Property auctions have always been extremely popular, but repossessed property is bringing out the buyers in ever increasing numbers. Essential Information Group (EIG) stated that the number of residential and commercial lots sold in April 2009 was 13% higher than just 12 months earlier. Everyone wants to save money when buying a property to live in or as a buy-to-let investment, but is an auction the most effective means of achieving this goal?
Advantages of Property Auctions
- Save money. Repossessed properties are being sold at property auctions for a fraction of the price they would have had they been bought through an estate agent. According to auctionpropertyforsale.co.uk, buy-to-let investors can save up to 40%.
- Quick sale. It is possible to buy a property more quickly than would be possible through an estate agents. The process is particularly beneficial for those who want a quick sale.
- Early offers. An interested buyer could make an early offer which would mean that there is no need to hold the property auction. Although the entry would be removed online and from the auction catalogue, commission will still be payable.
- No gazumping. The falling of the hammer finalises the sale which means that it would be unlawful for someone to offer a higher amount prior to the contracts being exchanged.
- Re-sale on the open market. A cash-rich investor could purchase a repossessed property at a reduced rate, perform sufficient renovations and sell it on the open market for a nice profit.
Disadvantages of Property Auctions
- Enthusiasm. The whole occasion could cause a bidder to get carried away and over-bid.
- Sales commission. Just like an estate agent charges fees, an auction house will also charge for its services. Commission is only taken from the final sale price.
- Pre-auction period.There isn't a great deal of time to perform the necessary research and arrange financing once a property auction has been arranged.
- Higher risk. The lack of time to perform sufficient investigation could mean that buying a property is little more than a gamble. A bad decision at a property auction could mean that any money saved is needed to correct any issues.
- Mortgage financing. Individuals who are buying a property are likely to find that it is harder to get a buy-to-let mortgage than it was a few years ago. The majority of mortgage companies will want a deposit of upwards of 25%.
A property auction is an excellent way to save money, especially given the number of repossessed properties currently available. Buying a property can be complex and administratively confusing so it is important to perform plenty of research prior to placing a bid.
Readers that found this article helpful may also be interested in reading more about fixed-rate mortgages, discounted mortgages or offset mortgages.
Sources
Cavaglieri, Chiara. (14 June, 2009). "Buying at auction: a way to a bargain or a money pit?" The Independent.
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.
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