The basic appeal of a property auction is the potential to buy property at a bargain price. Property auctions offer both speed and simplicity which are often important to buyers and vendors (sellers). However, buying auction property is not for the faint-hearted and there are substantial risks as well as potential gains when buying via this route.
Buying At A Property Auction
The first thing to remember is that a property auctioneer acts on behalf of the seller, not you, the buyer. An auctioneer’s duty is to try to get as high a price as possible for the property (referred to as a ‘lot’).
Auction properties are marketed via an auctioneer’s catalogue with summary details and a ‘guide price’. The guide price is often substantially different from the property’s reserve price and what it may ultimately it sell for as a result of auctioneer’s setting artificially low guide prices to encourage interest and a subsequent bidding frenzy to help achieve a higher selling price.
Hidden Dangers Of Auction Property
Auction property is sold on an ‘as seen’ basis. There may be substantial hidden problems with a property which may be one of the reasons why it is being sold via an auction. A survey would reveal any material problems. Fearing that they will be out-bid or not meet the reserve price, bidders often do not opt to incur the expense of a survey before bidding.
Potential Finance Problems With Auction Property
At soon as the auctioneer’s gavel (hammer) is struck the buyer is deemed to have exchanged contracts and is legally responsible for the property. Usually, 10% of the purchase price is required to be paid on the same day, with a further 28 days allowed to complete the purchase and pay the additional 90% required. If the buyer is seeking a mortgage to assist the purchase of the property, the lender may place a lower valuation on the property than the purchase price or refuse to offer a mortgage outright, leaving the buyer to make up the shortfall from his own funds. As the buyer has exchanged contracts failure to complete (and pay the remaining 90% of the purchase price within 28 days) will result in the exchange of contracts becoming void and the 10% deposit will be forfeited. As a result of mortgage uncertainty, many of those who buy at property auctions are cash buyers.
Property Auction And Pre-Auction Property Overview
If properly researched and bid upon, auction property can provide buyers with the opportunity to purchase property below the market value. Many auction property buyers, especially those who have little experience, misguidedly assume that auction property always represent a bargain. This is not the case. Given the lack of due diligence carried out by many bidders before purchase and potential lending problems for those who wish to use a mortgage to assist the purchase, buying auction property presents a high degree of risk.
Propertyinvestment.co.uk is a buyer’s adviser for UK investment property. Our clients benefit from the ability to profit from property by investing in our recommended below market value property, all of which have pasted our due diligence process. Unlike a property auction, in the unlikely event that the purchase price of any our recommended investment properties falls short of a mortgage valuation, our clients do not have to exchange contracts and can withdraw from the purchase.
To start profiting from property investment, call us today and speak to one of our advisers who will match your investment goals with suitable properties.