More and more properties are being sold at auction, but what exactly are the benefits and pitfalls of purchasing a property this way? If you have never been to an auction before, it can at first seem confusing, but with a little help, you can easily become successful. Read our guide to find out how.
Why Buy Property At Auction?
Buying at auction is a quicker process than buying through an agent, making it the ideal method of purchasing a property if you are looking for a quick and hassle-free sale. When you have spotted an auction property you like, after viewing it you don’t have to worry about entering negotiations with the owner; instead, you will be bidding for it at auction.
There is also no need to worry about the sale falling through due to a better offer or waiting for the seller to find a new home and move out. Once you have paid and the legal paperwork is completed, the property is then yours.
It is also possible to find some good bargains at auction, which makes it a popular choice for property developers or investors. Some properties may be sold below the average current market value, so if you do your research buying at auction can save money, as well as time.
The variety of properties on offer at auction can be substantial, as it is not just the domain of the homeowner. Charities and trusts often sell at auction, as do public bodies and banks. Plots of land, old chapels, windmills, warehouses, and water towers are all examples of some of the more unusual buildings that may be sold at auction, as well as farms, commercial properties, and more conventional structures.
What Are The Downsides To Buying At Auction?
When you commit to buying at auction, the decision is final, meaning you can’t pull out at a later stage. Therefore, doing your research before committing is crucial. It is your responsibility to find out everything about the property as the auction listings are not always extensive.
You must have funding in place before the auction ends, as 10 per cent of the price has to be paid immediately, with the remainder of the balance due within 28 days. Some properties being sold at auction can be in a dilapidated state, which can make getting funding more difficult.
If you don’t do detailed research in advance you may be buying a property with more issues than you bargained for, so make sure you do your homework to prevent this situation from arising.
Buying at auction can be an exciting process, which can make it easy to get caught in the enthusiasm of the bidding. It is important to remain calm as you may end up bidding more than you intended.
It is also possible for sellers to withdraw the property from the auction at any point beforehand, so you may complete all your preparations before bidding, only to find out the property you are interested in is no longer available.
What Fees Are Involved?
Apart from the purchase price, there are a few other costs to consider when buying property at auction. Any research costs in advance will need to be paid for, including solicitor or conveyancer fees.
The auction house charges an administration fee. This is not a set price but will depend on the auctioneer. You will need to refer to the auction legal pack before you purchase to confirm the fees in advance, so you can calculate your overall budget. Some sellers also ask for a contribution to their costs, which will also be outlined in the legal pack.
You will also be required to pay stamp duty if the property is worth over £125,000. The amount you are charged is based on the value of the property. If it is not your only property, stamp duty will need to be paid if it is worth over £40,000. There is also an additional percentage payable on these properties. First-time buyers can purchase a house worth £300,000 before paying any duty.
Once you have purchased the property and signed the contract, you will then be responsible for the insurance.
How To Find Auction Properties
To find properties being sold at auction, first decide where you would like to purchase and then contact auction houses in that area to discover what is currently available. Some of the larger auction houses operate across a bigger region, so it is worth contacting them in the first instance. You should ask to go on the mailing lists and the auction houses will send you updated property catalogues as they are published. These will also include dates of all the upcoming auctions. The descriptions are printed several weeks before the sale, giving time for potential buyers to view and research properties of interest to them.
Some of the well-known national companies include:
If you do an online search for your area, you will find several auction houses that you can also subscribe too.
Beware Of Guide Prices
The guide prices in the catalogue do not necessarily relate to what the property is finally sold for. It refers to the minimum the seller hopes to get, rather than the value of the house.
This can be confusing, as non-auction properties are sometimes given guide prices which relates to the value of the property. At auction, it is indicative of what someone may expect to pay and allows them to calculate in advance an estimate of the added fees associated with the guide auction price. These fees aren’t included in the guide price as the amount may change. However, providing explicit content that charges are added on top and how to calculate them is thought to be an important consideration by the Advertising Standards Agency.
Previously, there have been complaints that the guide price can be misleading; one recent well-known complaint involved the auctioneers SDL and an auction they hosted in Birmingham in July 2017. The complainant challenged the fact that houses often sell for more than the guide price and that guide prices were often changed on the run-up to the auction.
The Advertising Standards Agency (ASA) then investigated the complaint to determine whether the guide prices were misleading. However, as the company made it clear of the difference between the guide price and reserve price, plus they had updated the catalogues regularly to keep the two costs within the 10 per cent range, the ASA determined the guide prices were not misleading.
The takeaway message here is just to be clear what the guide price is referring to, which is the expected sale price, not the valuation. When doing your sums, expect a property to go for more than the guide price, so that you can calculate your budget more realistically.
Should You Visit The Property?
Visiting the property is crucial, as it is the time when you can find out about the condition of the building, and make an estimate as to how much it will cost to renovate to the standard you require. Certain aspects may be purely cosmetic, but other issues may be more complicated. These include areas such as the roof, the electrics, and other utilities, as well as dampness and other structural problems.
Visit the property several times; if you suspect problems but are still interested, it is worth having a survey carried out to discover the extent of the problem before you commit.
If you are not familiar with the area, it’s also an excellent chance to look at the other properties surrounding the one you are interested in, as well as the local amenities.
What Risks Are Involved, If Any?
Before the auction, you have no rights to the property until you have agreed on the winning bid and signed the contract. So, if you are outbid, you will have spent time and money viewing the property and completing the survey.
It is also easy to get carried away in the excitement of the bidding and end up paying a lot more than you had initially budgeted for. If you miss out on a property you originally wanted, it’s also easy to bid on other properties that you might not have viewed or done any research on. The risk here is that you will end up with a structure you know nothing about that could just end up costing you a considerable amount of money.
It is important that you have your finances sorted out before you bid, as once you have made the final offer it is legally binding and you must pay for the property. Securing investment for auction properties can be more difficult than buying through the conventional route, as not all properties sold at auction meet the requirements of a mortgage lender. Mortgages can also take a while to secure, whereas auction properties are only available for a short time. However, there are other funding streams available, such as national bridging loans, which provide breathing space while you secure long-term finance options, or renovate and sell the property on.
Make sure that all the legal paperwork is checked in advance by a professional; don’t rely just on the legal pack that is available on the day of the auction, as it could be too late to spot any critical issues. However, bear in mind that these legal checks on auction properties are not usually as thorough as those completed on properties being sold conventionally. Take the time in advance to ensure you get a full picture of the auction property, rather than relying on the auction pack.
Bidding At Auction
You’ve done your homework, and you’re prepared with a plan and a budget, so the next step is to bid at auction. The first step is to register your intent to bid, which can be done in advance or on the day of the sale. You need to bring your ID, as well as your deposit or proof of finance, as well as the contact details of your solicitor.
You may or may not be given a numbered paddle (it depends on the auction house). Just in case, take a newspaper with you, or something else you can easily wave. Find a position where you can see the auctioneer, but also somewhere that allows a good view of the rest of the room. This will enable you to monitor the bids as they happen.
When you are ready to bid, do so in a confident and precise manner, making sure you stick to your budget and don’t go over. If the price goes too high, gracefully bow out.
If you are the final bidder and win the sale, you will need to sign the memorandum of sale, pay the deposit, as well as any buyers fees and auction house fees. As soon as you can, let your solicitor know you have purchased the property so that the contract can be finalised on time.
Nowadays, you don’t have to attend the auction house premises to bid; this can be done on the telephone or online. You can bid live online, or you can bid on conditional auctions, which work in a similar way to eBay; bidding usually opens for 7 days and after registering you can offer at any time during that time frame.
Is Buying At Auction Right For You?
Buying at auction can be an excellent way of purchasing property quickly, and often at a very favourable price. Although many people are successful buying from an auction, it does not suit everyone.
To be successful, you must plan and be prepared; if you are organised, do your research and are meticulous with paperwork and legal aspects, then you are likely to do well buying at auction. Also, make sure you stick to your plan; if you have decided on one property and have calculated your budget, you must stick to it, then bid. If you have the willpower to stop when your budget has been reached, then the auction house method is for you.
One of the most important aspects of buying at auction is the finance; if you have the funds to pay 10% and the rest within 28 days immediately, then this is definitely a method to consider.