Property auctions can be a great place to pick up a 'bargain', whether you are looking for a home or an investment. However, buying from an auction is a lot more involved than simply turning up and placing the highest bid - here is what you need to know.
In essence, there are three steps to successfully buying property at auction, which we will look at one at a time. They are:
- Preparation: The research you should do, and arrangements you need to make before you go
- Know-how: Making sure you understand how auctions work
- Auction day: What to do when you get there
Preparation
It is vital that you do your homework before trying to buy a property at auction, and you need to put a number of important things in place before you go:
1. Get your finances straight:
It is important to realise that, if you do buy a property at auction, your winning bid will constitute an immediate and legally binding contract.You will be required to pay a deposit of around 10% there and then, whilst the remaining balance will be due quickly – usually within 28 days. For this reason, you cannot just turn up and see what happens – you must have finance arrangements in place first.
- Before you go to auction, find out what the payment terms will be, should you be successful in bidding for a property
- If you already have funds available to pay for your purchase, make sure you can access them quickly enough to meet your commitment
- If you only have enough ready cash available to cover a deposit, get an ‘in principle’ agreement with a mortgage lender before you bid at an auction. Apart from ensuring you will be able to abide by the financial terms of the auction, this will also help you to stick to a budget when bidding
2. Shop around:
It is likely that there will be more than one property auctioneer in your region, so do your homework before you get involved.For instance, different auctioneers may well specialise in different types of properties, or properties in certain price bands – if you don’t do your research to find out which is most appropriate for your needs, you could end up making a wasted trip.
- Check your local paper. Most will have listings for local auctioneers, as well as a selection of properties coming up for auction at each. This will give you a feel for the types of properties on offer as well as likely sale prices
- Select the auctioneer or auctioneers that seem right for you, then contact them to request catalogues for up and coming auctions. Catalogues are usually printing several weeks in advance of an auction, whilst you can usually also subscribe to a catalogue mailing list
- Read properties details carefully and put together a shortlist of properties you are interested in
3. See before you bid:
As with any property purchase, you should arrange viewings before you bid and take steps to eliminate any nasty surprises:
- Viewing arrangements will be listed in the auctioneer’s catalogue
- Treat the viewing in the same way as you would if you were buying from an estate agent – don’t forget to protect yourself just because you are likely to get a bit of a bargain. Make sure the property is ‘as described’ in the catalogue, then ask local estate agents and residents for their opinions
- Carry out the usual property and land searches to make sure there are no problems lurking beneath the surface. This will involve a cost but it's an important and necessary step to protecting your potential investment. If you are unsure here, consult a property solicitor or a chartered surveyor
- Based on the results of viewings and searches, select one or two properties you are interested in bidding for
Once you have been through this process, you are almost ready to head to the auction. However, before you do, it is important that you familiarise yourself with the auction process, so you don’t make any expensive mistakes.
Know-how
Auctions can be quite intimidating if you have never attended one before, so it is a very good idea to familiarise yourself with the setting, the auction process and the role of the auctioneer before you go.
If at all possible, attend some auctions as an observer before you reach the point where you want to bid on a property. Sit at the back, watch, listen and learn, paying particular attention to the signals bidders use to place their bids. This should help to dispel any fears you may have about placing ‘accidental bids’. In the meantime, here are some brief pointers:
- The auctioneer’s role is to act as an agent for each seller. He or she will have prepared any brochures or catalogues using information provided by the seller
- Properties are sold one at a time, usually in an order set out in the catalogue – remember though that the order of lots (properties in this case) can change, lots can withdrawn and auctions can be cancelled at late notice - the auctioneer’s decision is final
- The auctioneer will scan the room looming for bids on each lot – with the property being sold to the highest bidder only when no further bids are forthcoming
- When the auctioneer’s gavel (hammer) falls the successful bidder is immediately under a binding, legal contract to complete the purchase in line with the auction house’s terms and conditions
- The auctioneer can refuse any bid without explanation
- The auctioneer will settle any disputes over bids and their decision is final
- If the reserve price (the minimum bid acceptable to the seller) is not met, the auctioneer will usually withdraw the property from auction. You may well be able to bid for unsold properties after the auction is finished – whether or not your bid is accepted will be up to the seller
- Remember that the ‘guide price’ quoted in the catalogue may be quite low. Depending on how much interest there is in the property, it may sell for considerably more – don’t allow yourself to get carried away and stick to your budget.
Auction Day
By now, you should have done your homework and have a good idea of how auctions work. If you are certain you have found the right property, have the appropriate funds in place and are comfortable with the auction format, it’s time to take the plunge.
- In the run-up to the auction, keep an eye on the ‘guide price’ (this is the price listed in the catalogue). If there is lots of interest, this may rise as the auction approaches
- Set a budget. Make sure you have made a decision on what your maximum bid will be. This will be based on your view of the property’s value (having carried out viewings and local searches) rather than the guide price, and on the money you have available
- Be prepared:
- Take at least two forms of identification, a cheque book and your bank details with you
- On arrival, you will almost certainly need to register with the auction house – otherwise you may not be allowed to bid
- Make sure you get a copy of an ‘addendum sheet’ when you arrive. The addendum sheet will detail any extra information or alterations to the catalogue
- If possible, arrive early. This will allow you to familiarise yourself with the surroundings and find a seat where the auctioneer will have a clear view of you
- Take at least two forms of identification, a cheque book and your bank details with you
- When making a bid, be sure to make clear and obvious movements that will catch the eye of the auctioneer. Subtle winks and twitches are for the movies and will not be picked up by the auctioneer
- Remember that, if you are successful, the property will become your insurable risk as soon as the hammer falls. The auctioneer assumes you are a ‘responsible bidder’ and have taken out buildings insurance to cover the property before placing any bid. If you do not take out insurance and the worst happens, you will have no protection from the auction house or the seller. Talk to your property solicitor to make sure you are protected before you bid.
