as the auctioneer’s gavel falls. The winning bidder pays a deposit, (typically 10% of the purchase price), and completion typically occurs within a specified timeframe.

What Are the Different Types of Auctions?

There are various auction types, including live, online, and sealed bid auctions. Property auctions also feature different categories, such as repossession auctions, probate auctions, and standard auctions. The two main types of auctions are traditional, where potential buyers attend a live auction at an auction house and submit bids to the auctioneer, along with other potential buyers. Buyers can submit bids in person or by proxy (via the auctioneer), or by telephone. Once the winning bidder pays their deposit, the transaction is legally binding, so if they pull out of the sale, the deposit will be lost. They will then have 28 days to complete the purchase. This type of auction is more favourable for experienced property investors and cash buyers. 

The modern method of auction works differently to a traditional auction in that the auction runs online, and you have a longer period to submit a bid (usually 30 days). Properties sold through the modern method of auction are usually listed with an estate agent. Bids can be submitted right up to the date and time the auction ends (similar to how Ebay works). The winning bidder then pays a reservation fee (typically 5%) and is expected to complete the purchase within 56 days, although a 10% deposit needs to be paid and contracts exchanged within 28 days. This type of auction is slightly more flexible for buyers needing to finance the property with a mortgage.

Why Do People Sell a House at Auction?

Sellers may choose auctions for speed, certainty, and competitive bidding. A seller may choose to sell at auction if they have inherited a property and want to sell it quickly, or if the property is unique or requires a lot of renovation work. Once the winning bid is received, the sale of a property sold at auction will proceed quickly, with clear deadlines to be met, meaning there is less risk of the sale falling through and less need for negotiation during the process.

How Do I Find Houses Being Sold at Auction?

You can find property auction listings on the websites of auction houses, estate agents, and online platforms. You can also be added to a mailing list for the auction house, which will then send details of any properties being sold in upcoming auctions.

What Do I Need to Do Before I Bid on a House at Auction?

Before bidding, it is vital that you conduct thorough due diligence, including property inspections, legal checks, and arranging your finances. Make sure you fully understand the auction’s terms and conditions and know exactly what you will pay, including the auction fees.

Tips for preparing for an auction

  • Get a copy of the viewing catalogue in print or online
  • Register with the auction house (usually can be done online)
  • Visit another property auction to get an idea of how the process works
  • Book viewings with the estate agent or auction house – if the property is in poor condition, take a builder with you to assess the level of work required. It may also be worth getting a survey on the property to identify any structural issues if it is a traditional auction (this can be done at a later date if it is the modern method of auction)
  • Do research of similar properties that have sold in the area
  • Read the legal pack (includes legal searches and conditions of sale) – it is also worth getting your solicitor to take a look over this
  • Understand all the costs involved (deposit, auction fees, stamp duty)

How to be ready for the auction day

  • Have your mortgage decision in principle ready
  • Have your deposit ready to pay
  • Have details of your solicitor ready
  • Have photo ID and proof of address ready
  • Know how much you are prepared to pay

During the auction

  • Pay attention to any changes in the addendum
  • Don’t get into a bidding war that will take you over your budget
  • Don’t get upset if you don’t win. Remember, it is a business transaction, and there will always be another property.

After the auction

  • Get a survey if you havent done already
  • Get your mortgage offer from a lender (the lender will also carry out a valuation of the property)
  • Get insurance on the property

How Do I Ensure I Win a House at Auction?

Winning at auction requires preparation. Getting there early and getting a good seat can help you to prepare mentally. Set a budget, stick to it, and bid confidently, but do not get carried away emotionally so you end up paying over the odds. Having attended previous auctions for experience can help you to understand the auctioneer’s style.

What Do I Need to Do After I Win a House at Auction?

Once you win, you’ll need to pay a deposit (usually 10% if a traditional auction or 5% reservation fee if a modern method of auction) immediately and complete the purchase within the auction’s specified timeframe. You will then need to arrange your mortgage (if financing the purchase in this way) and instruct your solicitor swiftly.

What Happens if I Buy a House at Auction and Then Pull Out?

Once the winning bid is received, the auction process is legally binding, and pulling out can result in losing your deposit, so it is essential to make sure you are fully committed to buying the property before bidding.

Should I Buy a House at Auction?

Buying a house at auction can be a great option to buy a property, as there is often less competition than when properties are sold in the traditional way. However, the process is a lot different to the normal buying process and is suitable for those comfortable with the process, have their finances in order, and are prepared for quick transactions. This is why is may not suit first-time buyers who may need a bit longer to commit to buying a property.

What Are the Pros and Cons of Buying a House at Auction?

Pros include the speed and transparency of the purchase, the fact you could get a bargain, and there is less competition than the open market and less risk of the sale falling through. Cons include the fact that there is limited time for due diligence, there can be a high level of competition for certain properties and from professional investors, and there is the risk of overbidding and paying more than the property is actually worth.

What Are the Biggest Risks of Buying a House at Auction?

Risks include financial losses if you have to pull out of the sale, unforeseen property issues, especially if you fail to get a survey on the property, competition leading to bidding wars and overpayment, and a lack of time for thorough inspections. If this is the case, it may increase the risk that your lender will down value the property, meaning you are unable to secure a mortgage for the amount required. However, being prepared can help to mitigate these risks.

Navigating a house auction can be daunting, but it can also be an extremely rewarding experience if approached with preparation, strategy, and a clear understanding of the process’s dynamics. 

Frequently Asked Questions

No, the auction guide price isn’t always the final price a house sells for. While it can be the winning bid, the seller will have set a reserve price (the minimum they will accept) and a high number of bids can drive the price well above the guide price.

Yes, you are allowed to view a property being sold at auction. You will need to book a viewing with the estate agents that the property is listed with or the auction house. Details will be found in the listing. It is wise to view the property beforehand and, where possible, take an expert with you to assess its condition and suitability.

The completion time for a property bought at auction is typically quicker than traditional sales, often taking 28-56 days, though it can vary based on the auctioneer’s terms and conditions.

Being a cash buyer is not always necessary to buy a house at auction, but it can be advantageous and increase the speed and certainty of the sale. Many auctions accept mortgage-financed purchases, but you must have your funding in place before bidding and be prepared for a faster completion timeline than if you were buying in the usual way.

Buying Your First Home? Read Our Buyers Guide…

From mortgages and insurance to viewings, offers, exchange and completion, our Buyers’ Guide will take you through everything, step by step, from start to finish.

© Copyright Propertyable 2024. All rights reserved.