If you’ve ever bought property at auction or wondered about how auction property finance works, then this is the blog for you.
Auction property finance is a little different to a conventional residential mortgage. It can be confusing…but it doesn’t have to be.
Do you have any questions about auction property finance? If so, we have answers. Lots of them. So, we’ve created a list of commonly asked questions to help remove some of the mystery from the process.
How does buying a property at auction work?
Purchasing a property at auction involves competing with other interested buyers to purchase a property being sold by the owner or lender due to the property condition or in a need of a quick sale.
The property is usually sold at auction by a professional auction company or an estate agent to the highest bidder. Before the auction, potential buyers can typically inspect the property for any potential issues or repairs that may be needed. We would also recommend getting the legal pack checked over by a lawyer.
Once the auction has ended and the winning bid has been accepted, the buyer is required to pay a deposit and the balance of the purchase price within a short period of time, usually within 28 days.
How much deposit do you need for an auction property?
The deposit required for an auction property varies depending on the auction’s terms and the specific property. A buyer must typically pay a deposit at the time of the auction, which is typically a percentage of the purchase price.
The standard deposit for auction property is 10% of the purchase price. However, this varies; some auction houses may require a higher deposit, up to 20% of the purchase price. It’s important to note that the deposit is usually non-refundable if the buyer does not complete the purchase.
It is critical to confirm the deposit requirements with the auction house or estate agent prior to the auction. It’s also critical to understand the auction’s terms and conditions, as they may include additional fees like administrative or transfer fees.
How soon after an auction do you pay the deposit?
If you buy a property at auction you will need to make sure you typically have a 10% deposit (of the final purchase price) ready on the day of auction, when contracts are signed. Traditional auctions then have a standard deadline of 28 days to complete. You’ll have to pay the rest of the funds by this date, so make sure you have your funds in place before you bid!
Is an auction legally binding?
When the hammer falls in an auction room, it represents the exchange of a legally binding contract between the seller and the buyer. It is too late for either party to change their minds, and the sale must go ahead following the contractual terms and at the price agreed upon when the hammer fell. If you are unsure about buying the property at any time, you should not bid. We repeat: DO NOT BID!
Is it cheaper to buy property at auction?
Property auctions are a great way to grab a bargain below market value. Buying property at auction is also a perfect way to grow your portfolio quickly and cheaply – just make sure you do your research first!
What happens if you buy a property at auction, but can’t pay?
There will be legal repercussions and financial penalties if you win a property at auction but can’t pay. Besides losing your 10% deposit, you may have to pay additional costs as well. The reason for this is that auction sales are final after the hammer drops.
But don’t worry, a bridging loan is a speedy form of finance you can use to purchase the property and complete the renovation.
How long does an auction property take to complete?
The time it takes for an auction property to complete can vary depending on the auction house. Once the auction has taken place and the property is sold, the standard time frame for completion is typically 28 days – be sure to check the terms/legal pack before the hammer drops.
The type of auction, the type of property, and the condition of the property can all influence the completion time frame. Buyers must ensure that they have secured financing and have completed all necessary inspections and due diligence. It’s also a good idea to talk to a lawyer and an estate agent about the auction process and the timeline for completion.
In a nutshell, auction property finance may appear riskier than traditional property finance, but it doesn’t have to be. If you intend to use auction finance, make sure you understand the risks involved. Finally, as long as you plan your finances and conduct all necessary due diligence before bidding, auctions can be an excellent way to grow your portfolio – just don’t get carried away!
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