When you think of purchasing your first property, you’re probably thinking of countless meetings at the estate agent’s, signing up for endless newsletter alerts and signing countless documents, all often required by traditional estate agents — before you can even get a viewing scheduled.
However, it’s not the only way to get your foot on the property ladder.
Once seen as a distant alternative for their tendencies to attract “problem properties”, the proliferation of online auction houses and an increasingly-globalised market of property auctions now contend with estate agents, as a fast and reliable way of acquiring new property.
Below, we’ll show you how an auction house works, its benefits, and what steps to take to minimise risk and get the best deal possible — all for first-time buyers.
Benefits of property auctions
There are many reasons why going through an auction will be more beneficial to you than using an estate agent.
Quicker: Buying a property through an estate agent can take upwards of four months before the contract has exchanged hands. However, with property auctions, you can expect to have the deed within 28 days. If you’re looking for a property immediately, or you’re eager to get stuck in, the difference of three months can be hugely beneficial.
Cheaper: While the exact figures can vary from as little as 70% to 110% of market value, on average, when buying through auction, properties can be expected to be sold at 85–90% of their market value.
Security: If you’ve placed the winning bid and the property is listed as ‘sold’, the seller is legally bound to uphold their end of the deal. In short, they’re not allowed to drop out, so if you’ve got the winning bid, you’ve got the property. Now, this is a double-edged sword as you also have an obligation to buy the property, but we outline below what to expect during the process so you don’t get caught out.
The auction house process
When a property is up for auction, it will be listed online by either an estate agent or a dedicated auction house. When it comes to auctions, there are two types: Traditional, and Modern.
Traditional is, as the name suggests, the original method by which property is sold. The auction is held at an auction house, and the bidders are physically present. The property is auctioned, sold, and contracts exchanged all on the same day.
Modern auctions, on the other hand, work more like online bidding. Where traditional is held in a dedicated facility with buyers physically present, modern auctions are typically held online, and usually run for a period of about 30 days.
For first-time buyers, modern auctions are by far the safer choice. Modern auctions tend to attract fewer ‘problem properties’ (properties which have major development issues and are the reason for the historical detraction of property auctions), and the longer timeframe makes it much easier to finalise finances.
Once the property is auctioned off, a deposit is typically paid if not bought outright on the day. Typically, this will be around 15%, and the full amount is to be paid within 28 days, or sometimes longer, depending on the legal documentation.
All auction houses will have slightly different rules on how they operate, in terms of things such as initial deposits, fees, and timeframes within which to complete certain transactions. Therefore, the best practice is to research any prospective auction house you’re interested in and make an informed decision.
How to succeed at an auction
When you’ve found a property that you’re interested in at an auction house, follow these tips to make sure you get the most out of the auction.
View the property: Before the auction, make sure to visit the property physically. Bring in experts (surveyors, architects etc.) that can help to root out any issues, and help you make a fair judgement on the value of the property before you place any bids.
Get your price, and stick to it: Be ready to walk away if the price gets too high. Have your bidding strategy in mind, and don’t waver. You know not only the price that you believe the house is worth but also how much your budget can cover.
Do your due diligence: Auction houses will usually provide you with a legal pack explaining all the information about the property. Having a solicitor on hand to help you comb over the legal documents will help ensure you’re not caught out by any of the small print.
Have the deposit to hand: You will be expected to pay the deposit immediately after your bid has been marked as the highest, and has met the reserve. Therefore, make sure you have the funds available to ensure your purchase goes through.
Research the auction houses: Each auction house will have its own processes, and fees when it comes to auction. Make sure you find the one that suits you best.
Visit an auction house: No amount of research can prepare you for the real deal, and nothing beats building confidence for a first-time buyer than seeing it done first-hand. If you’re going the traditional auction route, visit an auction house without the intention to buy. Get a feel for how it works, and then go into the next one with the knowledge of how it’s done.
Buying a property at auction can be a quicker and much cheaper way to get yourself onto the property ladder, and if you follow this guide you’ll have no problems as a first-time buyer. If you have any questions about the auction process, get in touch with us and we’ll help you with any questions you may have.
This article is purely speculative and should not be mistaken for financial advice. Readers should consult a professional independently before making any financial decisions.