Buying a repossessed home at auction

If you are planning to venture into the world of property auctions, here are some sensible steps to take to ensure that you are prepared for each part of the journey.

Buying a repossessed home at auction

Buying a house at auction has become a popular venture for investors and those looking for a quick purchase. There has been an increase in the number of repossessed homes becoming available at auction houses, according to the Council of Mortgage Lenders. However, property being sold at auction is not always from repossession.

Sometimes vendors decide, for one reason or another, to auction their property because they want a quick sale. So, it is important to remember, although it is possible to save money this way, not every auctioned property is going to be a bargain.

Begin planning

Even before you start to look at property, it is a good idea to have your mortgage agreed ‘in principle’, which means that a mortgage provider has confirmed how much money they agree to lend you on the basis that the property you intend to buy meets their criteria. That way, you know your mortgage will be ready to go when you start bidding.

Visit the auction house

Visit the auction house a few times to get a feel for the process and to find out how it all works. The auction house can be a very competitive environment, so it is important to make sure you are fully prepared for when you come to bid on a property.

You can also study the reserve prices in the catalogues to see how they compare with the eventual selling price at auction. 

Finding a property

There are many property auctioneers operating in the UK. It is worth registering with a few local auction houses who will keep you up to date with their listings. The website eigroup.co.uk provides details of property auctions nationwide and UKauctionlist is worth a visit.

Research your potential purchase

Once you’ve found a property that sparks your interest, research the neighbourhood and make sure you know the area you are buying in by reading the local papers and checking online for school, planning, and crime reports.

There are several differing factors it is wise to consider depending on how you plan to use the property:

  • If you are planning to live there, make sure the location matches the lifestyle you want to lead. Also, try to meet your prospective neighbours if possible.

  • If you see the property as a buy-to-let investment, make sure it will be suitable to present to the lettings market. Investigate the local rental market by checking out letting agents windows to see what property moves quickly, and working out the typical yields you can expect.

  • If you are planning to renovate and remarket, make sure you have a cost-effective plan of action, and can tailor the renovation to your target market.

Survey the property

Make sure you visit the property before you bid to ensure it matches the description put forward by the agents. It might seem obvious, but some people do actually neglect to do this. This is a huge thing to take a risk on, so be safe and get a Chartered Surveyor to look at the property with you. 

A Chartered Surveyor can: 

  • Identify potential structural problems

  • Give you an idea of the cost of any renovation work to be carried out

  • Using local knowledge, estimate the value of the property 

Don’t be tempted to rely on the mortgage lender’s survey, as they only carry out a valuation to ensure they can recoup their losses, at auction, if you were to default on your repayments. It is important that you get an independent survey on the property for a comprehensive assessment of its condition.



Arranging a survey? Have a look at our handy guide.
 


Find a conveyancing solicitor

The buying process moves very quickly for properties purchased at auction, so ensure you have a fully qualified conveyancing solicitor lined up to oversee all the legal requirements of your purchase.

Any property you intend to purchase should have a corresponding legal pack, so make sure you obtain a copy and pass it to your solicitor to assess before you bid, as it may contain clauses that could change your mind about buying, such as suggesting issues which may cause problems getting a mortgage or selling on in the future.

reallymoving.com offers instant quotes for conveyancing fees.

Stick to your budget

Before you walk into the auction house, set yourself an upper limit that you are prepared to pay. DO NOT get carried away and over-bid – auctions can get competitive but don’t overstretch your budget for the sake of winning.

Two important things to account for in your target price are the cost of any renovations and any Stamp Duty charges.

Perhaps make an offer?

Sometimes vendors are willing to consider offers for the property before the auction goes ahead. If you are planning to bid at the auction, you have little to lose by making an offer a little early. If the listing information says ‘unless previously sold’, you may be onto a winner.

Perhaps the property didn’t sell at auction – in many cases the vendor will allow the auctioneer to trade at the reserve price on their behalf up to 24 hours later.

Ask the agents for a copy of the sale pack which should contain legal details and information about the relevant searches for the property, as well as legal evidence of the seller's title.  Hand this information to your conveyancing solicitor to review so you can be assured that the property is sound. They may spot a problem (which is why the property is being sold by auction in the first place) which you need to be aware of and which may prevent you from selling on, letting out or getting a mortgage.  

Organise your mortgage

You’ve won! Congratulations – you are now legally bound to purchase the property and you must exchange on the same day. The mortgage in principle that we spoke about earlier now needs to be secured and ready to complete within 20 days, so you will need to call both your solicitor and your mortgage lender straight away. 

Three points to remember:

  • If you do not have the funds for the property, you will forfeit your deposit, which at most auction houses is 10% of the property’s sale price.

  • It is likely you will be expected to put down the 10% deposit there and then, as the purchase is legally binding at the point of sale, so remember to bring your cheque book and two valid forms of I.D.

  • The balance, stamp duty and solicitors fees are usually required within 28 days of the hammer going down.



Looking for a mortgage? Our mortgage finding tool could help!



For more information on property auctions and repossessions, check out Martin Lewis’ excellent site: MoneySavingExpert.com, and the BBC’s useful auction glossary.

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