Is it worth buying an auction property?

Thinking of buying a property at auction? This blog will guide you through the process, and help you evaluate if it is the right option for you.

Why do people sell property at auction?

A person might consider selling at auction for many reasons. It is well known that auctions move faster than an average property sale, so people who are looking to sell quickly may be interested in selling at auction. 

Someone may have personal circumstances that mean they need to sell a property quickly, such as inheriting a house, emigration or being in debt. In these cases, going to auction could be a good solution.

As auctions must complete within 28 days, (although some can complete sooner) it may be an easier option for the seller, especially when compared to a traditional house sale. The seller doesn’t have to bother chasing other parties involved in the sale, making it simpler and potentially a lower chance of the deal falling through.  

With a traditional house sale, buyers have more time and freedom to negotiate price or even back out of the deal. In contrast, auction buyers are expected to place a deposit on the same day as winning an auction. They will incur fees or legal implications if they try to back out once the auction is won.

The main issue that can arise for sellers at auction, is that there may be a compromise on price. The same property could make more money if it was sold through an estate agent, although this isn’t always the case.

Benefits of buying a property at auction

  • Speed – We know that auctions move much faster than regular property sales. After you have won the auction, you have 28 days in which to complete the purchase.
  • Excellent deals – Many of the properties sold at auction can require some degree of renovation. This can be an issue if you are looking for a property that is in perfect condition. However, the majority of people buying houses at auction are looking for ‘fixer-uppers’. Due to this, the house you can purchase at an auction tends to be lower, so you can find a real bargain!
  • Transparency - Since you can see who you’re bidding against, and how much they are bidding, there is much more transparency during the bidding process. This can make the auction process feel fairer to the buyer.

Disadvantages of buying a property at auction

  • Funding – You need to have funding in place to put down a deposit on the day if you win. Following this, you will need to provide the rest of the money within the next 28 days. It is therefore important to make sure you can afford the purchase, and to not get swept up in the process where you may end up overbidding.
  • No guarantee you will win – There’s always the chance you can be outbid in an auction. If you have already spent a lot of time researching, applying and raising funds, this can be particularly disappointing.
  • Tight turnaround – Once the auction is over the process is very fast. This can be a benefit, but it’s important to remember that you have to organise surveys and legal matters much more quickly.

How to buy an auction property?

Finance for auction purchases will come in the form of a bridging loan. These offer you a quick, short-term solution to help you buy a property at auction. This type of loan can be used for any kind of property, whether it be residential, commercial, semi-commercial or land.

You can get a loan for auction purchases through a bank, lender or broker. If you use a broker, you will have access to a greater range of products from different lenders, which may help you find the most suitable solution for your needs. However, this may be more expensive than if you went directly to a lender. 

There are other options to help you finance the purchase of a house at auction. Firstly, it is worth considering if you have the savings to afford purchasing the property out-right. If this is the case, you can save money by not paying interest on a loan.

Additionally, if you already own a property, it may be worth considering a secured loan. This kind of loan uses your property as security against the money you need to borrow. This can offer the lender more reassurance that the loan will be repaid. It can be repaid in monthly installments, and can be organised relatively quickly. However, if you fail to meet the repayment terms you risk having your property repossessed.

Should I buy a property at auction?

Deciding whether buying a property at auction is right for you depends on your circumstances. You don’t need to have experience buying properties at auction, but it will help to be well-informed before you go into the process. Take a look at our guide; things to consider before buying a property at auction for more information.

If you are prepared, knowledgeable and you manage to find a great deal, buying a property at auction could be ideal. However, it is important to figure out any issues the property may have before the auction. This way you are be aware of any potential risks with the property.

Summary

To summarise, buying a property at auction can absolutely be worth it.  There are many benefits to purchasing property this way, especially the lower prices and speedy process. However, like any property purchase, you should always make sure you know your budget, and remember there’s always the chance that you won’t be successful.

Any property used as security, which may include your home, may be repossessed if you do not keep up repayments on your mortgage.