Case Study: Purchasing a property at Auction
Whether you’re a first-time buyer wanting to get onto the property ladder, or an experienced property developer looking to grow and expand your portfolio, buying a property at auction could well be the right choice for you.
Why SHOULD I buy a property at auction?
Makes buying a property fun and exciting – Why not take away the stress of buying through an agent and opt to purchase a property at auction. The fast-paced, exciting nature of an auction room environment is enough to get anyone’s adrenaline pumping. Don’t be disheartened if you don’t win the first property on your list, there’s plenty more to choose from!
Grab yourself a bargain – With no fixed asking prices and only a ‘guide’ price on properties, buying at auction could potentially save you a small fortune. The current economic downturn has also led to an explosion in repossessed properties becoming available for knock-down prices. Realistically, you should expect to secure a property for 10-30% of its current market value. The money you save can then either be invested in renovating the property or maybe even investing in another property as a retirement fund.
Who dares wins – At auction; you’re just another bidder and just another number. All that matters is the price you’re willing to pay – nothing else. You have as good a chance as anyone in the room to win that final bid. Sure, finance may be a constraint but with auction prices generally significantly less than current market value, you have a good chance of securing the property you want, at the price you want to pay.
Speedy, hassle-free sale – Buying through an agent can be a painstaking, drawn-out process. For many of us, life is stressful enough without the toing-and-froing of continual communication with agents. At auction, you can secure a deal for a property in a matter of hours and the sale is usually completed within 28 days.
No gazumping nightmares – The resonating sound of the auctioneers hammer falling signals the start of a legally binding contract between yourself and the vendor. The property won’t continue to be marketed online or elsewhere and no more bids will be considered or accepted.
Why SHOULDN’T I buy a property at auction?
You need the necessary finance in-place to secure a purchase – The speedy process of buying a property at auction means that you’ll need to have the finance and funding in-place to secure the property after your winning bid. In most cases, you will need the 10% deposit in your account on the day of the auction. The remaining 90% will have to be paid within the 28-day period outlined above. Failure to pay the full amount within this period will result in you losing your deposit, which in most cases will be a hefty sum.
Think with your head, not your heart – Although you may well be able to grab yourself a bargain at auction, you also run the risk of paying over-the-odds for the property of your dreams. If you become engulfed in a bidding war with a fellow bidder, you run the risk of paying more for a property than you set out too. To avoid this scenario, agree on a top-end figure that you won’t go beyond to avoid thinking with your heart, rather than with your head – and wallet! (And don’t forget the auction fees!)
You’re buying a house, not an item of clothing – Unlike buying a new pair of jeans or shoes, you can’t ‘return’ a property like you would an item of clothing. Once the hammer falls, you’ve entered a legally binding contract that is difficult, if not impossible, to get out of. Buying a property at auction on impulse could be disastrous and counterproductive to what you set out to achieve.
You shoot, you miss – Anything can happen at auction…anything! You may have set your sights on the property you’ve dreamed about for years, had it surveyed to ensure it’s structurally sound and have all the necessary finance in place to complete the sale. But if you aren’t fortunate enough to be the winning bidder, your confidence at auction, and in the property market, may take a turn for the worst. Any costs incurred making sure everything is in place to complete the sale will also have been lost, adding insult to injury.
Now the decision is down to you, the buyer. Weigh-up the pros and cons and make a strategic decision on whether buying at auction is the right choice for you. Buying at auction won’t be everyone’s cup of tea, but hopefully we’ve given you some food for thought. Planning is imperative to successfully bidding at auction. As the old saying goes – fail to prepare, prepare to fail. The same goes for buying at auction.
Be prepared – Your next step…
Contact a reputable mortgage broker and get your mortgage approved in principle prior to attending the auction. Don’t make the mistake of thinking that you can buy the property for cash at the auction and then try to find a mortgage company to refinance the purchase at a later date – The majority of mortgage lenders will only consider re financing a property after you have owned if for at least 6 months.
We would be very happy to help you with your pre approval or to offer you advice prior to your auction visit. Contact us now on the details shown on this page to get further information.