Buying a property at auction is a simple process that saves time and stress. You don’t need to spend time negotiating the price and then worry about being gazumped or the seller changing their mind. When you start looking at auctions, you’ll notice that there are two types — conditional and unconditional auctions. They offer different timescales for you to complete your purchase and each type has specific terms. Here, we’ll explain how conditional and unconditional auction terms differ to help you make the best choice when buying property.
What is an unconditional auction sale?
This is the traditional auction method and the faster of the two types. It’s the most common type of auction sale and is legally binding on the day. When the hammer falls and you have made the winning bid, you pay a 10% deposit and the contracts are exchanged immediately. You then have 28 days to pay the remaining 90% of the purchase price and complete the transaction.
The legally binding nature of this auction method is why it’s called an unconditional sale. If you fail to complete, you’ll not only lose your deposit and auction fees that you’ve paid but the seller can take legal action against you. This can be extremely expensive as they can make a claim to recoup any losses and also charge you for the costs of selling their property again.
What type of buyer is an unconditional auction sale best for?
Due to the fast and legally binding nature of this auction method, it is favoured by investors looking to secure a good deal. All manner of properties are sold at auctions, including those that need renovation or modernisation, tenanted properties, those with structural or legal issues, unmortgageable properties as well as unique and rare properties.
If you’re a cash buyer or have arranged bridging finance, then you’re ideally placed to meet the fast completion deadline. If you’re relying on a mortgage to finance your auction purchase, however, a conditional auction sale gives you more leeway to finalise it.
What is a conditional auction sale?
This is the modern auction method and is increasing in popularity, particularly with online property auctions. When the hammer falls, you sign a reservation agreement and pay a reservation fee. This non-refundable fee is usually up to 5% of the property price and is paid in addition to it. At this point, you’re given a 28-day exclusivity period before the exchange of contracts. This allows you to do your due diligence while having peace of mind that you won’t be gazumped in the meantime. You’re not legally committed to buying the property at this point, which is why it’s a conditional auction sale.
As well as doing your due diligence, you have time to put your finances in place. When using a mortgage to buy the auction property, this 28-day period enables the lender to process your application. Mortgages take time to arrange so the fast completion timescale of an unconditional auction sale can be hard to meet.
After the exclusivity period, the contracts exchange and you have another 28 days before completion. This enables you to finalise everything, such as securing your finances, arranging your property insurance and liaising with your solicitor.
What type of buyer is a conditional auction sale best for?
The longer 56-day period for this type of auction provides more flexibility and breathing space to deal with your purchase. You have plenty of time to do your due diligence and arrange your finances. At the same time, the exclusivity period allows you to do this knowing that you won’t be gazumped or the seller won’t simply change their mind.
If you’re inexperienced with auction purchases, this option removes a lot of the pressure that you may otherwise experience with the fast-paced traditional method. If you need time to arrange your finances, a conditional auction sale enables you to do this in ample time. This is especially the case when arranging a mortgage.
Get expert guidance on conditional and unconditional auction terms
Our mortgage brokers are well-versed in dealing with auction property purchases. They can discuss the type of property you want to buy as well as your situation. This helps you decide which type of auction to attend and what finances you’ll need in place.
Just give us a call on 01322 907 000 for expert advice and to arrange your finances. If you need a mortgage, we can arrange your mortgage in principle before the auction date. This ensures that you know how much the lender is prepared to lend you. It also allows you to budget for bidding purposes. We work with lenders that specialise in auction purchases and, therefore, are used to meeting the fast deadline.
If you prefer a short-term loan that’s quick to arrange, we can organise a bridging loan for you. That way, you’ll have the funds readily available when you’re at the auction, ensuring that you don’t miss out on an opportunity.