Buying a property through an auction can be fantastic, yet it does also come with risks. You don’t need to be a cash buyer to purchase through an auction, so it is definitely worth looking into. Here are some of the main pros and cons of buying a property at auction to help you make a measured decision about whether this is the right direction for you.
Pros
Quicker Than Traditional Sale
When you buy a house through the traditional method, you can be waiting months to actually get into the house. Yet, when you buy at auction, contracts are exchanged on the day and the transaction is usually completed within the month. You also don’t need to worry about the sale falling through as it won’t be in a chain relying on the sale of other properties.
Below Market Value
Due to the fast nature of the sale, sellers are usually willing to accept below market price. They will set a minimum spend limit and after that, they have to accept the highest offer. Often, this can work extremely well in the favor of the buyer. You know exactly who else is bidding and can stop whenever you need to. For people who think they can’t afford a particular area or type of property, looking into auctions could help you to get there.
Less Competition
When you buy a house through an estate agent, often they have many other people viewing the property which puts pressure on you to make a quick decision and make a high offer in order to compete. Yet, with an auction you know exactly where the competition is and how much they are bidding. This means you won’t end up bidding much more than the competitors to secure the property, so you could save money overall.
You Can View The Property
A misconception about residential property auctions is that you go in blind at the auction and don’t have a chance to view the property. Yet, the properties that will be sold in the auction are revealed in advance, so you have time for multiple viewings and also to have a survey completed (this is highly advisable).
Cons
You Need The Deposit/Full Payment On The Day
To buy at auction, you don’t need to have the full sum to buy the property. You can still get a mortgage, but you would need to put down the full deposit on the day of the auction. If you do decide to pay in full, that will also need to be done on the day. You won’t have time to mull over the decision or pull out if you overspent, so you are making a big commitment when you are bidding. This is something to bear in mind before deciding to bid at auction.
Limited Scope For Detailed Surveys and Legal Advice
Although you do have the opportunity to have viewings and surveys completed, the window is very short. If you don’t manage to find a surveyor or solicitor quick enough, there’s a high possibility you won’t be able to bid, or would bid without having legal advice or a survey which definitely is not advised.
Potentially Problematic Properties
Continuing from the last point, the short window of opportunity for surveys can be problematic. When someone is selling at auction, they may be trying to get rid of the property quickly due to severe structural problems. If you don’t have a survey, it is unlikely you will know about these problems, which could be a massive issue in the future. Although any house for sale can have issues, the fast nature of auctions means you must be prepared to have detailed surveys completed to protect yourself.
You Could Get Carried Away
The atmosphere at an auction can be competitive, meaning it is easy to get carried away and bid more than your budget. If you do this, you are not only likely to put yourself in a poor financial position but it is likely that you will be paying more than the property is worth. For this reason, you must go into the auction with an absolute ceiling figure that you will not go above in any circumstance.
Final Thoughts
Whilst there are many benefits to buying at auction, the best piece of advice is to be prepared. Have your deposit ready, have a ceiling figure in mind that you won’t bid above, have detailed surveys completed and seek legal advice. This should help to remedy some of the cons, but these issues should be seriously considered before jumping into an auction.
