The modern method of auction claims to be a better alternative to normal auction rules, giving buyers more time to arrange their finance. In theory, this does sound attractive but the reality is somewhat different.
In a standard auction, as you’ll read below, once the hammer falls you’re committed to buy. With the modern method of auction, you have 28 days to exchange contracts giving you extra time to find the finance you need. The idea here is that rather than having to take out a bridging loan, you have time to arrange a standard mortgage.
From the exchange of contracts you then have 28 days to complete, so 56 days in total.
The big downside of this method is, as buyer, you need to pay a non refundable fee of 3.5% or £5,000 plus VAT, whichever is the higher. The fee is in addition to the purchase price that won the bid and, if you pull out, you lose the fee.
When you go to auction, the chances are you won’t be buying using the modern method, it will be standard auction conditions. Here’s some information to help you get started.
Why do property owners choose to sell at auctions?
Property auctions lead to quick cash. The seller is confident that their real estate will sell on a specific date and that the buyer cannot change their minds after they have entered their final bid. This is a very hassle-free and lucrative transaction for developers, builders, investors, and lenders–specifically in cases where the property has been repossessed.
What are the financial benefits of buying at a property auction?
There are two advantages to buying at auction. First, you can get the property at a very low cost because the owners of the property, whether they be lenders, investors, builders, or everyday homeowners, are chiefly concerned with making a quick and easy sell. Secondly, you never have to worry about someone raising your offer and taking the property before yousign the contract, because when your bid has been accepted, the agreement becomes binding.
What financing options do I have?
When it comes to financing there are several options. And the one you choose will depend on your own personal needs. For instance, you could always use your savings or the refinance one of your current properties.
You can also use a bridge loan which will be best in cases where the auctioned property is required as collateral. Not only will this loan be completed in as little as 28 days, but its lending criteria is flexible and it takes into consideration the amount of repairs needed. This solution is perfect for short term buyers.
If you are someone who intends to rent out the property, then you can take advantage of buy to let mortgage. However, it’s crucial to note that you will not be eligible for this option when the auction house is in need of renovation and repair. It’s also essential to keep in mind that using bridging finance in conjunction with this option leads to a significant increase in costs.
If you want to learn more about these financing avenues prior to bidding, then get in touch with us. You need to be aware of all options available to you.
What’s the best way to find out where property auctions are being held?
Property auctions are not easy to find because they are usually only advertised to professional buyers. However, you may visit the area in which you would like to purchase property and check with a local estate agent. Not only will they be able to provide information about local auctions, but their catalogue may showcase properties throughout the UK area. Expect the auctions to be held at least 3 to 4 weeks after the release of the catalogue.
How should I go about choosing the best property to bid on?
This will greatly depend on how you plan to use the property. Whether you want to live in, rent out, or flip the property, you need to search for the auction house that has the type of inventory you’re looking for. When you find it, you can register with the house and they will send you the catalogue of the properties that will be sold at the next auction.
These catalogues give you an idea of the prices you should expect. They may also give you more insight into the things you should expect from the properties. For instance, some listings may advertise vacant possessions that have current tenants living in it. In certain instances, these tenants may have the right to live there until death which could bring down the value of the property. Just make sure to let the auction house know which property you’re most interested in. This way, they will be able to keep you abreast of any and all changes with the listing–including whether or not the property has been sold early.
Should I view the property before placing my bid?
Always visit the property before bidding on it because you need to get an idea for how much you’re willing to bid. There are some cases in which you may decide against bidding on it after you’ve seen it. Luckily, there are often group showings advertised in the catalogue. This will also give you a chance to find out how much interestthe property has drummed up.
Before bidding, should my solicitor conduct a search on the property?
The auction house has copies of the legal mobcir papers, so your solicitor doesn’t have to do any searches. For as little as $10, you may order these copies for yourself. This legal pack usually includes deeds, planning permissions, leases and more.
What is an auction reserve price?
The reserve is the lowest amount that the seller is willing to take for their property. This number is set prior to the auction and in most cases, buyers don’t know what it is. If the reserve has not been met, then the property will not be sold. However, if the individual who bid the highest got close to this number, the auctioneer may help to facilitate an agreement between both parties.
What are special conditions?
There is some information that is not mentioned in the catalogue. So consult with the seller’s solicitor or the auctioneer about possible special conditions.
Is it necessary to arrange a survey of the property before bidding?
While a surveys may not be necessary, they are definitely a good idea. This is especially the case in terms of the structure of the property. A survey could save you a lot of money in the long run.
Can I place a bid before the auction begins?
You can bid prior to the start of the auction. If the amount is higher than what the seller expects to get during the auction, it will be accepted. It will be just as if you bid during auction and your bid will be legally binding.
Is it possible to bid at an auction without showing up in person?
If you prefer not to attend in person, you have three options. First, you may bid by telephone in which case someone will relay your bids to the auctioneer and the bids of others to you. You could also use a proxy in which case you would send a maximum offer to the auctioneer and the auctioneer would arrange for someone else to bid for you. Lastly, you may send a friend or solicitor in which case you would send a maximum offer to the auctioneer as well as a letter that confirms that you’re sending a representative to bid on your behalf.
What is the process of bidding at a property auction?
First, make sure that your finances are in place and that you are completely knowledgeable about the property. Second, arrive early so that you may learn any additional information that the auctioneer may have to offer about the property, as these changes may cause you to lose interest. Next, pay attention to the lot addresses so that you do not bid on the wrong one. When you are ready to place your bid, raise you hand, card or catalogue so that the auctioneer sees it. If you want to make a bid that happens to be different from the one that was just stated, call it out and he or she will decide if they are going to accept it. When the hammer goes down, and if the reserve has been met, the property has been officially sold.
What happens after I place a winning bid?
Once your bid has been accepted it will be legally binding and you will need to provide your personal information as well as that of the solicitor with whom you will be working. You’ll also be expected to pay a deposit of at least 10 percent of your bid and perhaps a minimum deposit for the auctioneer. You will then be given a contract to sign which must be done prior to leaving the room. Most auctions will require you to complete the purchase within 28 days unless there are special conditions which require an even faster completion. Make sure to insure the property as soon as possible as it’s now your responsibility.
Is it possible to purchase property if it has not met its reserve?
If the reserve wasn’t met and you’re still interested, get in contact with the seller as soon as possible. This can easily be done by registering your highest bid with the auctioneer. The auctioneer will later contact you with the seller’s response.
