Buying a property at auction (or thereafter!)

Stuart’s life became a little less classy (ok a lot less classy) when he married me. I shop at Lidl, I have ten year old Primark dresses and when we bought our first home we bought it at auction. This doesn’t mean I am stingy with money – just that ensuring we achieve value for money allows us to have less debt and more freedom.

We have spent many hours looking on Rightmove and Zoopla for homes but since I am very partial to below market value properties there were no glossy brochures and slick estate agents for us when it came to our first property purchase.

The process is not for the faint hearted and family and friends can testify to the stress it caused us at the time. However I do have to say I would buy at auction again – as long as I am not expecting to move into it straight away and an alternative place to live.

Caveat emptor (buyer beware): When you buy a property at auction make sure you have done your homework first. When the auction hammer fall you pay a 10% deposit and commit to providing funding within 28 days. If there is a major problem with the property i.e. it is landlocked, doesn’t have utilities or is covered in Japanese Knotweed you will not be able to find a lender to provide a mortgage. No mortgage means that you will generally lose your deposit under the auction terms and conditions of sale or articles of roup as they are called in Scotland. It is a risky business so be prepared to do lots of groundwork before the auction.

It is all about the money: You will need to be very clear on your budget for the property – this means the amount you can afford to spend taking into account your deposit, any stamp duty due, legal fees, auction house fees, moving costs and any works to be carried out.

When you have worked out how much you can afford to put down as a deposit you will then need to secure mortgage funding for the rest. My advice is to do this well before the auction – you can go through all the processes with you bank who can confirm make you a mortgage offer in principle. This means that you have comfort the bank will lend up to the amount offered and remember *this should be the maximum amount you bid* – don’t get carried away! In a perfect world I would advise you also get a full structural survey carried out on the property so that the mortgage offer in hand matches the surveyed value of the property.

Get advice from a solicitor (but make sure you ask for a fixed fee): Many properties become available as a result of business repossessions. In our case a letting agency went bust for the third time and it’s property portfolio was sold off. Buying a repossessed property means that (a) a bank previously decided that the property was valuable enough to lend against; and (b) it was most likely purchased recently (i.e. within the past 5-10 years). Get whatever legal documents you can off to your solicitor to see if they can spot any issues with the property. You can also download the title documents from the Land Registry of England and Wales for £3, or via your solicitor for a small sum in Northern Ireland and Scotland. If you apply in person to the Land Registry of Scotland the charge can be over £20. This will tell you who owns the property, when they bought it, whether it was mortgaged and how much they bought if for.

If for example the property was bought for £30,000 more than the auction price within the past five years and there was a mortgage on the property odds are there will be very little wrong with the legal aspects of the transaction. Your solicitor can add valuable insight but do ask for a fixed fee quote for the work carried out to avoid being overcharged.

Viewing: Auction houses do not make it easy or convenient to view properties. Viewings are generally at random times – in our case at 10.15 to 10.30 on a Tuesday morning. If you miss your slot you don’t get inside so you need to ensure that you are comfortable buying the property sight unseen.

We missed our viewing as we’d only become aware of the property after the date had passed.  The next week Stuart and I were in the area viewing other properties marketed by estate agents – I had the address to hand so just knocked on the door and asked the tenant if we could see around the place. She was kind enough to let us in – although it definitely looked in better condition in the photos provided by auction house than in reality.

Post-auction purchases: When I say that we bought our property at auction – we didn’t buy it on the actual auction night with other bidders in the room and the auctioneer with the fancy gavel. We bought it post-auction. Family circumstances dictated we couldn’t be present for the auction and while we had a survey carried out at that point we couldn’t commit to purchase within 28 days. Thankfully the property didn’t sell at auction and so were able to snap it up for £5,500 cheaper than the listed auction price.

Pain: Be prepared for some element of pain. We were in a position to complete within 28 days but as the property was tenanted and the tenant refused to leave (in breach of their rental agreement) the purchaser couldn’t deliver vacant possession (i.e. ensure no one else was living at the property). Under the strict terms of the articles of roup we had to complete or lose our deposit but as the auctioneer had told us that the property would be empty we were able to argue that they had committed to deliver vacant possession. After solicitors letters back and forth we eventually got the point across that when we got vacant possession they would get our money. It was another two months before the flat was empty which meant we had to sign a lease for six months on a nearby property incurring moving costs and lots of pain!

I have to say that it was all worth it – we have a beautiful flat purchased at much less than what other properties on the street had sold for. We were able to save money by purchasing cheaply which meant we could renovate the property just how we liked it and the pain has thankfully lessened through the passage of time. How about you? If you are witnessed our stress first hand did it put you off auction properties? Would you consider buying at auction yourself? What would put you off buying a home at auction?

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