Whether you are buying or selling, most of the time, your process starts online – right in the comfort of your own home, the corner coffee shop or the metro or tram on the way to work. This is where you have likely first encountered the wide, and rapidly growing, world of property auctions. If you want to sell on a relatively fast timeline or if you want to buy at bargain prices, this may be a viable solution for you.
Auction Houses for Sale
How does this work? A property may be listed online by an auction house or an estate agent. They are typically posted for about 30 days before the auction so interested buyers can check it out and decide if they would like to enter a bid. With a traditional auction (also called an unconditional auction), there is a set time, date and usually location. It is then and there that the auctioneer accepts bids in person. These are less flexible and more intensive; thus they are more heavily attended by experienced buyers.
In a modern auction, interested buyers can submit bids up until a final time and date. These are also called conditional auctions, and as you would guess, they are more flexible and the timeline is extended. It’s a bit like bidding on a product on eBay.
With both traditional and modern auctions, the seller sets a reserve price. That is the minimum amount they will accept. The ‘winner’ is the one who bids highest over the reserve. Then, they pay a deposit or reservation fee on the day of the auction. With a traditional auction, this is typically 10% of the purchase price. The party’s exchange contracts on the day of, and the buyer has 28 days to come up with the rest of the money. If they decide to walk away from the purchase, they lose their deposit.
In a modern auction, the reservation fee is usually 5% of purchase price, paid on the day of. The timeline is more flexible here though: you have 28 days in which to exchange contracts and pay a 10% deposit. From there, you have an additional 28 days to complete the purchase. This can make it a bit easier for people who need financing to make a transaction. With a traditional auction, the buyer needs to have the cash on hand virtually immediately.
As A Seller
We have explained about the process. Auctions have come increasingly popular: last year, 40% more properties by value were sold at auction.
There are many circumstances in which it is imperative that you sell house on an accelerated timeline. Waiting the average four to six months for a typical sale to complete may not be tenable. Auctions are one way that people can complete a transaction. The risk as a seller is, of course, that you will have to accept the minimum bid.
When it comes to auction houses for sale, most buyers in this area are shopping for bargains. This can be good news for a seller, however, because investors and cash buyers especially are not turned off by homes that are in less than good condition. This can allow a seller who must complete a sale quickly to sell ‘as is.’ Auctions are certainly an option for those who own ‘fixer-uppers’ or nonstandard properties that are typically unappealing to traditional (i.e. mortgage-bearing) buyers.
As a Buyer
With auctions, it is important to know what you are looking for, what your price range is and what type of property will meet your needs. Whether you are looking for a home for yourself, a second or holiday home, an investment property or a buy to let type of situation, you may be able to find it.
When a property is listed that you may be interested in, take the time to research it. Start by registering with the auction house (typically just a short online form) and then arrange to view the property. Other steps include arranging a mortgage in principle, checking legal documents, instructing a survey and valuation, deciding on a bid with which you are comfortable and, if you win the auction, arranging for buildings insurance.
In many ways, the process is similar to a traditional sale, and it can be quite complex. If you are competing against experienced buyers, make sure you have your ducks in a row.
Is an auction the right solution for you as a buyer or seller? Learn more to make an informed decision – knowledge is power.