The average prices of houses have increased, which has resulted in a decline in the demand for property purchase, but the market is not doomed. In fact, soaring prices are not stopping people from getting onto the property ladder.
A mortgage is a really bane of the pursuit of your home. It is a very big loan, and the actual cost of your house will be what you pay in total. A mortgage will be expensive when your credit score is not good at all. You can avail of competitive interest rates when your credit report is up to snuff.
Of late, people’s interest has increased in auction sales because it helps them save some money on the property. The properties sold at auctions are usually foreclosed houses, and in order to avoid spending a lot of money, banks or lenders try to clinch the deal as soon as possible. It is likely that you will find property at lower prices.
Is it possible to buy a property in auction through a mortgage?
There were times when people thought that auction properties were not suitable for all types of buyers. Only those can buy a property at auction who can pay for it outright. Well, the rule of paying the whole of the money within 28 days does exist now.
But it is possible with the help of a mortgage. Now properties listed at auctions are accessible to a wide range of homebuyers. Now you can easily find the listed auction properties by visiting sites such as Rightmove. You will have enough time to secure a mortgage and pay off the total price of the property after the auction.
How buying an auction is different from buying through an agent?
The key difference is that the estate agent will quote an asking price, and then you will do the due diligence and exchange while the property is sold at the highest bid, which is above reserve. Contracts are exchanged on the fall of the hammer.
- Property details
You will not have too many details about the property if you are buying it through an auction. However, you are more likely to get sufficient details to make your buying decision when you are to buy a property through an agent.
- Viewing of property
As far as it is about viewing the property, you will not have that opportunity at auction. The purpose of the auctioneer is to speed up the sales process.
Most of the time, the properties sold at auctions are ramshackle. In order to keep people safe, you will be restricted from viewing the property. However, when you sell your property through a real estate agent, you will have a chance to explore the property.
Whether you are buying a residential or commercial property, you should think of buying it from a real estate agent. As you are taking out residential or commercial property finance, it is crucial to analyse the property’s condition. The mortgage is very expensive, and you will certainly not want to get trapped in a derelict building.
- Pricing strategy
Auctions are held on the basis of the guide price. The price is usually set lower than the market value. However, it does not mean that this is the price at which an auctioneer wants to sell the property.
This is just used to encourage bids from potential buyers. You should never rely on the guide price. The property is always sold above the reserve price that is not known to anyone. It is an agreed price between the seller and the auctioneer. The property cannot be sold at this price.
- Fees
When you buy the property through an estate agent, you will have to pay a commission worth between 0.5% and 2%. In addition, you will have to pay stamp duty which is quite a lot, depending on the price of the property. It may vary by location. However, if you are looking to buy a property through the agency of an auctioneer, you will have to pay the following fees:
- Deposit, which is up to 10% of the total sale price
- Administration fees
- Buyers Premium
- Legal fees
- Reservation fees
The administration fees will be required to be paid down along with the deposit as soon as the hammer falls. The rest balance will be paid off in full within 28 days.
How is an online auction method different from a traditional auction method?
Traditional auctions can be held either online or in an auction auditorium over a specific period of time. Auctioned properties will be advertised online. Perspective buyers can take a look at the catalogue released before the auction takes place, and then you can bid either in person or online. However, nowadays, most of the auctions are done online. It helps save a lot of money in arrangements for in-person auctions.
The contracts are exchanged immediately on the fall of the hammer. You will have to pay a 10% deposit, which is non-refundable in case you back out, and a reservation fee will be charged to the purchase price. Then you will have a period of four weeks to pay for the property.
This appeals to those who are cash buyers. However, you can do it through a mortgage as well, but you must have got the approval before the auction day. The lender will directly transfer money to the vendor. If you are taking the help of auction finance broker, all the arrangements they will do themselves on your behalf.
The modern method of auction is conducted online, and you will have eight weeks to arrange money to pay the vendor. This allows you to have extra time to arrange money. You must have a mortgage in principle before you participate in the auction. You will have to pay a non-refundable fee to participate in the bidding, and this is about 5%. Advance registrations are compulsory. This will require you to pay down some registration fees.
When if you back out?
It is possible to withdraw a bid before the hammer falls, but once it is confirmed, doing so will be considered a breach of contract. This will invite heavy penalties. The down payment and the reservation fee will be counterfeited when you back out.
In addition, you will bear the seller’s fees and other penalties. You can avoid penalties only when you prove that the property was misrepresented. You will need a legal advisor if you want to go down this route to prevent yourself.
The bottom line
Buying a property at an auction should not be done hastily. Bear in mind the pros and cons of the auction. Make sure that you compare them with the upsides and downsides of the property bought from a real estate agent. Carefully decide which option is better for your budget.
