Whether you’re looking for a new home or investment property, you have the chance to get one cheaper and faster when you buy at auction. Auction timescales are much quicker than buying a property via the traditional route so you need to be fully prepared. This includes having your deposit ready to put down if you’re lucky enough to be the successful bidder.
How much deposit do you need to buy at auction?
Generally, the deposit payable once the hammer has fallen is 10% of the purchase price. This needs to be paid on the day in cleared funds. If you’ve bid on a low-value lot, a minimum deposit is payable instead. This amount is clearly stated in the information provided by the auction house and is typically £3,000–5,000. Be sure to check the payment methods accepted by the auction house and ensure that you have sufficient funds available before bidding commences.
What is a reservation fee?
There are different types of auctions and, depending on which one you participate in, a reservation fee may be payable on the day rather than the deposit.
The traditional auction method
If you opt for the traditional auction method, also called an unconditional auction, a 10% deposit is paid once you win the bid, as mentioned above. The contracts are exchanged on the day and you are legally bound to buy the property. The balance of the purchase price is then payable within 28 days.
The modern auction method
With the modern auction method, also called a conditional auction, a reservation fee is paid when you win the bid. This is generally up to 5% of the purchase price and is paid in addition to it. You then have 28 days to pay a 10% deposit and exchange contracts. This 28-day exclusivity period is followed by another 28 days before completion takes place.
If you’re new to auctions, are a first-time buyer or need to use a mortgage to finance your purchase, the modern auction method gives you a longer time frame to work within. The fast timescale provided with the traditional auction method can be daunting and tends to be preferred by cash buyers and experienced investors.
Do you have to pay anything else on the auction day?
Auction fees are payable to the auction house as well as your deposit or reservation fee. These can include:
- An administration fee, which covers the auctioneer’s costs to manage the sale of the property.
- A Buyer’s Premium, which is charged when a seller specifies that you must contribute to or cover the selling costs as the buyer.
- Additional costs listed in the special conditions of sale, which are found in the auction legal pack. These costs are specific to the property.
Get your finances ready to buy at auction
When you buy at auction, it’s essential to have your finances in place so that you meet the fast auction timescale. If you need to arrange a mortgage, we deal with lenders who are well-versed in dealing with auction purchases. This means that they are ready to act quickly to finalise it in time for the quick completion deadline.
If you prefer a faster option so that you don’t miss out on an opportunity, we can arrange auction finance for you. This short-term loan offers much more flexibility than a mortgage both in its uses and the eligibility criteria. Auction finance is also ideal for buying a property that a lender won’t approve a mortgage for.
Whatever your preference, give our mortgage brokers a call on 01322 907 000. They can discuss all of the options with you and ascertain which is best for your needs. You can then confidently buy at auction knowing that the funds you need are in place.