Why do houses go to auction?

Whilst it is a quick sale, there is always the why. Here is a list of reasons why a property is placed into auction instead of being sold on the open market: Repossession. Mortgage lenders who have repossessed the property will often place it into auction to repay their charge quickly. The disadvantage is that the seller isn't the owner, so the information you're provided is limited. Probate. Where the owners have died, the executors/administrators sell through auction for speed. As with repossession, the information they provide is likely to be limited. Property Defect. If the property has a defective title or a structural defect, then the owners will go to auction. Properties with these defects can't have a mortgage until the defect is addressed. This is why you auction a house instead of selling it. Previous Auction. Where buyers have bought a property with a defect, they'll often put it back into auction in the hope it'll sell for more than they paid.

If I buy a house at auction when do I pay?

You'll need to pay a 10% deposit to the auction house on the day and then you pay the balance of the auction costs and purchase price on the day of completion - normally 21 to 56 days after the auction.

What are the disadvantages of buying property at auction?

Access for Surveys is Limited. You are often only granted access to complete a survey of the property during a small time window, so defects can be missed that cost you more to rectify or may force you to re-list at auction. Limited Information. The seller can provide very limited information and it is for the buyer to decide if they want to buy through their own investigations. Limited Additional Enquiries. The seller's solicitor is under no obligation to provide any additional information in response to your legal enquiries if they don't have that information. Not Mortgageable. The defects the auction property has may make it not mortgageable, which means you limit your re-sale to another auction or cash buyer or you'll have to fix at your cost the defect. Costs more to repair. You may find costs to repair and lead times to action the repairs take longer and cost you more than you budgeted for.

What happens if a property doesn't sell at auction?

If a property doesn't sell at auction, it is removed from sale and the auctioneer will offer the property to the interested bidders to see if there are any best bids. As far as tips for buying at auction property go, this could be a way to buy a property for less.

Tips for buying at auction property with SAM Conveyancing

Learn about the tactics for buying a house at auction by reading below. We can help reduce the risks through a Pre-Auction Report which flags legal issues to you or with a survey of the property with our panel of local RICS building surveyors.

Give us a call today on 0333 344 3234 or click to find out more below. We're never beaten on service and price.

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Tips for buying at auction property

by:

Andrew Boast

(Last Updated: 07/12/2023)

Created on:

09/02/2023

Read by:

192

6 min read

Buying at auction can save you or cost you thousands of pounds, so here are our top tips for buying at auction property.

Tips for buying at auction property

1

Review the Auction Legal Pack

This is probably on of the top tips for buying a house at auction. An Auction Legal Pack is prepared by the seller and includes the following documents:

Contract of Sale. Confirms who the seller is, so you can see if the property is being sold under probate or as a repossession.
Title Deeds. Check to see what easements, restrictive covenants, restrictions and charges are on the title.
Property Information and Fittings and Contents Forms. What information does the seller tell you about the property you're buying? There's often very limited information.
Property Searches. These are crucial for answering whether you can get a mortgage over the property, due to entries at the council/water board/environment agency, however, sellers often don't provide these.

The auction legal pack is often only released 2 to 5 working days prior to the auction, with limited information. You are advised to get a solicitor to inspect the pack and identify risks from what is provided. Read more - What are the risks of buying at auction?

Freehold Pre-Auction Report Review

Risks of buying a house at auction for Freehold

£299 INC VAT

2 working day turnaround* | Completed by our panel solicitor.

Leasehold Pre-Auction Report Review

Leasehold Block of Flats and the risks of buying at auction

£480 INC VAT

5 working day turnaround* | Completed by our panel solicitor.

2

Check for defects at the property

Having a qualified builder or RICS surveyor attend the property is a must. They'll be able to spot issues with the property that could either:

Cost more to repair after completion; or
Make the property not mortgageable until works have been completed, such as part concrete build, steel frame, damp or subsidence.

3

Watch out for the Auction Costs

When you buy at auction, there are additional costs that go on top of your winning bid and they can be considerable. They'll be listed within the Auction Terms of Sale or Special Conditions of Sale and could include:

Seller's Property Searches. The searches provided in the pack will need to be paid for by you. You'll normally see something like this in the special conditions "On or before completion the Buyer shall pay the Seller the full cost of any local search, drainage search, Land Registry official copies, proposed plans, planning costs or any other search provided by the Seller in the auction."
Auctioneer Admin Fee. Ranging from £300 to £2,000, this is a payment to the auction house so look for "pay £600 plus vat towards the seller’s auctioneers administration fee."
Enquiries Post Completion. Ranging from £300 to £1,000, this is a payment to the seller's solicitor for post auction replies to enquiries, however there is often very little replies of value, "In the event of the Buyer requiring enquiries to be answered after exchange of the contract a minimum fee of £500.00 plus VAT is payable to the seller’s solicitors."

4

Have your financing ready

Whilst the majority of auction purchases are paid for by cash, if you are getting bridging finance or a mortgage, then you need to be prepared to move quickly. You'll need a valuation, offer and independent legal advice if buying through a company or bridging. This advice is separate to the solicitor handling your Auction Conveyancing.

5

Buy using a budget

Another one of the top tips for buying a house at auction is to make sure you factor in all the costs and work out what the sale price would be once you own it. Here's a simple example:

Description	£
What is the property worth post work?	£300,000
How much did you pay at auction?	£200,000
Gross Margin	£100,000
What were the auction costs?	£3,000
What were the purchase costs? (SDLT, LR, Legal fees)	£7,500
What were the costs for works to the property?	£30,000
Pre-Sale Margin	£40,500
Total Costs	£40,500
What were the sale costs? (Agents, Legal fees)	£8,200
Pre-Tax Profit	£32,300

6

Factor your own time into the costs of purchase

If this is your primary job, then spending 12 months on one auction purchase, making a profit of £32,300 means this is your salary for the year. Your time should be factored into the cost to see how much of a return the purchase at auction really was.

Frequently Asked Questions

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Written by: Andrew Boast

Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.

Reviewed by: Caragh Bailey

Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.

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