Top tips for buying property at auction

Buying a home under the hammer can mean a saving of around 30% on buying the same property from an estate agent.

The discount price has stuck at the same below market value level for a considerable time, according to EI Group, which monitors sales at UK auctions.

Many serious property investors build extensive property portfolios from auction homes – but auction newcomers need to beware of the pitfalls.

Auctions may generate lots of interest but not every deal is a bargain, so consider these tips before buying auction property:

Why is a home for sale at auction?

Many properties are sold at auction because estate agents have failed to generate any interest for the seller. Often this is because the home is not of standard construction, has a structural defect or other problem that means a bank of building society will not offer a mortgage against the property.

Check, check and check again

Never buy blind and always visit a home before lodging a bid – with a builder or surveyor who can spot problems and quote refurbishment costs. Don’t leave the checking there – get a lawyer to look at the title to identify problems with rights of way.

Bridging the finance gap

Many auction property buys are completed with bridging loans to meet the tight timescale. Typically, a 10% deposit is paid at the auction by the winning bidder with the balance of funds due in 28 days.

Bridging or buying with cash eases the purchase, but if the property is mortgageable, many lenders will not refinance until at least six months after completion.

Make building insurance a policy decision

Some auction deals transfer liability for a property to the winning bidder straight away, so buildings insurance cover is vital to protect the investment.

Bid sensibly

After doing the homework with a builder and lawyer, the property has a price – a figure that makes the investment sensible and that gives a decent return. That figure should be around 30% below market value, according to the EI Group figures.

Never get caught in a bidding frenzy – set a ceiling and pull out at your maximum figure.

If the deal seems to good to be true…

The old saying is that if the deal seems to good to be true then it probably is. Look for hidden catches, and don’t worry about missing out. Auctions deals are like buses – another will come along shortly.

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