The essential step by step guide to buying at a property auction
Buying property at auction for the first time can be an exciting and daunting prospect. When buying at auction it is critical to understand that if you make that winning final bid in the auction room you have entered into a binding contract on the fall of the gavel.
This means you are legally committed to completing the purchase of the property (unless it is a conditional sale, which is explained later), which is why with auction purchases it is so important to do all your research and due diligence in advance of the auction before you even consider bidding.
It is this certainty of purchase, transparency and speed, plus the opportunity to find properties being offered below market value that attracts so many prospective purchasers to the auction room.
What Type of Lots go to Property Auctions?
Typical Vendors and why they use Auctions
Auctions tend to be the chosen method of sale by those who want to take advantage of the speed for sale with the exchange of contracts taking place on the fall of the gavel and the completion that normally is four weeks later. In addition, the transparency of the auction room in deciding the market value of the property is desirable for many vendors including public utilities, charities, local authorities and other similar bodies.
Finding the Right Property
If you were looking for a flat or house for sale by private treaty would you in the first instance go to all the local agents in the area or go to a major property portal search like Zoopla or Rightmove? You would of course normally go to a national portal that lets you view the whole market and makes the best use of your time. The same applies to property auctions and it is even more essential given the short time period between catalogue release and auction day.
Time is of the essence which is why the EIG auction information subscriber service is so popular as users are notified as soon as properties that may be of interest to them are released onto the market. EIG is the only portal with information on every property coming to auction and the only portal where one can look up sold prices for auction lots.
The auctioneer’s website and catalogue provides a lot of information about the properties and is usually available 2-3 weeks before the auction. A trend that is increasing is that some auctioneers release the lots as they take them on rather than wait for the catalogue to be ready for printing, giving more time to those who know about them to do their due diligence. The reason for the property sale may be indicated in the catalogue, as well as a guide price.
It is also important to realise that whilst the vast majority of estate agents only offer properties within a small radius of their office, auctioneers offer lots from a much wider area and in the case of London based auctioneers all over the country.
Doing your Due Diligence
Doing your due diligence includes viewing the property, ascertaining the likely sale price, reading the legal pack and if it is a property you wish to pursue it is prudent to instruct a property survey and ask your solicitor to review the legal pack.
Viewing a Property
It may be useful at this point to bring an experienced builder or knowledgeable friend with you to the property who can spot any potential problems that would need to be included in your financial calculations or may mean the property is no longer of interest to you.
When looking at buying any property it is advisable to view it at least twice, during the daytime and at night which may be just a ‘drive by’ viewing. The plans and photographs published in the catalogue are there to aid identification of the property only, the plans may not be to scale so you need to verify them.
What to take to a property viewing:
Tape measure, preferably a laser as much quicker especially if viewing is busy. A camera, notepad, torch, binoculars (to check roof, gutter and chimney), portable ladder (to access loft space), suitable footwear, contact details of the auctioneer and research notes for further investigation in the area e.g. an unidentified building. (N.B. Don’t forget to follow up and ask questions that arise from the viewing.)
- Leasehold or freehold property, any additional ground rent or service charges?
- Parking, garden, access and property boundaries?
- Neighbours, traffic and noise?
- Nearest shops and public transport?
- Heating, insulation, plumbing, electrics?
- Council tax band, energy efficiency rating?
- Any structural issues or recent extensions?
- Vacant or tenanted and history of the property?
If an area is new to you, it is advisable to look online at crime sites, google the address and street, for example:
www.checkmystreet.co.uk – average rentals
www.streetcheck.co.uk – nearest schools
www.checkmyarea.com – area profile
www.police.uk – crime rate
www.rightmove.co.uk – for rental and sales prices
www.gov.uk/find-government-property - find government owned property
www.gov.uk/private-renting - private renting
Read the Legal Pack
A legal pack will be prepared for each property by the seller's solicitors. It will generally consist of the Special Conditions of Sale, the Land Registry Search, Leases (if applicable), office copy entries and other pertinent documents affecting the property. These packs are usually available to view online by clicking the tab beside each property.
At this stage ask your solicitor to look through the special conditions of sale, title deeds, leases, office copy entries etc. Your solicitor will also arrange to do the usual property searches, checking for planning permission for any extensions and also checking for any granted planning permission nearby that may have an effect on the property.
Special Conditions of Sale
If there is nothing obviously untoward then get your solicitor to confirm your views and to look at the rest including access and the local authority planning portal. It is important that either you or your solicitor inspect this paperwork thoroughly prior to auction.
Legal paperwork can always be viewed in the auction room on the day of the sale, but by this time it may be too late for the inexperienced purchaser.
What is a Guide Price?
Since June 2014 auctioneers have to define the guide and reserve, typically it is an indication of the seller's current minimum acceptable price either prior to or at auction. The guide price or range of guide prices is given to assist interested parties in deciding whether or not to pursue a purchase.
It is usual, but not always the case, that a provisional reserve range is agreed between the seller and the auctioneer at the start of marketing. As the reserve is not fixed at this stage and can be adjusted by the seller at any time up to the day of the auction in the light of interest shown during the marketing period, a guide price is issued.
It is not a valuation and, as such, should not be relied upon by prospective purchasers who should obtain their own professional advice on values. A guide price is different to a reserve price.
What is a Reserve Price?
Nowadays there are also specialist short-term Bridging Finance options available that will enable you to complete your purchase with temporary funds, prior to your preferred long-term mortgage being put in place. The reality is that time constraints will preclude the use of high street lenders unless you have an existing line of credit.
It is essential that you have your finances in place at this point as if the vendor accepts your offer, contracts will be exchanged immediately, you will pay a 10% deposit, paying the remaining 90% within 20 working days.
The Auction Room
You can either attend the auction in person, make bids on the telephone or bid by proxy up to a limit you set in advance with the auctioneer.
Preparing to Bid
When you arrive at the auction depending on the auctioneer you will need to complete a registration form so make sure you have the necessary ID documents, proof of address and a cheque or banker’s draft to cover the deposit of the property. In addition to the deposit payable upon exchange of contracts, buyers will be required to pay an administration charge to the auction house, ensure you include this fee in your financial calculations when formulating your maximum bid level.
The auctioneer will refer to the addendum prior to the commencement of the auction and purchasers will buy on the understanding that they are fully aware of the information contained in the addendum before bidding as the addendum sheet forms part of the contract of sale.
Tips for Auction Day
Take a friend along for moral support, ideally someone who has bought at auction before or ask a trusted and or experienced friend to bid for you.
Work out your maximum bid and stick to it – write it down as a reminder for you to refer to in the heat of the bidding process.
Make clear movements to bid such as raising your hand or nodding your head. The bids will go up in increments and you must stop bidding once it has gone above your budget as whether or not you can afford it you are legally bound to the sale if you make a successful bid at or above reserve.
The auctioneer will offer the bid to the room three times before bringing down his gavel to indicate a sale. Once the gavel has come down, the sale of that lot is over. The Auctioneer cannot then take a higher bid.
Making the Winning Bid
Assuming the funds are in place, the sale will be completed within a month. However, if your funding falls through, you will lose your deposit (plus any solicitor’s and survey fees etc), so it is imperative you make certain that your finances are in place before the auction. Assuming everything goes well, you will become the proud owner of a new property much quicker and potentially for less than when buying through an estate agent.
The Contract and Completion
Completion will usually take place in 20 working days, but this date can vary depending upon the seller’s requirements – check special conditions.