What Buyers Should Know for Modern Day Property Auctions

Buying property at auction can often allow you to get a better deal than going through an estate agent, and it can be a much faster process.

However, there are some important points to consider before going down this route, including understanding the difference between ‘traditional’ and ‘modern’ auction processes.

In this article, we cover the difference between traditional and modern property auctions, how auction fees and auction finance work, what checks you should carry out when buying property at auction and how our team can help.

Need help with buying residential property? Please contact Karen Fletcher, who will be happy to advise.

Key points for property auction buyers to know

• Unlike traditional property auctions, modern property auctions take place exclusively online, and buyers usually have a period of around 30 days to submit bids.
• Modern auctions are conditional, meaning the winning bidder is not legally obligated to complete the sale (although they will lose their reservation fee if they do not complete).
• Buyers in modern property auctions usually have 56 days to complete, rather than 28 days with traditional auctions.
• For modern auctions, the buyer will need to pay auction fees and a reservation fee, which count towards the property value for Stamp Duty purposes.
• You may be able to fund the purchase with a mortgage or bridging finance, depending on the situation, and should always have your solicitor review the terms of any finance you are offered.
• Before the auction, you should view the property, have your solicitor review the legal pack, arrange a property survey and get an independent valuation.

What is the difference between a traditional and a modern property auction?

A traditional property auction can take place in person or online and usually happens on a single day at a fixed time. By contrast, a modern auction always takes place online, and the property is usually open for bids for around 30 days.

With a traditional auction, the auctioneer will keep taking bids until someone wins the auction because nobody is willing to outbid them. With a modern auction, bids will be taken until the end of the auction period, at which point the highest bidder wins.

With a traditional auction, the sale process is unconditional, meaning that the winning bidder is legally obligated to complete the purchase.

Contracts will normally be exchanged, and the winning bidder will need to pay a 10% deposit on the day of the auction. They will then usually have 28 days to complete the purchase.

With a modern auction, the sale is conditional. This means that the winning bidder pays a reservation fee and has the exclusive right to purchase the property for a fixed period, however, they are not legally obligated to complete the purchase.

They will normally have 56 days to exchange contracts with the completion date to be agreed between the parties.  If the buyer chooses not to exchange, their reservation fee will not be returned.

How auction fees work

When buying a property in a modern auction, the buyer pays the auctioneers fees. As mentioned above, they can sometimes be asked to pay a reservation fee to secure the exclusive right to purchase the property.

Both the auction fees and any reservation fee will need to be included in the purchase price for the purposes of Stamp Duty Land Tax (SDLT) calculations.  It is therefore important to be clear about these costs and the SDLT bands when considering how much you are willing to bid.  Any fees for being included in the auction will not be counted, so it is only those which are conditional on your being successful.

What types of finance are available for buying property at auction?

When buying a property at auction, there are two main types of finance you may be able to access.

First, you may be able to get a mortgage, and this can be easier with a modern auction due to the sale being conditional and having more time to complete.

Mortgage finance is generally cheaper in terms of repayments but may not always be available for auction properties (e.g. if the property does not have a functional kitchen or bathroom, it may be considered unmortgageable).

The second option is to take out a short-term loan called a bridging loan. This type of finance can be easier to secure, but the interest rates are generally higher, and you will typically have to repay the loan within a maximum of 12 months.

Bridging finance is commonly used to complete a purchase with a view to then repaying the loan with a mortgage at a later date (e.g. when any necessary works have been carried out to make the property mortgageable).

You should always take financial advice on the terms of any property finance deal before going ahead to ensure you fully understand the terms and any risks.  Your solicitor will be able to talk through the offer itself, and the implications of it being secured on the property, but they cannot advise you as to whether it is the right deal for you.

What checks should you carry out on the property ahead of the auction?

You should always view a property before bidding on it at auction. This can be arranged through the auctioneer or agent handling the sale.

If the property needs significant work, it can be a good idea to take a surveyor or construction professional with you to get an estimate of costs for renovations. You can then factor these costs into how much you are willing to offer.

A legal pack should be provided for the property, which will include the conditions of sale and the results of local authority searches and any other property checks carried out. You should have your conveyancing solicitor review these to identify any potential issues.

It is always advisable to have a property survey carried out, especially if there are significant issues with the property. There are different levels of survey you can choose from, and it is generally sensible to go for a comprehensive survey when dealing with an auction property to provide peace of mind that any problems have been identified.

It is also a good idea to have the property independently valued so you have a realistic idea of what it is worth. If the property needs work, you could also look at similar properties in the area that have sold recently to get an idea of what the property might be worth when any works have been carried out.

How Longmores can help with buying property at auction

At Longmores, our Residential Property team have decades of experience guiding property buyers, including with auction purchases. We can advise you on the process, make sure you understand the risks, review the auction pack and contracts of sale, and keep you safe throughout your purchase.

To discuss how we can help with buying residential property, please contact Karen Fletcher, who will be happy to advise.

Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.