If you’ve ever looked at purchasing a property, you will have come across a range of listing types across property websites. Purchasing property in England can be done through several methods, with auction purchases and standard purchases being two of the most common.
Each type has distinct processes, advantages, and potential pitfalls. In today’s article, we take a brief look at how these two methods differ. By the end of this article, you should hopefully have a much better understanding of the pros and cons for each method.
Auction Property Purchase
Speed of Transaction
– Immediate Exchange: One of the most significant differences is the speed. In an auction, if you’re the highest bidder when the gavel falls, you’ve immediately exchanged contracts.
– Completion Timeline: Completion typically occurs within 28 days of the auction, though this can vary depending on the auction house terms.
Preparation and Research
– Intense Preparation: Prospective buyers must conduct thorough due diligence before the auction. This includes viewing the property, reviewing the legal pack (provided by the auction house), and arranging finance.
– Non-Refundable Deposits: If your bid is successful, you are required to pay a 10% deposit on the day of the auction. This deposit is non-refundable if you fail to complete the purchase.
Legal and Financial Readiness
– Legal Commitment: Bidding at an auction is a legally binding commitment. Once the gavel falls, you are obligated to complete the purchase.
– Pre-Arranged Finance: Buyers need to ensure that their finances are in order prior to the auction, as there is no room for delays post-auction.
Costs
– Auction Fees: Buyers must consider additional costs such as auction house fees, which can be a percentage of the property price or a fixed fee.
– Survey Costs: Given the fast-paced nature, buyers may need to pay for surveys and valuations before the auction without a guarantee of securing the property.
Standard Property Purchase
Timeline and Flexibility
– Negotiable Timeline: The process is generally more flexible and can take several weeks to several months, allowing for negotiations and adjustments.
– Conditional Offers: Buyers can make offers that are subject to conditions, such as obtaining a mortgage, satisfactory surveys, and other due diligence.
Preparation and Research
– Ongoing Research: Buyers often conduct viewings and obtain surveys after their offer is accepted but before contracts are exchanged.
– Conditional Process: Offers can be withdrawn or renegotiated if issues arise during the survey or legal searches.
Legal and Financial Readiness
– Step-by-Step Commitment: Buyers are not legally bound until contracts are exchanged, providing an opportunity to withdraw from the purchase if necessary.
– Mortgage Arrangements: There is typically more time to arrange a mortgage, though a mortgage offer should ideally be in place before making an offer.
Costs
– Negotiated Costs: Many costs, such as legal fees, survey fees, and mortgage arrangement fees, are similar to those in an auction purchase but are often paid only once a firm decision is made.
– Potential Hidden Costs: There may be unexpected costs discovered during surveys or legal searches, which can be negotiated with the seller.
Key Differences
Certainty
– Auction: High certainty post-auction. Once the gavel falls, the deal is legally binding.
– Standard Purchase: Greater flexibility with the possibility of negotiations or withdrawing without legal consequences until exchange of contracts.
Level of risk
– Auction: Higher risk due to immediate commitment and requirement for pre-purchase preparation.
– Standard Purchase: Lower risk as there’s room for detailed due diligence and negotiations.
Financial Planning
– Auction: Requires immediate availability of funds for the deposit and quick access to the remaining balance.
– Standard Purchase: Allows more time to secure financing and manage funds.
Market Dynamics
– Auction: Properties at auction are often those needing refurbishment, repossessed homes, or investment opportunities, which may not suit all buyers.
– Standard Purchase: Offers a wider range of property types, often including homes in better condition and ready for immediate occupancy.
Conclusion
Both auctions and standard property purchases have their own sets of advantages and challenges. Auctions provide a fast, decisive way to purchase property, often attracting investors or those looking for a project. Standard property purchases offer more flexibility and time, appealing to traditional homebuyers. Understanding these differences can help buyers choose the method that best suits their circumstances and goals. Lisa’s Law is experienced in dealing with both cases and will be able to advise any client extensively throughout either process. If you have any enquiries, feel free to contact me.
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