Essential Guides & Advice How To Buy Property At Auction

Date Published:

19/06/2008

It's much easier to buy at auction if you have the cash to buy the property, but it's still possible to use a mortgage. So long as a property is adequate security for its loan, you can obtain a mortgage from any lender on a property you buy at auction. But you should have the loan agreed prior to arriving at the auction house, says Ray Boulger. 'The completion will have to take place within 28 days of the hammer going down, so you'll need an 'approval in principal' (AIP) from any lender you choose. This will ensure all credit checks have been carried out in advance and you are ready to go at the point of exchange.'

But even this level of preparation is not without its pitfalls. Firstly, true to its name, an AIP is only an agreement in principal. If your credit status changes within the 28 days, the lender may retract its offer. Similarly, if you do not get a valuation carried out before buying the property and it sells for less than the amount stated in the AIP, the lender no longer has adequate security for its loan, 'unless you have a sizeable deposit', says Boulger.

If you fail to complete within the required time, brace yourself for disaster. 'Not only will you lose your 10% deposit, it's likely you will have to cover the costs of re-selling the property, as well as any shortfall between the price you agreed and the final selling price,' explains Charles Smailes, president of the National Association of Estate Agents (NAEA). 'You'll also be charged interest on a daily basis from the would-be completion date to the date the property is sold, at a rate of 4% above the current lending rate of clearing banks.' This is why there are warnings plastered all over auctioneers' catalogues and on the door as you enter the auction room.

For most people, the chief attraction of buying at auction is the ability to save money and turn a profit. The 'reserve' price is the lowest price that a seller will accept - and this is typically set around 30% less than it might be on the open market. According to the NAEA, the reserve is met or exceeded in around 80% of cases at auction. Furthermore, as the popularity of auctions increases, so do final selling prices.

But it isn't just rising prices in the housing market that's fuelling the popularity of buying at auction. In the property frenzy we've seen in recent years, people are also attracted by the transparency of the process, according to Smailes. 'Everything is carried out on a level playing field,' he says. 'When buying through an estate agent some people are sceptical as to whether the seller really received another offer or not. But at an auction everything is on the table. You can see the whites of your opponent's eyes.'

Like estate agents, auctioneers do not need any specific qualifications to carry out their trade, although they do fall under the Estates Agents Act 1979. But, like estate agents, auctioneers can choose to become members of the National Association of Estate Agents (NAEA), which means they must abide by a universal set of standards - so, for peace of mind, look for an NAEA sticker on the door.

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The views represented in this article are those of the author and not of Channel 4. The purpose of the article is to provide general information only and does not constitute financial, investment, legal or other advice.You should not rely on any information provided in this article and you should always seek out independent professional advice relevant to your own particular circumstances.