An increase in property repossessions has resulted in a huge growth in the number of house auction sales. EIG Group saw an increase from 200 a quarter in 2004 to 2,665 during the last quarter of 2008. Financial institutions are obliged by law to achieve a fair market value on any sale and a property auction is amongst the most efficient ways of achieving this objective. This provides those buying a house with an opportunity to save money.
Save Money at House Auctions
The EIG Group web site claims that sale prices are as much as 60% lower than what the mortgagor originally paid. However, property repossession auctions have increased interest amongst would-be buyers. Paul Mooney, director of Savills Auctions, stated: "Auction prices will not now get any lower, and, in fact, some lots seriously outperformed expectations. Our view is that we are at the bottom." It is possible to save money at house auctions, but the savings might not be as much as anticipated.
No Gazumping at Property Auctions
A regular complaint raised by those buying a house is the practice of gazumping. This involves accepting a higher bid from a new buyer prior to the exchange of contracts. A house auction means that this can never happen. The fall of the hammer completes the sale and creates a legally binding contract between the two parties.
The Quick Sale of Auction Properties
A house auction takes a maximum of 28 days which is ideal if a party is seeking a quick house sale. The opportunity to sell quickly explains why property repossession auctions are so popular. A private house sale can take months to go through, particularly in a falling market.
Potential Problems with Auction Properties
- Auction fees. A house auction will generally result in 1.5% to 3% of the selling price being taken in fees. An entry fee is also charged to cover the cost of advertising.
- Over-bidding. The occasion can lead to over-bidding in order to secure auction properties.
- Limited time. There isn't a great deal of time available to fully investigate the viability of buying a house at a property auction.
- Mortgage financing. Finding a suitable mortgage deal is more difficult due to more stringent lending criteria being applied by lenders.
- Bad deals. Unless proper research has been carried out, auction properties could wind up costing those buying a house more than they anticipated.
A house auction provides an individual with an opportunity to buy a house for a lower price. However, it is important to appreciate that there is a steep learning curve associated with the purchase of auction properties. Always perform thorough investigation before buying at a property auction.
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.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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