Investors, developers and hopeful homeowners alike are among those looking at auction property for sale. While they may have different goals, they have something in common: they are often looking for a faster route to ownership – and a lower price point. Auctions can fulfil both aims, but they are not without risk. It is important to weigh the pros and cons, as well as educate yourself about the process so you know what to expect.
They say, “Buyer Beware.” We say, “Be Aware.”
Buying a Property at Auction
Auctions have become more and more popular in recent years, especially as the housing market has heated up to fever levels. Prices rose at the fastest pace in nearly two decades, which is only fuelling the fire. In 2020, for example, 40% more property was sold at auction (by value) compared to the previous year.
What does this mean for you? That you are likely to face more – and tougher – competition. Two- and three-bedroom semi-detached homes are the fastest movers on the auction block today, so if you are looking for this type of house, you are in the thick of often very aggressive bidding.
That said, let’s look at some advantages of buying a property at auction:
A typical house sale takes an average of four to six months (or longer if factors conspire to slow down the works). With an auction, you can complete the entire process within a set period of time. Usually, a house goes up for auction within 30 to 60 days of being listed by the auction house. On the day of the auction, the winning bidder pays a deposit (typically 10% for in-person auctions and 5% for online auctions) right then and there. The buyer then has 28 days to complete the sale and pay the remainder of the balance. This is fast.
Auctions Are Transparent
With a traditional auction, you can see the other bids and the risk of “gazumping” (i.e. the practice of raising the contracted price of a property after accepting a lower offer) is eliminated.
It’s a Fair Process
There is no doubt that auctions can be frenzied, but unlike other buying methods, you don’t have to rush to put in the first offer. You can play the field, so to speak, and gauge the interest level of other bidders.
There Is a Lot of Choices
There is typically a wide range of property types for auction. With luck and timing, you can find a real steal.
Signed, Sealed, Delivered
The process is remarkably efficient and free from the lengthy delays that so often plague other buying methods. The contracts are signed as soon as the auction is done, the deposit is paid, and everything moves forward without a hitch.
Sounds good – but let’s look at some disadvantages.
You Need Funding – Now
If you are the winning bidder, you need to have the funds in place (in hand!) to pay the 10% deposit right then. Again, you will only have 28 days to pay the remainder. You cannot afford to bid first and figure out financing later.
It Can Be Easy to Go Over Budget
It is all too easy to see the possibilities of a property and get carried away in the bidding process. You may go well over budget in the midst of the excitement. Don’t! Set a budget and stick with it. You’ll do yourself no favours if you cannot afford the price tag of a winning bid.
You Have a Lot of Competition
As mentioned, auctions are becoming more popular, and you may be up against investors, developers and big cash buyers. Remember this, especially when it comes to sticking with your established budget.
Remember, too, that the guide price is typically set low to drum up interest. When the guide price rises, it indicates that there is a lot of interest in the property and it could sell for a lot more than you anticipated. Again, don’t get caught up.
Properties May Be In Disrepair
Often with auction properties, there are serious problems, such as structural issues, short leases on leaseholds, restrictive covenants and other factors that impact value. Be aware of this before you bid. You can request the details and the legal pack, as well as arrange a viewing through the auction house to prepare.
When It’s Done, It’s Done
If you win the bid, you cannot back out. There is no room for second thoughts, and you must sign and pay.
If you are interested in auction property for sale, weigh these pros and cons. Is this the right buying method for you?