Before the hammer falls: what to do before you bid23.01.2018
The fall of the hammer is probably the first thing that pops into your head when you hear the words “property auction”. After all, this tends to be the most exciting time for any bidder at auction, so it’s only natural. However, if you’re thinking of bidding at auction, the fall of the hammer should be the last thing on your mind; at least, until the day itself. In fact, there are a few processes and steps to complete before you enter the hustle and bustle of the auction room.
Understanding legal packs
With any auction lot comes an in-depth legal pack. This will provide details of the freehold and leasehold titles for the property, the local authority it sits within, as well as any relevant Searches and information from the seller. It’s key to understand the legal pack before you make a decision to bid. We recommend taking advice from a solicitor to ensure you’re not caught out by covenants or loopholes that might cost you more than you originally thought.
Organising your finances
Knowing where to start with auction finance is something we get asked about frequently. Whilst it might seem confusing and unfamiliar, the auction finance process is not a far cry from a regular residential transaction. If you need a mortgage, you’ll need to get a “mortgage in principle” sorted before the auction, so that it’s ready to go once you take legal ownership of the property.
Be prepared to pay 10% of the price of the property upfront. This is what is required at auction as an indication of your intention to pay the full price. Once the hammer falls and you’ve paid the 10%, you’ll usually only have one month to pay the remaining balance. If you can’t, you risk losing the property and your 10%. It’s for this reason that a mortgage in principle is required. Bridging loans are also ideal options for many buyers at auction. In short, this is a short term, temporary loan that bridges the gap between the sale and an agreed fixed point at which time the loan is paid off. Talk to a financial advisor to find out which option is right for you.
Getting to grips with fees
Along with the net cost of the property, you’ll need to take into account a variety of fees when you think about your budget. When thinking about costs, you’ll need to consider the auction house’s administration fees, the fees of your solicitor, as well as the cost of any surveys you’ve had carried out. It’s also worth being aware of stamp duty land tax and insurance obligations.
Unlike residential viewings, it’s not uncommon for auction lots to be in various states of disrepair. It is essential to bear this in mind when looking for opportunities. When attending viewings, it can be advantageous to bring along a builder or architect to help you assess the opportunities and challenges with the property, giving you a clearer idea of just how much the lot is worth to you.
Do your research
No matter the nature of the purchase, a big investment decision should never be taken lightly. As auction-goers will know, the fall of the hammer is legally binding, and the winning bidder can’t back out without incurring significant costs. That’s why it’s imperative to arm yourself with research before you enter the auction room. Study the auction catalogue carefully to assess where your opportunities lie and make sure you attend viewings of any properties you intend to bid on. It’s also a good idea to do some research on the average market price of property in the area you’re looking to buy in. Not doing so can result in you paying over the odds for a property that will cost you more than it’s worth.
At Auction House Sussex, we pride ourselves on our level of local expertise and have a proven track record in the Sussex property industry. For impartial advice on bidding at auction, or to find out more about our current lots, please don’t hesitate to get in touch.