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January 12, 2017

A quick guide to buying property at auction

Got a client enquiring about auction finance? Property auctions are most popular with professional property dealers and traders, but that doesn’t mean the ordinary house buyer can’t buy at auction too. In fact buying property at auction is proving increasingly popular as it ventures outside of the auction house. With online auction sites like Lot11.co.uk and auctionhouse.co.uk you can snap up a property on a laptop, bidding from the comfort of your own home. You can help make sure your client is clued up on the auction process, and where loan finance fits in, with this quick guide to the auction finance process.

Registering with the auction site

Make sure you register well in advance of the auction itself. You don’t want to risk missing out.

Some sites only look for your address and contact details, while others will want to see photographic ID and a reliance letter signed by your solicitor.

You may also need to pay a refundable registration fee.

Other fees to look out for

Another potential fee is a ‘successful bid fee’ post auction if you win the bid.

Checking what’s available

The details of the lots are usually published around two to three weeks before an online auction is held.

This tends to include the length of the lease, floor plans, legal details and a guide price.

Understanding auction property and access to finance

Auctions aren’t for people looking for new builds or quality refurbs. Instead they’re an opportunity for property investors looking to make a profit from a renovation project.

Some properties need extensive work. So make sure you know how much you want to take on.

If you are tempted by a big renovation project you’ll likely need to be cash rich. Some properties need work to the extent that they might not have a kitchen or a bathroom. In this case you wouldn’t be able to arrange a traditional mortgage on them.

Arranging a viewing

You can generally arrange viewings directly with the auctioneers or their joint agents.

How you go about this will vary depending on the property. Some will hold open days, while others will offer individual appointments.

Unexpected changes that could arise

Occasionally the original property details will have changed by the time of the auction. Look out for this.

If the guide price has been reduced or the property has been sold prior to the auction, you’ll want to know about it.

These amended details are either announced on the lot page of the auction site or released as a separate ‘addendum’ sheet.

Planning your finances

You will generally have to pay a deposit of around 10% of the purchase price within 24 hours of the auction concluding. And you’ll usually need to complete the purchase within 20 working days. So it pays to have your finances in order.

A traditional mortgage may take too long, which is why bridging loans are a popular choice for auction buyers.

A bridging loan is short-term property finance, which tends to last several months or up to a year. Traditional mortgages take weeks or months, whereas bridging finance, known for its speed, is often available within a matter of days.

On the Lot11 site you’ll see the LendInvest logo alongside properties we’ll lend on.

Considering your exit strategy

Once you have completed the purchase, you can then take your time to organise a traditional mortgage or buy-to-let mortgage on the property.

To ‘exit’ your bridging loan you’ll need to refinance when your loan term ends. Alternatively fix up the property fast, sell it on again, repay the loan and collect your profit.

The bidding process

Different online auction houses format their auctions in different ways. Here are two examples:

Lot11: Expect a live bidding process for each individual lot of around 10 to 15 minutes.

John Pye Auctions: Expect auctions to run over a couple of days. Bidding on each lot begins at the same time. You then have 48 hours in which to place bids.

Read up on the process and look out for your bidding options in advance.

You may be able to pre-submit your highest offer on sites that run live auctions. Telephone bids might be an option though you may need to let the site know in advance.

Seller withdrawals

The vendor doesn’t have to sell if the bidding doesn’t reach the reserve price (the lowest price they’re prepared to accept). The reserve price won’t be published beforehand.

What to do after the auction

If you make a winning bid, congratulations! You will have a matter of weeks to complete the purchase. And then you’re set to begin your project.

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