Buying property at auction is an attractive prospect for private buyers, professional investors and newcomers to the property development game. Though not for the faint-hearted, buying at auction is a great way to avoid the many pitfalls and delays involved in buying on the open market. Plus, you could end up snapping up a bargain.
The Essential Information Group www.eigroup.co.uk, specialists in property auctions, reported record numbers of auction purchases in 2006. One possible reason for this trend is the increasing use of modern technology to facilitate the process.
Grabbing a bargain at auction is all about doing your research, which is a lot easier with the internet at your fingertips. Wider media exposure has also played a part, with television shows such as the BBC’s ‘Homes under the Hammer’ giving insights into the property auction trade.
So you’re itching to get your hands on a property quickly and cheaply at auction, but how does it all work? And more importantly, how can you make sure it works in your favour?
If your first auction marks the start of your career in property investment, get familiar with the business first. Talk to other people who have bought at auction if you can - they may have both good and bad tales to tell. Going to a trade fair such as the National Property Investor Show is a good way to access up-to-date information and hear from industry experts.
Whether you are buying for yourself or as an investment, the property auction itself is a fast and furious business; it can be all too easy to get caught up in the moment and make a mistake. Preparation is crucial. If you’re buying at auction for the first time, it’s wise to observe a few auctions before getting involved for real.
Make sure you get hold of the auction catalogue in advance. You can contact the auction house directly, or have a look to see if it’s published on their website. If you are getting to know an area or looking to buy regularly it’s a good idea to subscribe to auction catalogue mailing lists.
The auction catalogue will give you a description of the property, usually with a photo, and general conditions of sale provided by the auctioneer. It will also tell you how to arrange a viewing of the property.
The guide price in the auction catalogue gives you an indication of what the property is likely to sell for and what the vendor is hoping to achieve. A reserve price, the lowest price the vendor will accept, is agreed confidentially between the vendor and auctioneer.
If you find a property you are interested in bidding for, research it thoroughly. If possible, arrange a viewing. This may not be possible with tenanted properties. If in any doubt, seek professional advice. Auctioneers will normally be happy to recommend firms of surveyors/valuers.
Carefully study the terms and conditions listed in the auction catalogue. It’s a good idea to send a copy of the catalogue to your solicitor and make sure all the appropriate enquiries and searches are carried out.
Legal packs, prepared by the vendor’s solicitors, contain all the legal papers that you and your solicitor are likely to need. These include special conditions of sale, title deeds, results from property searches and details of pre-contract enquiries. Legal packs are sent to solicitors prior to auction and are available for inspection in the auction room.
Make sure you have your finances in order. You will need to have a 10% deposit (or a minimum payment set by the auction house, whichever is greater) ready for the auction day, when contracts are signed. You will normally be asked to pay the additional 90% within 28 days.
If you are going to require a mortgage, you will need to get the property valued by a building society before the auction. Again, if in any doubt about the procedure, professional financial advice before the auction is a wise move.
Deciding how much to bid can be tricky. The guide price will give you an initial idea, but you will also need to take other costs into account. These include solicitor’s fees, valuation and survey fees, building insurance, stamp duty, moving costs and the cost of selling your previous home.
Remember that many properties sold at auction are in need of improvement. Renovation is a costly business; try and work out how much time and money you will need to put in. Get provisional quotes if you can, or arrange no-obligation discussions with architects and builders to get a rough idea of potential costs.
Sometimes, properties will be listed in the auction catalogue as ‘unless previously sold’. This means the vendor may accept an offer before the auction. In this case, if you are ready to buy, it can be worth contacting the auctioneer and putting in an offer before the date of sale.
To avoid disappointment on the day of the auction, it is wise to call the auctioneers in the morning and check the property you are interested in has not been withdrawn or sold. Make sure you have all necessary documentation with you. You will normally need two forms of identification, your cheque book and banking details.
If you are unable to attend the auction in person, it may be possible to bid by telephone or online. Ask the auction house if they allow this. If someone else is bidding on your behalf, make sure you are both absolutely clear about which property you are interested in and how much you are looking to pay. You can get a solicitor to bid for you, but they will charge you.
Give yourself plenty of time to get to the auction house so that you are cool and composed when you arrive. The auction catalogue normally contains directions or a map.
When you get to the auction house, you have to register your personal details and provide your solicitor’s details in order to bid. At registration, you will often be given a bidding number, which must be clearly shown to the auctioneer if your bid is successful. Check the addendum sheet for any changes in details or withdrawn properties.
The auctioneer acts as an agent for each seller at the auction. They can cancel the auction, withdraw lots, alter the order of lots or refuse bids. Their decision on these matters is final.
While it is wise to stay calm and focussed during the bidding, don’t be alarmed that every little fidget or shuffle will be perceived as a bid. Auctioneers are a professional bunch and can normally spot a real bid when they see one!
When your lot is coming up, make sure you are in a visible position. To bid, gesture clearly at the auctioneer by nodding your head or raising your hand. The auctioneer will make it clear when he or she is ending a sale. Don’t worry if the property you are after fails to reach the reserve price and goes unsold. If your bid is close, the vendor may decide to accept it after the auction.
The scary thing about auctions is that when the hammer falls, you own the property. Buying at auction is a binding commitment with the same legal implications as a signed contract.
The initial paperwork for successful bids is completed immediately after the auction. You will need to go through your details, and those of your solicitor, with the auction clerk, prove your identity and pay a deposit. You will also sign a contract which states when the balance of payment is due (normally 28 days). You will need to get buildings insurance sorted out as soon as possible.
Be warned that it is difficult and expensive to get out of an auction sale once a bid has been accepted. Not only will you lose your deposit, but you run the risk of being taken to court by the vendor. The court can order you to pay the vendor’s expenses and pay them the difference if they end up selling the property for less than the amount you bid.