FIRST-TIME buyers could save thousands of pounds by purchasing a house at auction.
While there are benefits to buying a house the “normal” way, buying at auction could help you save some cash.
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Buying a property at auction is different to buying one on the market because you’ll more than likely be looking at fixer uppers rather than new builds or properties where not much work needs to be done.
Auction sales tend to be completed a lot faster than normal purchases.
That is because at the slam of the hammer, the deal is done, unless you’ve paid a reservation fee which gives you 56 days to complete.
Estate agent sales can sometimes take months.
However, the property itself probably won’t cost much difference if you buy at auction or through an estate agent.
For example, a three-bed house in Birmingham is going for around £285,000 on SDL Auctions, at the time of writing.
While a similar one on Zoopla is going for £270,000.
Andrew Parker, managing director of SDL Property Auctions, said auction properties aren’t always cheaper than houses bought through other avenues.
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But the fees prior to and after the sale are where buyers could save thousands of pounds through an auction.
If you’re wanting to purchase a property through auction, you’ll need to have everything sorted, such as your mortgage, before the day of purchase.
While there are pros and cons to buying a house at auction, if you do it correctly, you might be able to save some extra cash.
The Sun spoke to Andrew Parker, managing director of SDL Property Auctions, to find out more.
Don’t just turn up and bid
The most important thing Andrew said anyone, especially first-time buyers, should do is their homework.
Auction properties don’t always cost less than properties bought through other avenues, but Andrew said the money-saving element of auction sales comes before and after purchase.
Firstly, Andrew said to research the house you want, location and any potential fees.
For example, a buyer’s fee could cost you an extra £1,000 while a buyer’s premium could add an additional 20% to the price of the property.
Andrew said: “You must view the property, you must read the legal pack.”
A legal pack will detail every single additional cost that you’ll need to make when buying the property.
Andrew said that they’ll always make it clear in the pack what needs to be spent so as long as it’s read you won’t be caught out.
He suggested viewing several properties so you know exactly what you’re after.
Another thing Andrew suggested is to watch auctions before you go to one.
Lots of them can be streamed live for free, so make sure you have an understanding of what happens and how before you throw yourself in it.
You wouldn’t want to make any rash decisions due to a lack of understanding.
One thing Andrew also said he’s seen before is that people come with a budget in mind and are sometimes prepared to spend a little extra to get the property they want.
However, one thing he would never suggest is to go over your budget to the point where you’ll struggle financially.
He said do not get carried away at auction – stick to what you can afford to spend.
Don’t forget it’s a fixer upper
In addition, lots of auction properties require some TLC so understanding the type of work that needs to be done could help you save money that you weren’t expecting to spend.
If you’re also willing to do some of the work yourself, then you could save thousands of pounds by not having to pay for builders and decorators.
Of course, make sure any work that you do is safe and do not do anything that requires you to have a certificate.
It might also be wise to get a surveyor to check the house before auction.
This could cost you anywhere from £400 to £1,425 but could save you thousands of pounds in fees later down the line (if you find that there’s a lot of work to do be done).
Andrew said: “If a first-time buyer were to put in the legwork, there’s potential for them to save 5/10% of the value of the property.
“It would all depend on their appetite for doing some work. If they’re able to do work themselves then there’s an opportunity for them to be better off.
“If they’ve got to pay other people to do the work there’s a chance they won’t save anything.”
Don’t go it alone
As with normal property purchases, buyers usually need a solicitor.
It isn’t a legal requirement but it is advised, and a solicitor could spot things in the legal pack and throughout the process that you might miss.
When buying at auction, you’ll receive a legal pack which you will need to go through and eventually sign.
While it might be something you think you can do yourself, Andrew said paying a solicitor to check everything could save you thousands of pounds in the long run.
“A solicitor could read a legal pack for £100 and it could be the best £100 that somebody could spend.
“It could save them from getting into any difficulty.
“There could be thousands of pounds in fees, that you don’t know.”
He added: “It could be a legal reason, there could be service charge arrears.
“If the previous owner wasn’t up to date, it could be rent arrears.”
If this is the case, then it might be written in the pack that the buyer is liable for arrears, which a solicitor will spot.
Don’t back out
In many auction sales, once the hammer goes down, the property is sold and there is no backing out.
Alternatively, there is a modern method of auction which means that upon the acceptance of the offer, the buyer must put down a reservation fee.
They then have 56 days to complete, or back out should they wish.
While this sounds like the safer option, it could mean that you end up spending thousands of more pounds than you need to.
A reservation fee could be between 5 to 10% of the value of the property you’re buying and if you back out, Andrew said you lose it.
He said it’s really important to make sure you’re 100% sure you’ll follow through, otherwise you could lose a good chunk of money.
Plus, through the modern method of auction buying, a reservation fee can often come with stamp duty.
Andrew said this is something that buyers can often be caught out on.
While a reservation fee might make you feel safer, it might be best to ensure you’re 100% certain about the property and then buy as the hammer goes down.
He said: “A reservation fee is non-refundable so you are taking on the same risk if it was a standard auction.
“In many ways, the reservation fee situation is probably not as good.”
Some organisations could charge as much as 5% [of the reservation fee] in stamp duty fees.
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