House to Auction - US vs UK

Whether you’re an American citizen planning to buy property in the UK, or a UK resident considering US auction property, it’s important to take note of the differences between the two territories when preparing to put in a bid.

While the basics of buying at auction are generally similar in both countries, there are a number of key differences that potential purchasers need to take into account. In this article, we’ll explore a few of what we believe are the main differences between the UK and US property auction processes. Keep in mind, there are variations and conditions that can be different, so your experience might be different.

How Does a UK Property Auction Work?

Auction is a less popular way to buy property in the UK than in many other countries. However, the method has been gaining traction in recent years.

There are two different types of property auction in the UK: traditional (or unconditional) and modern method (or conditional) auctions. While specific rules and approaches vary between houses, the basics of both processes are usually the same.

It is commonly stipulated by the auctioneer that anyone who wishes to bid on property should first register and provide proof of identity and funds. However, things become very different from here on.

Traditional / Unconditional Auctions

This method of auction requires potential buyers to attend at a set date and time. They make offers until the top bid cannot be surpassed. Once the “gavel” falls, the highest bidder is considered to be in a legally binding contract to purchase the property in question.

They usually must then pay a deposit - which is usually around 10% of the purchase price - and will be given a fixed period of time (commonly 28 days) in which to pay the remainder of the amount they have offered.

Due to the legally binding nature of this form of auction, it is very rare that buyers will be allowed to rely on finance - such as a mortgage - when bidding via the traditional method.

They will usually need to have immediate access to the cash required to make the purchase - and, if they are not able to do so, the seller may sue them for the promised amount.

Modern Method / Conditional Auctions

Many auctions of this kind take place online. Bids can be placed from the time the property is listed - and can continue for up to 30 days (sometimes more).

The highest bidder at the time the listing closes usually pays a reservation fee. This is often 5% of the purchase price and is paid in addition to the final sale price.

The buyer then has a period of time - usually 28 days - to make arrangements, such as securing finance for the purchase. At the end of this period, they will have 28 days to exchange contracts and a further 28 days to close.

As is suggested in the name “conditional auction”, in this process, there is no legal obligation for the highest bidder to complete the sale until contracts have been exchanged.

Viewings

It is fairly common for prospective buyers in the UK to be able to attend an in-person viewing of a property before it goes to auction. Usually, the house arranges “block” viewings at set dates and times, where groups of buyers are taken around the lot at once.

However, other auctioneers will permit individual viewings as long as they are booked with sufficient notice.

Particulars and Legal Information

The vendor’s “solicitor” (their attorney) is required to put together a legal pack, which is a document containing all of the legal information required for the sale of the property.

The buyer will usually instruct their own solicitor who will check through the pack to make sure that everything is in order and nothing is omitted, along with handling the process of exchanging contracts.

How Does a US Property Auction Work?

As is the case with UK auctions, bidders at US real estate auctions are also usually required to provide ID and proof of funds when they register with a house. Many houses “pre-qualify” buyers before they are permitted to bid.

Another similarity is that it is far easier for cash buyers to bid at US auctions than those relying on finance, although, on rare occasions bidders requiring mortgages may get “pre-approved” prior to the auction date.

Some houses may strongly encourage buyers to use certain mortgage lenders - and representatives of these organizations may even be in attendance on the day of the auction.

However, in the US, potential buyers may need to pay a refundable deposit of 5% to 10% of the property’s projected sale price to the auctioneer upon registration.

Property auctions in the US take a number of forms. These include:

• Confirmation auctions
• Minimum bid / Reserve auctions
• Absolute auctions
• Blind auctions
• Open auctions

Confirmation Auctions

In this type, a seller can choose to withdraw their property if bids do not reach their required sale price. If it does, they should confirm their acceptance of the winning bid.

Minimum Bid / Reserve Auctions

These are similar to confirmation auctions. However, in this arrangement, the seller and the auctioneer usually privately agree a minimum bid or reserve price prior to the commencement of bidding.

If bids do not reach this amount, the property may be withdrawn.

Absolute Auctions

In an auction of this kind, there is often no reserve price - and the seller generally must accept the highest bid.

Blind Auctions

A blind one in which bidders cannot see the amounts that competitors are bidding.

Open Auctions

These are the polar opposite of blind auctions; potential buyers can see every bidding that is made on the property in which they are interested.

Viewings

In the US, it is far less common for internal viewings of property to be permitted prior to a bid being placed, which occasionally makes the process riskier.

However, this varies from auctioneer to auctioneer.

Often, auction properties are foreclosures and may be occupied. This adds an additional level of risk, as a buyer of a foreclosure property may lose out if its occupant is able to repay their mortgage debt.

After You Win

The turnover on US auctions is often very fast. Same-day payment is often required, although next-day payment may be permitted on occasion.

However, similarly to purchasing property using a real estate agent, a winning bidder generally must still wait for escrow (which can take 30-60 days) and closing (30 – 45 days). They do not take legal ownership of the property until they receive the title certificate.

Both US and UK auctions can take place either in-person or online.

While there are clear differences between the typical approaches to purchasing property via auction in the UK and the US, the individual house always has the final word.

Be sure to check the guidelines and processes of your chosen auctioneer before you go ahead with any property purchase, whatever its location.