Buying a property at auction
It can be very exciting buying at home at auction. You can bag yourself a bargain but it requires careful preparation.
Who buys property at auction?
As anyone who has ever watched ‘Homes Under the Hammer’ can tell you, auctions aren’t just for experts, such as property developers and builders. They’ve become increasingly popular with buyers seeking a ‘fixer-upper’ whether for a home to live in or as an investment property to add value and make money. The two main benefits of buying at auction are speed and certainty. As soon as the hammer falls, the sale is agreed. There’s no lengthy negotiations or property chains which could cause the sale to fall through at the last minute.
What types of property can you buy?
Traditionally, auctions have focused on repossession properties. When a property is repossessed, selling at auction can be a fast and cost-effective way for the lender, who has taken possession, to get their money back. Building plots and development properties, such as derelict buildings or with potential for conversion, are also common. Houses in need of renovation often crop up which means auctions can be a great place for first-time buyers looking for a project or investor looking to make a profit. But increasingly, auction houses have properties that don’t require a revamp as sellers are turning to auctions to achieve a speedy sale.
In the UK, thousands of properties are sold at auction every year - many below market value. So, there are plenty of bargains to be snapped up. But buying at auction does require careful planning. When the auctioneer’s hammer falls, the sale becomes legally binding and there’s no turning back. If you later discover something wrong with the property, you can’t change your mind unlike buying through an estate agent when offers can be withdrawn up until contracts are exchanged. It’s your job to find out everything you can about a property before auction day.
Finding an auction
First, decide on the location you are interested in and find the auction houses that cover that area – visit websites, such as UK Auction List, where you can search for auction properties online. Ask for the catalogue (available online and in print) that lists properties to be sold at an auction. The catalogue is usually available two to four weeks before an auction. If you want to hear about properties coming up for auction before the catalogue is released, register with the auction house and request property alerts.
Don’t rely on the guide price as this is a reserve price and the eventual sales figure could be a lot higher, especially if it’s a popular lot and there’s a bidding war. Look at similar properties for sale on property websites, such as Zoopla, and ask estate agents for their opinions on a realistic price.
View the property
It’s always best to inspect a property before placing a bid. You may find aspects of the property are very different on inspection to the picture painted in the catalogue. Contact the auctioneers and arrange an appointment. It may be an idea to take a builder or surveyor with you to get some professional advice on any defects and cost of repairs before you commit yourself. Remember once the auction is over, there’s no going back to the seller should any problem arise.
Consider a survey
In the UK, a purchaser at auction is contractually bound to pay 10 per cent of the bid price immediately and the balance within 28 days. Remember repossession doesn’t always mean bargain. Before you saddle yourself with an older property likely to need a lot of expensive work, consider investing in a structural survey to check for hidden problems, such as subsidence or damp. That way you will have a clearer idea of what you’re getting into.
Get a solicitor
Make sure you get a solicitor to scrutinise the property’s legal pack- this is the documentation prepared by the seller’s solicitors. It includes the title deeds, Land Registry and local searches, fixtures and fitting lists form, special conditions of sale, tenancy agreements, property information form and planning permission documentation. It’s available to all prospective buyers via the auction house website. The downside is you may pay hundreds of pounds for legal help on a property that you may be outbid on auction day. But it’s better to be aware of any issues before you buy.
Sort your finances
On the day of the auction you’ll need to put down a 10 per cent deposit if your bid is successful, so you need immediate access to your money. Then the balance must be paid within about 28 days. If you need a mortgage to buy the property, it’s best to have one agreed in principle ahead of the auction. Otherwise, if you can’t get a mortgage and fail to complete the purchase, you could lose the property and your full deposit.
Day of auction
People can get caught up in the atmosphere and excitement of an auction and bid a lot more than they meant to for a property. After picking a property you like, work out how much it’s worth and then stick to your maximum. It’s a good idea to go to a few auctions where you don’t plan on bidding to get a feel for how it works.
Arrive early to get a good seat where the auctioneer can see you. Remember to read the addendum sheet on the day as this includes any mistakes or changes that may have been made since the catalogue was published, such as guide price. Listen for any announcements.
How much does it cost?
You will have to pay an administration charge to the auction house, which is usually between £200 and £600. Then you will also have to pay solicitor and surveyor fees plus Stamp Duty just as you would with any other property purchase.
Property auctions are increasingly popular as a quick and efficient way to buy a fixer-upper but be prepared: buyer beware.