Over the past 12 months, the average price of a home has increased by £39,000. This means that to pick up a home in the UK, you will now be looking at an average price of £292,000.
All of which makes the appeal of auction property purchases easy to understand. Fixer-upper homes in need of repairs and renovations routinely go under the hammer for less than £100,000 – some for lower than £50,000.
Even so, auction property purchases come with their own unique pros and cons, which must be considered beforehand.
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How Do Auction Property Purchases Differ from Conventional Home Purchases?
There are three main things that separate auction property purchases from home purchases on the open market:
- Price – Properties typically go under the hammer at auction for significantly less than equivalent homes on the open market. Where sellers need to shift their properties as quickly as possible, they sell them at auction.
- Variety – Homes can be purchased at auction that would not be considered suitable for sale on the open market. This includes non-standard and ‘unmortgageable’ properties, such as those in a poor state of repair, or in need of major renovations.
- Speed – When purchasing a property at auction, the full balance on the lot is repayable within 28 days. You also need to come up with a non-refundable deposit of 10% on the day itself, if your bid is successful.
There are some instances where buyers are afforded 56 days to complete the transaction, which will be clarified ahead of time before the auction takes place.
What Happens if I Pull Out After the Auction?
If you decide to withdraw your bid after the hammer falls, you will forfeit your 10% deposit. You may also be liable for additional costs, including the seller’s fees and any penalties imposed by the auction house.
This is why it is essential to conduct all the necessary due diligence in advance and to only ever bid on a lot you are 100% committed to buy. A successful bid will see you enter a legally binding contract and legal action may be taken against you if you breach the agreed terms and conditions.
What Are the Benefits of Buying at Auction?
The main benefits of buying a property at auction are as follows:
- You could pick up a property for significantly less than its true market value, making it easier to get onto the property ladder for the first time.
- Most auction property transactions are completed within a month, whereas a typical mortgage application can take up to three months to underwrite.
- You do not have to worry about the risks associated with conventional property chains, as you are paying for your property in cash.
- There is also no risk of being gazumped by a higher bidder at the last moment, as all sales are final once the hammer falls.
What Are the Drawbacks of Buying at Auction?
On the downside, the drawbacks of buying properties at auction include the following:
- Emotions may get the better of you on the day, and you may end up bidding more than you planned to pay for the property you buy.
- The home you plan to purchase may end up selling for a price higher than you can afford, meaning you will be unsuccessful on the day.
- A great deal of advanced research (including detailed property inspections) is required in advance, to ensure the property is in an acceptable state of repair.
- There is no allowance to change your mind at any time after placing a successful bid, without losing significant sums of money.
It is also essential to ensure that you have an appropriate funding solution in place for your auction property purchase ahead of time, such as a fast-access bridging loan.