Understanding Property Auctions

You can buy just about anything on eBay, including a house.  Perhaps in the future, eBay will become a core marketplace for real estate in the same way as it has essentially become a core marketplace for pretty much everything else.  After all, auctions are already a recognised means of buying property in the UK, although at this point they process a relatively small percentage of transactions.  This, however, may change, as technology develops.

The practicalities of buying a house The process of buying a house can be divided into three, broad stages: finding the right house, arranging financing and going through the purchase process.  To understand why so few houses are currently sold through auction, and why this might change in the future, it’s worth taking a look at each of these steps.

Finding the right house First of all you have to choose where in the country you want to live and then you have to choose the particular house in which you want to live.  Then, you have to double-check that your initial assessment was correct.  In other words, you need to check not only that your judgement of the house’s physical condition was accurate, but you will also need to assess the house’s legal situation and, in particular, whether you may find yourself liable for further costs related to the property, such as ground rent on a leasehold property, or the costs of maintenance of a boundary for which you would be held legally responsible.  You might also wish to look into the general costs of running a property, in particular, insurance, part of the cost of which depends on the location of the property.  Thanks to the internet, more and more of this research can be done remotely, which, of course, benefits channels which are focused on remote sales.  It also benefits channels such as traditional auction houses, which rely on speed, since it makes it easier for prospective buyers to undertake their due diligence in the time between a house being listed as going to auction and the start of the auction itself.

Arranging financing The fact that many home buyers require mortgages may be the single, biggest reason why home auctions are still a fairly niche way of buying property.  An auction contract is legally binding from the point of sale and, generally, buyers have to be ready to put down a deposit immediately and pay the rest within the specified term.  If they are unable to do so, then they are in breach of contract and may find themselves facing penalties for this.  Buyers who require financing would therefore either have to take the risk of applying for a mortgage after they have agreed to buy the property or agree a mortgage in principle before attending the auction.  Typically, however, mortgage lenders want some form of building survey undertaken before agreeing to lend money on a property and the cost of this would fall on the potential purchaser even though at that point, there would be no guarantee that they would actually be able to buy the house.

The purchase process In terms of the actual mechanics of buying a house, there’s a fairly strong case for arguing that the auction process is simpler than sales through an estate agent.  A price is agreed, the gavel comes down and that’s an end to the matter.  Buyers have no fear of being gazumped in a seller’s market, sellers have no fear of being gazundered in a buyer’s market.  Chains are irrelevant so there’s no fear of a sale falling through because of one weak link in it.  Buyers simply have to remember to focus on fundamentals and not allow themselves to get carried away by “auction fever”. Your property may be repossessed if you do not keep up repayments on your mortgage.