Following on from our blog on what happens at property auctions, which covers how auctions work, and how to prepare if you’re going to buy and sell at auction, it’s also important to consider the positives and negatives of buying and selling at a property auction. Auctioning properties has become a more popular choice in recent years, for sellers it’s an opportunity for a quick sale, and for buyers they have a chance to grab a bargain.
Firstly, we’ll look at buying a property at auction.
Buying at auction
- Grab a bargain: auctions are commonly used by property investors who are looking for their next renovation project or property to let. Often houses listed in auctions are in need of some TLC, and require someone with savings to be able to pump some money in to provide a face lift before the house can then be sold for a profit. Alternatively, houses may go to auction if they are the result of a repossession, or someone simply wants a quick sale. Whatever the reason, if you keep an eye out you could find a good deal, just be careful not to get carried away and overpay!
- Move fast: if you’re attending a property auction in the hope to win your next dream home, you will have a set number of days to complete the purchase. Often this is 28 days after the auction. If you’re wanting to move into your next house fast this could be perfect. Furthermore, if you’re eagerly wanting a new buy-to-let property, you could have tenants in within just a couple of months.
- Security: straight after auction, the exchange of contracts between seller and buyer occurs. This means that you’re legally bound to buying the property and don’t need to worry about anything falling through. Additionally, as auction bids are public, you’ll know what other people were willing to buy the property for, whereas through the traditional estate agent route you just have to take their word for it.
- Waste of resources: prior to going to auction, you’ll likely have spent time and money viewing the property and getting a survey. If you aren’t the highest bidder when the big day comes, you’ll have lost this money.
- Preparation: if you’re lucky enough to secure the property you’re after at auction, you’ll need to have your deposit money ready and accessible. Straight after the auction, you’ll be paying the deposit. Furthermore, the total amount for the property needs to be settled within a set number of days.
- Know your auction: you may find that some auctions are better than others in terms of the lots they offer in their catalogues. Poorer auctions may just offer commercial properties or houses in complete disrepair. Often the best way to make a decision is to talk to those in the know. If you have friends in property investment, ask them which auctions they recommend. If not, try researching online for the best auctions near to you. If you’re not far from London, you may find that a trip to auctions there may be worthwhile as they list properties which aren’t necessarily located in London, but could be good bargains. Though bear in mind that competition in London auctions may be higher.
Selling at auction
- Money in your pocket: if your house successfully sells at auction, the buyer will need to pay their deposit on the same day. This means you can walk away with 10% of your house sale straight away. Furthermore, the seller will need to pay you the remaining amount within a set number of days, which is often 28.
- Pass on a project: if you own a house which is in much need of an update, an auction is a great place to sell. Lots of property investors attend auctions looking specifically for new projects where they can do a house up and sell it on for a profit.
- Last resort: auctions can be ideal if you have a house with legal complications, or it’s unique and you’re struggling to find a seller. Note that you do have to be honest about any serious problems with the property that you’re aware of – it’s a legal requirement.
- Reach: your property in an auction may not reach as many people as it could through a traditional estate agent. Estate agents sometimes put a lot of money into marketing.
- Vacate: if you sell your house at auction, you need to be prepared to leave it quickly. Often the sale is completed within 28 days so you’d need to have left the property by the completion date.
- Fees: selling at an auction isn’t free. Often there’s an entry fee which is payable whether you sell or not. This can range from a few hundred to thousands of pounds. If you’re lucky and your property does sell, you’ll then be liable to pay a commission percentage, often 2.5% plus VAT. This is significantly more than the average estate agent fee of 1.42%.