If buying a property at auction, what do you pay and when?

What is auction finance?

Buying a property at auction is a fast and exciting process with the potential of snapping up a great bargain. Once the hammer falls, however, you’re legally committed to going through with the purchase. So what do need to pay and when once you’ve won the bid for the property you want to buy?

Do you have to pay anything on the day of the auction?

As the successful bidder, you either have to pay the deposit or a reservation fee on the day. The deposit is usually 10% of the purchase price while a reservation fee is usually up to 5% of the price. The transaction then has to be completed within a certain time frame. Whether you have to pay a deposit or a reservation fee and how long you have to complete your purchase will depend on the type of auction that you’ve participated in, which we’ll explain below.

The types of auction

Auction houses use different methods that determine the timescale for completing your purchase —traditional and modern auction methods.

The traditional auction method

The traditional method used by auction houses is known as an unconditional auction sale. You pay your 10% deposit after winning the bid and the contracts exchange immediately. You then have 28 days to pay the balance of the purchase price. It’s essential, therefore, to have your auction finance in place. If you’re an investor who’s used to the fast auction process or a cash buyer, this auction method is ideal. If you’re new to auctions or are using a mortgage to buy at auction, you may prefer the modern auction method.

The modern auction method

The modern method is known as a conditional auction sale and makes auctions more accessible to residential buyers. This method provides more flexibility and a longer completion time than the traditional method. Once you’ve won the bid, you pay a reservation fee and sign a reservation agreement. The reservation fee is paid in addition to the price you bid for the property. Usually up to 5% of the property price, it’s non-refundable unless the seller is responsible for the transaction falling through.

From this point, you have 28 days before the contracts are exchanged, allowing you to do your due diligence. Unlike an unconditional auction sale, you’re not legally committed to complete the purchase at this point. The property is reserved for you and you can rest easy knowing that you won’t be gazumped.

After these 28 days, you have another 28 days to finalise everything. For example, you can liaise with your solicitor, arrange the property insurance and secure your long-term finance, such as a mortgage. You need to pay the balance of the purchase price and then complete your purchase.

The 56-day timescale of a conditional auction sale gives you a bit more breathing space and flexibility than with an unconditional auction sale. At the same time, it’s still a quick way to buy a property compared with buying one on the open market.

What auction fees do you have to pay?

As well as the deposit or reservation fee, there are auction fees to factor into your budget. These are paid to the auction house and can include:

  • An administration fee. This covers the auctioneer’s costs to manage the auction sale. You usually pay this at the same time as the deposit.
  • A Buyer’s Premium. Some auction transactions include a Buyer’s Premium. As a percentage of the purchase price, this is charged when a seller has stipulated that the buyer must contribute to or cover the selling costs.

Occasionally, other fees may be payable for the specific property you’re buying. If this is the case, those fees will be detailed in the special conditions of sale, which will be included in the legal pack.

The auction house determines when the auction fees are payable. This is usually detailed in the information page of the auction catalogue as well as the property details. Make sure that you check this information before you attend the auction as some auction houses charge their fees on the day of the auction.

Get expert advice about buying a property at auction

Before you head to an auction, our mortgage brokers can guide you on what to expect. This includes the due diligence, the bidding process, the transaction criteria depending on the auction type, the auction fees payable and the auction finance needed.

Just give us a call on 01322 907 000 and our property auction experts will be happy to help you. They can also arrange your auction finance so that you can confidently bid on a property knowing that you already have the funds in place.