How To Buy Property At Auction
So, you’ve trawled through the property websites and found a number of properties you can comfortably afford with the buy to let mortgage you’ve been approved for. You then find out however that the properties are being sold through a property auction (hence their below market values) and if you want to purchase one of them you need to ‘win’ it at the auction. You therefore need to know how a property auction works and how you should act on the day.
Before the Auction Day
If you are seriously considering buying a property through a property auction then you’ll need to visit the property and research the local area before the day of the auction. All property auctioneers put together an auction catalogue in advance and here you can find details of the properties being auctioned and more importantly their guide prices. It is vital that you visit the property at least once before the auction day, and that you get structural surveys done. If you can afford to it is also recommended that you take along a building contractor, an electrician and a gas engineer to give the property a thorough going over. The last thing you want is to spend your entire budget on an auction property only to find out it requires a new boiler, a new central heating system or new electrics.
You will also need to arrange a buy to let mortgage in principal before going along to a property auction. Using the guide price of the property you’re interested in you can calculate the achievable rental income and from this you can apply for a buy to let mortgage. Keep in mind that the guide price may well be exceeded on the day and that it might be worth arranging a slightly larger
mortgage in principal to cover additional costs.
On the Auction Day
When the day of the property auction comes around you need to be cool, calm and collected so there is little chance of you getting carried away and spending more than you can afford. There will of course be other property investors after the same property as you and some of them may have more money to play with. If the property you have chosen to bid on holds a lot of potential as a
buy to let property then you should expect a decent amount of competition.
You need to have a maximum budget in mind when you enter the property auction and you need to stick to that budget. It is vital that you remember a winning bid at a property auction is taken as a binding contract. You can’t later pull out of the purchase because you overextended yourself financially. You will be expected to complete the purchase within 28 days of the property
auction or face financial penalties.
You also need to have a minimum of 10% of the final purchase price available to use as a deposit on the day of the auction. This can be in the form of cash, credit card, debit card or bankers draft, it doesn’t matter as long as you have the means to pay at least 10% of the total you owe. In addition to the deposit you’ll also need to show proof that you can finance the rest of the purchase. Again this can be a banker’s letter or a statement showing you have the cash available or it can be a buy to let mortgage promise that states you have pre-qualified for a buy to let mortgage equal to or above the amount you owe.
Following the Property Auction
So you have won the property you wanted at the property auction, you have paid your 10% deposit and you have committed to paying the remainder of the purchase price. Now you either have to make arrangements to transfer the cash to the auctioneer’s account if you are paying with cash, or you need to complete the mortgage application process if you are using this method of
finance.
Either way you generally have 28 days to complete the purchase. This may not seem like a lot of time but if you have a mortgage arranged in principal then the majority of the work is already done. Providing you haven’t exceeded the guide price (and thus the mortgage promise) by too much then the application and transfer of funds is straightforward and can easily be completed within the 28 day deadline.
And there you have it, a quick rundown of how to buy property at an auction. The main things to remember are not to get carried away when the competitiveness starts, to have your deposit and mortgage promise ready and to be absolutely 100% sure that you want the property before you bid, as there is no turning back once the gavel goes down.