House auctions involve the offers of foreclosed homes at below the market price. It is a practical, low-cost strategy to owning a house, yet, house auctions come with dangers.
Also, most of the houses up for auctions have hidden charges included in claiming the bid.
A House auction is a great way to keep away from lengthy and unsure procedures to owning a house.
And this article will show you the pros and cons of buying houses in auctions.
It will also show the challenges you might face and how to overcome them. Finally, it will reveal in detail the steps to follow.
Many individuals decide to purchase at auctions because the kind of property they wish to purchase is better suited for purchase at an auction rather than through housing agents, so it very well might be the only way out for them.
Be that as it may, there are various advantages of purchasing a house through auctions.
PROS OF BUYING HOUSES FROM AUCTIONS
Auctions are not only for the specialists with insider information.
Over the previous decade, it has become more accessible and popular with house buyers who seek to evade the customary house purchasing chain.
As soon as the auction hammer falls, a sale agreement is reached in an auction. Therefore, buyers need not be worried about the whole deal failing at the last minute.
Furthermore, Auction is an open process, so there is no possibility of being rejected for a higher offer.
The following are the advantages of buying houses through auctions.
- Fast process: Speed makes house auction fascinating. As there is no faster method to purchasing a property than house auctions. It has fixed timescales known from the earliest starting point and your finishing date, so you can make arrangements and game plans.
- Certainty: The assurance of Auction is quite appealing because once the hammer falls in favour of one’s bid, the property is secure, and neither side can retreat from the arrangement. This eliminates the risk of being rejected in favour of a higher purchase offer.
- Likewise, numerous landlords use the house auction option to purchase rented properties to begin to earn from the rent immediately after the purchase is completed.
CONS OF BUYING FROM AUCTIONS
Auctions are a terrific method to stay away from extensive and dubious purchasing strategies.
Still, there is a need for caution because once the hammer falls, the transaction is secured, and the bid winner must pay up.
You could also invest all that energy and cash on ensuring a house merits the bid, to find that somebody has purchased the property before it goes up for Auction.
Auction companies may also charge fees that can significantly raise the total cost, thereby making purchase cost through auction high.
FINANCIAL IMPLICATIONS OF BUYING HOUSE THROUGH AUCTION
- An administration fee, which varies according to different locations.
- Solicitor or conveyancer fee
- Stamp duty
- Insurance fee upon successful purchase of the auctioned house.
- Any other charges included in the contract.
HOW TO GET STARTED BUYING HOUSE THROUGH AUCTION
Focus on the zone you are keen on and contact the auction houses in that zone.
Request for their auction inventory for prospective bidders and also subscribe to their mailing list.
Also, be prepared to take quick actions as there is usually just a month between the inventory catalog publication and the auction.
The following are detailed step-by-step to follow for venturing into house actions.
FISRT STEP: Research
Study the inventory catalog and make a waitlist of properties you’re keen on.
After the diligent study, contact the auction house to schedule a property inspection visit to the particular property you are interested in.
In the course of your research, you need to ensure that you are offering a reasonable sum at the Auction and not overbidding for the property. to ensure this, take along a developer or an architect on your property inspection visit.
That way, you will ensure you have all the necessary information you need to make a financial decision on the properties.
Also, ensure not to base your decision solely on the guide value.
But be sure to conduct a thorough research by consulting with real estate specialists and questioning neighbors about their opinion on the property.
This way, you can ensure you are well equipped with the right information to make your financial decision at the bid-offer.
SECOND STEP: Check the legal package thoroughly
A legal package of your desired properties would be availed you by the auction house once you register your interest in the property.
This legal package often consists of the merchant’s data form, title deeds of the property, and any leasehold agreement.
To ensure your legal security after the successful purchase of the property, consider hiring a lawyer’s service to check through for any loopholes in the legal package.
This will save you from extra cost after purchase.
THIRD STEP: Be financially ready.
In an auction, as the hammer falls in favor of your bid, you become obligated to pay 10 percent of the bid price, and you will have only a month to pay the remaining 90 percent, or you risk losing all you have invested in the bid, including the 10 percent upfront paid.
Therefore, you must be financially well-positioned to acquire the property before going for the Auction. If you need a mortgage, get it sorted out with your finance manager before the bid.
If you fail to meet up with the balance on the property, you stand to lose more than the money already invested in the property.
You may be required to cover the re-selling expenses and the difference in the agreed price and the final resale price.
Some auction houses may even charge you daily interest until the property is sold.
Alternatives to Auction
An alternative to Auction is the modern Auction technique, which is fast becoming popular in the real estate industry.
This technique allows you to bid for properties online. You pay a non-refundable reservation fee for the property you are interested in but will be given more than a month to sort out your finances to acquire the property.