Ten top tips for buying a property at auction, according to Standard Life.
Do Your Homework
You need to know precisely what you are buying before you buy it and whether auction buying is right for you. Get a copy of the catalogue and understand the market you are buying in. It is also well worth asking why the property is on sale at an auction in the first place; does the owner want a quick sale, is there a problem or is there a more serious issue?
Understand How an Auction Works
In an auction a reserve price is usually placed upon every property. In other words, if it doesn’t reach this price the property will not be sold. So as long as the reserve price has been reached and if you are the last and highest bidder when the auctioneer’s hammer falls it means you are the successful buyer. This also means you are legally committed to paying the price you bid. You will then need to pay 10% of the cost of the property before you leave the auction and the balance has to be paid in full within 28 days.
Beware the Hidden Costs
Don’t forget to take into account the cost of surveys and legal advice. You will need your solicitor to carry out local and national searches and a surveyor to check for structural issues. You will also have to pay stamp duty on properties costing £125,000 or more. The auctioneer may demand a ‘buyer’s premium’ equivalent to 1.5% of the sale price. Usually there is an administration fee, typically £150, paid to the auctioneer. Also read the small print, sometimes sellers ask for the auction fee and legal work to be paid for by the buyer!
If you are new to the auction game, make sure you go to at least a couple of auctions as an observer to gain the valuable experience you will need. Auctions are trickier than they look and the more knowledge you have will ensure you know exactly what you’re doing when you bid for real.
Always be on the look out for unsold lots. Either there were no bidders or the property failed to reach its reserve price. In this case both the vendor and the auctioneer will be keen to sell and may accept a lower offer. But consider carefully why it didn’t sell!
Set your Price Limit
Probably the most important rule of buying at auction is that you must set your price limit before the auction and stick to it! Understand precisely what you are prepared to pay and if it goes above that price walk away, never bid above your pre-set price, you won’t regret it.
Do not bid before the final count
If you can hold your nerve, do not bid until the final count. Only the last bidder wins at auction and by letting everyone else show their hand you will know if it’s worth bidding for or not. This is a simple rule but can prove very effective, ‘going once, going twice’? – then start bidding but only if it’s below your pre-set maximum bidding price. Remember that the amount you pay for the property may not be reflective of its real value and may not match the amount of money a mortgage lender would be prepared to lend you.
Control your Emotions
Never get caught up in the emotion of the auction and never bid above your preset price. Avoid bidding wars, ego, competitiveness, they all end up costing you a lot of money and if you get caught up in the emotion you will probably lose. Keep a clear, cool head, have patience and you will eventually get the property you want at the best possible price.
The money matters
Having the finance in place with your mortgage lender before even walking into the auction house is essential. Once you’ve bought the property, you’re committed to pay for it. There’s no-one there to protect you and the lender is under no obligation to fulfil the mortgage if it’s only at Agreement in Principle stage. It is worth investigating if your mortgage lender would offer a release of funds on a staged release basis. Most importantly, discuss your plans with the lender before you buy the property to ensure there are no surprises for either of you – the more they and you know upfront, the better.
If at first you don?t succeed?
If you don’t get the property you want come back another day. Don’t buy another just for the sake of it! The good thing about auctions is that they are becoming increasingly popular so there is always another one around the corner and maybe next time you will find your dream home!
Click here to find out why so many Brits are keen to buy at auction.