The Pros and Cons of Buying Property at Auction

If you’re a UK landlord considering expanding your portfolio, or you’re interested in stepping into the property letting world, buying at auction might be a viable option for you. Property auctions offer unique opportunities and potential bargains, allowing access to properties that may not be available on the traditional market. However, it’s crucial to understand both the benefits and the potential drawbacks of purchasing property this way. Here, Hardings Lettings offers a comprehensive guide to what you should consider before stepping into the auction room.

Benefits of Buying at Auction

Get a Bargain

One of the main attractions of buying at auction is the possibility of securing a property at a price lower than market value. Auctions start with a guide price, and the final price can vary depending on the competition—sometimes lower, sometimes higher.

Quick Buying Process

Auctions provide a clear and concise buying timeframe. Whether you’re participating in an online auction or an in-person event, the process is fast-paced. Winning a bid means immediate commitment to purchase with a 10% deposit paid on the day, followed by a 28-day window to complete the purchase.

Level Playing Field

At an auction, every bidder has an equal chance. There are no preferred buyers; the property goes to the highest bidder, ensuring a fair and transparent process.

Quick Rental Turnaround

With the requirement to complete legally within 28 days of the auction, landlords can quickly proceed with any necessary renovations and prepare the property for rental. Additionally, some auction properties are sold as tenanted stock, allowing new landlords to receive rental income almost immediately upon completion.

A Property with a Difference

Auctions can be a source of unique properties— from fixer-uppers needing a little TLC to unusual properties that offer something different from the norm. This variety can make buying at auction both an exciting and potentially rewarding experience for landlords.

Pitfalls of Buying at Auction

Limited Time for Due Diligence

The swift nature of auctions means there is limited time to perform thorough due diligence. Prospective buyers generally have about four weeks from the property’s listing to auction date to view the property, read through legal packs, consult with solicitors, and get estimates for any necessary works.

Unseen Costs

In addition to the bid price, auction purchases can incur additional costs such as legal fees, auctioneer fees, buyer’s premiums, and the usual stamp duty and insurance. It’s vital to thoroughly read the auction catalogue and understand all potential costs when setting your budget.

Potential for Significant Renovations

Properties at auction often require extensive renovations or have structural issues, which is why they are sold through this channel. Understanding the full scope of these requirements is crucial to avoid unforeseen expenses that can inflate the total investment needed.

Financial Commitment

Bidding at an auction is a legal commitment. Winning bidders are immediately legally bound to pay a 10% deposit and complete the purchase within 28 days. It’s essential to have finances arranged beforehand, including understanding whether your mortgage provider will fund an auction purchase, especially if the property is not immediately habitable.

High Competition

Although the guide price may be enticing, it is just that—a guide. Actual sale prices can vary dramatically, and bidding can be competitive. It’s important to stick to your budget and not get carried away in the heat of the moment.

Top Tips for Auction Success

  1. View the Property: Inspect the property thoroughly to understand what you are buying.
  2. Register for the Auction: Ensure you are pre-registered and aware of all auction deadlines.
  3. Review Legal Packs: Have your solicitor review all legal documents, including surveys and lease details.
  4. Understand the Value: Get an independent valuation to understand the property’s market worth.
  5. Assess Potential Rental Value: Consider consulting a property management company like Hardings Lettings for an estimate of potential rental income.
  6. Plan for Renovations: Evaluate the cost of necessary renovations and consider engaging a property management company that offers refurbishment services.
  7. Arrange Finances: Ensure your finances are in order, from the initial deposit to the full purchase price.
  8. Stick to Your Budget: Keep a cool head during bidding to avoid overspending.

How Hardings Lettings Can Help

Buying property at auction can significantly expand your property portfolio, but navigating the auction process and understanding the potential pitfalls are crucial. At Hardings Lettings, we provide comprehensive support for landlords, from selecting the right property and estimating potential rental income to managing refurbishment projects to maximise rental yield. If you’re considering buying at auction, connect with our team for expert guidance and to make the most of your investment.

For more information and tailored advice, reach out to Hardings Lettings. We’re here to help you succeed in your property investment ventures.