DO YOU HAVE TO BE A CASH BUYER TO BUY A HOUSE AT AUCTION?
Alexandra Ventress
September 27th, 2023
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Buying house at auction is becoming an increasingly popular alternative to estate agents as a way to source investment properties. A property auction works when a seller enters their property into an auction. They will set a guide price for their property, as well as a minimum reserve price. From here, potential buyers will bid on the property until the minimum reserve price with the highest bid winning the auction.
Once the gavel falls, the winning bid becomes legally binding. You will be required to pay a 10% deposit upfront in order to secure the sale. You will then be expected to complete your sale within the month where you will pay the remaining 90% of the sale.
But what if you have no experience buying a house at auction? In this guide, we will be taking a look at who pays the fees at an auction, the pros and cons of auction and whether you need to be a cash buyer in order to bid at auction.
Anyone can buy property at auction, regardless of whether they are a cash buyer or not. You will need to have the money ready for your deposit upfront, but if you are a property investor with other assets then you may be able to borrow against these. It is possible to purchase with a mortgage, however, you will need to choose a lender who is able to act quickly in order to avoid delays and financial repercussions.
When it comes to the auction process both the buyer and the seller will be subject to fees. Exactly how much you will pay in fees and the type of fees that you will pay will vary depending not only on whether you are the buyer or the seller but also on the auction mart that you are dealing with.
Selling
If you are the seller, then there are three payments that you will need to get familiar with. These are:
When you sell at an auction, you will be charged a commission by the auctioneer in return for selling your property. This is usually around 2% +VAT of the final sale price and is paid upon sale.
In order to enter your property into the auction, many houses will charge you an entry fee. Also referred to as a catalogue fee, this payment is typically upfront but can on occasion be postponed to post-sale.
As the seller, your solicitor will be responsible for putting together the auction legal pack. This will usually cost £200 and should be paid before the auction takes place.
Buying
If you want to buy a home at auction, then there are three fees that you will need to get familiar with before the auction:
Exactly how much this fee will cost depends upon the price of the property. This fee ensures that the property remains reserved throughout the buying period.
If the auction mart that you are selling through does not charge you a reservation fee, they may charge you a reservation deposit instead. This deposit is non-refundable and will form part of the final purchase price. There is no set price for this deposit, it is charged as a percentage of the property.
This is a fee that is payable from the buyer and will typically cost around £300+VAT and is paid alongside a reservation fee or deposit.
Every property auction is different, but the majority will often welcome pre-auction offers. This means if you see a property that you are interested in a property for your next investment then it is a good idea to offer before the auction takes place. However, some properties are required to be sold publicly so you may need to wait until the day of the auction.
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You should be able to purchase a property using a credit card, however, every auction operates with different rules so be sure to check with the auction mart. When you purchase through an auction, you will typically need to provide two pieces of ID as well as your payment method. Accepted forms of payment will normally include credit cards, debit cards, or cheques.
What ID will be needed?
if you want to buy from a property auction, you will need to provide either your driver’s license or passport as well as a utility bill or bank statement from the last three months.
As we have already mentioned, once the gavel falls at an auction, the winning bid becomes legally binding. This means that if you have not received the money required upfront, you may be sued for it. On top of this, you may also find yourself liable for the seller’s time, auction fees, and other damages.
Many auction houses will require a buyer’s or reservation fee which can range from between 2%-5% of the property price. This can be charged as a fixed sum. They may also charge between 5% and 15% for a deposit for the property, which must also be paid upfront.
If you have bought an auction property but do not have the funds to pay, your best course of action will be to get in touch with the auction house as soon as you can. Many would prefer to deal with the situation directly than take legal action.
What if I cannot afford the auction purchase?
Every auction house works to different rules, however, you will typically be given between 28 to 56 days to come up with the full amount that you bid. In order to find out exactly how much time you have, you should consult the auction house you purchased through. If you are unable to access the money that you have bid, or you are unable to secure a mortgage, then you may find yourself looking at some serious legal repercussions.
If you miss the completion date given by the auction house, then the seller’s solicitor will serve you a Notice To Complete. This will mean that you will have 10 business days to pay. If you have almost secured the finance required to purchase, then you may be able to secure a deadline for this notice.
If this extension is put into place and you do not complete it, then you will lose your deposit and you will more than likely be sued for damages.
You may also be facing deprecation costs as well. This will mean that you will also have to cover the costs for the buyer who will now be out of pocket as a result. Now that their sale has fallen through, they will need to pay to list their property for auction again as well as maintain it until they can find a seller. They could potentially have to sell the property for less than expected and you may find that you are liable for the difference.
As with any property purchase, there are pros and cons of buying at auction. Below we take a look at some of the advantages and disadvantages of buying an investment property at auction:
Pros
An attractive bonus of buying property at auction is there is virtually no risk of your chain collapsing. Once you win a lot at an auction that property is legally yours and payment will be required within the month.
Whilst not the fastest method to purchase a bmv investment property, an auction is a good way to bag a bargain without going on the open market. After the bidding process has finished, you will have one month to complete your house sale.
An auction is also a good way to find a bargain to invest in. Due to the bidding process, you should be able to secure a property for below market value. This is because often auction properties have been repossessed or are in a state of disrepair.
Cons
If you get caught up in a bidding war, it can be easy to get carried away in the excitement and bid more than you originally planned to. This is especially common if you are buying a house at auction first time buyer. This can cause problems as you will now have extra money to find as well as potentially overpaying for a property. If you are not prepared to be strict with your budget, then bidding at a property auction may not be the best route to find your next BMV investment deal.
If you are looking for your next investment at a house auction, you need to be wary of hidden costs. Whilst auctions can be a great way to purchase a property there can often be hidden costs scattered in throughout the process. It is always a good idea to check the process thoroughly before you commit to a sale, to ensure you are getting the best sale.
It is important to remember that whilst you may have your heart set on a property, it is not a done deal that it’ll be yours. You may get outbid for your investment property, so this is an outcome you will need to prepare yourself for.
When it comes to buying house at auction, there are three main risks of buying. These are:
- Not having enough property information
- Not preparing for the auction sale in advance
- Getting carried away at the auction and overpaying
All of these risks can be overcome but they are part and parcel of purchasing property from an auction. If you are looking for a quicker alternative to purchasing at an auction, then read on. As we have the sourcing solution for you..
Start your property portfolio today!
Buying house at auction is becoming an increasingly popular alternative to estate agents as a way to source investment properties. A property auction works when a seller enters their property into an auction. They will set a guide price for their property, as well as a minimum reserve price. From here, potential buyers will bid on the property until the minimum reserve price with the highest bid winning the auction.
Once the gavel falls, the winning bid becomes legally binding. You will be required to pay a 10% deposit upfront in order to secure the sale. You will then be expected to complete your sale within the month where you will pay the remaining 90% of the sale.
But what if you have no experience buying a house at auction? In this guide, we will be taking a look at who pays the fees at an auction, the pros and cons of auction and whether you need to be a cash buyer in order to bid at auction.
Anyone can buy property at auction, regardless of whether they are a cash buyer or not. You will need to have the money ready for your deposit upfront, but if you are a property investor with other assets then you may be able to borrow against these. It is possible to purchase with a mortgage, however, you will need to choose a lender who is able to act quickly in order to avoid delays and financial repercussions.
When it comes to the auction process both the buyer and the seller will be subject to fees. Exactly how much you will pay in fees and the type of fees that you will pay will vary depending not only on whether you are the buyer or the seller but also on the auction mart that you are dealing with.
Selling
If you are the seller, then there are three payments that you will need to get familiar with. These are:
When you sell at an auction, you will be charged a commission by the auctioneer in return for selling your property. This is usually around 2% +VAT of the final sale price and is paid upon sale.
In order to enter your property into the auction, many houses will charge you an entry fee. Also referred to as a catalogue fee, this payment is typically upfront but can on occasion be postponed to post-sale.
As the seller, your solicitor will be responsible for putting together the auction legal pack. This will usually cost £200 and should be paid before the auction takes place.
Buying
If you want to buy a home at auction, then there are three fees that you will need to get familiar with before the auction:
Exactly how much this fee will cost depends upon the price of the property. This fee ensures that the property remains reserved throughout the buying period.
If the auction mart that you are selling through does not charge you a reservation fee, they may charge you a reservation deposit instead. This deposit is non-refundable and will form part of the final purchase price. There is no set price for this deposit, it is charged as a percentage of the property.
This is a fee that is payable from the buyer and will typically cost around £300+VAT and is paid alongside a reservation fee or deposit.
Every property auction is different, but the majority will often welcome pre-auction offers. This means if you see a property that you are interested in a property for your next investment then it is a good idea to offer before the auction takes place. However, some properties are required to be sold publicly so you may need to wait until the day of the auction.
Find opportunities by contacting us!
You should be able to purchase a property using a credit card, however, every auction operates with different rules so be sure to check with the auction mart. When you purchase through an auction, you will typically need to provide two pieces of ID as well as your payment method. Accepted forms of payment will normally include credit cards, debit cards, or cheques.
What ID will be needed?
if you want to buy from a property auction, you will need to provide either your driver’s license or passport as well as a utility bill or bank statement from the last three months.
As we have already mentioned, once the gavel falls at an auction, the winning bid becomes legally binding. This means that if you have not received the money required upfront, you may be sued for it. On top of this, you may also find yourself liable for the seller’s time, auction fees, and other damages.
Many auction houses will require a buyer’s or reservation fee which can range from between 2%-5% of the property price. This can be charged as a fixed sum. They may also charge between 5% and 15% for a deposit for the property, which must also be paid upfront.
If you have bought an auction property but do not have the funds to pay, your best course of action will be to get in touch with the auction house as soon as you can. Many would prefer to deal with the situation directly than take legal action.
What if I cannot afford the auction purchase?
Every auction house works to different rules, however, you will typically be given between 28 to 56 days to come up with the full amount that you bid. In order to find out exactly how much time you have, you should consult the auction house you purchased through. If you are unable to access the money that you have bid, or you are unable to secure a mortgage, then you may find yourself looking at some serious legal repercussions.
If you miss the completion date given by the auction house, then the seller’s solicitor will serve you a Notice To Complete. This will mean that you will have 10 business days to pay. If you have almost secured the finance required to purchase, then you may be able to secure a deadline for this notice.
If this extension is put into place and you do not complete it, then you will lose your deposit and you will more than likely be sued for damages.
You may also be facing deprecation costs as well. This will mean that you will also have to cover the costs for the buyer who will now be out of pocket as a result. Now that their sale has fallen through, they will need to pay to list their property for auction again as well as maintain it until they can find a seller. They could potentially have to sell the property for less than expected and you may find that you are liable for the difference.
As with any property purchase, there are pros and cons of buying at auction. Below we take a look at some of the advantages and disadvantages of buying an investment property at auction:
Pros
An attractive bonus of buying property at auction is there is virtually no risk of your chain collapsing. Once you win a lot at an auction that property is legally yours and payment will be required within the month.
Whilst not the fastest method to purchase a bmv investment property, an auction is a good way to bag a bargain without going on the open market. After the bidding process has finished, you will have one month to complete your house sale.
An auction is also a good way to find a bargain to invest in. Due to the bidding process, you should be able to secure a property for below market value. This is because often auction properties have been repossessed or are in a state of disrepair.
Cons
If you get caught up in a bidding war, it can be easy to get carried away in the excitement and bid more than you originally planned to. This is especially common if you are buying a house at auction first time buyer. This can cause problems as you will now have extra money to find as well as potentially overpaying for a property. If you are not prepared to be strict with your budget, then bidding at a property auction may not be the best route to find your next BMV investment deal.
If you are looking for your next investment at a house auction, you need to be wary of hidden costs. Whilst auctions can be a great way to purchase a property there can often be hidden costs scattered in throughout the process. It is always a good idea to check the process thoroughly before you commit to a sale, to ensure you are getting the best sale.
It is important to remember that whilst you may have your heart set on a property, it is not a done deal that it’ll be yours. You may get outbid for your investment property, so this is an outcome you will need to prepare yourself for.
When it comes to buying house at auction, there are three main risks of buying. These are:
- Not having enough property information
- Not preparing for the auction sale in advance
- Getting carried away at the auction and overpaying
All of these risks can be overcome but they are part and parcel of purchasing property from an auction. If you are looking for a quicker alternative to purchasing at an auction, then read on. As we have the sourcing solution for you..
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Want to avoid the auction house?
Looking to avoid lengthy and uncertain buying procedures that the auction house brings? Do you want to use an alternative route to buying property at auction? Then we are here to help. Here at The Property Sourcing Company, we specialise in BMV off-market properties, tailored to fit our investors. Whether you are a seasoned landlord or a first-time investor, we have got you covered.
We are led by a roster of industry professionals, with over 50 years combined experience. We take the hassle out of investment purchases and help free up your time for what really matters, from sourcing you the best off-market deals to taking care of surveys and solicitors.
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Why invest with us?
Simply put, we’ll get you the best possible deal. Our sister company, The Property Buying Company, have been in the property buying industry for years & we have access to all their stock which is at a price point that is ready for investors to buy and make a great return on.
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