Buying property at auction is a method of sourcing used by many property investors and buy to let landlords. However, it can be a daunting business. Here’s Property Insider’s advice if you’re a virgin property auction buyer:
First of all what are the advantages of buying at a property auction?
Auctions frequently offer an opportunity to purchase property at below market value, as would be achieved in a normal open market sale.
A purchase at auction is final at the agreed price. The seller cannot back out. You cannot be gazumped.
Auctions offer a quick method of purchasing property and a guaranteed completion date.
And what are the possible disadvantages of buying at a property auction?
You cannot guarantee that you will be able to purchase a property at below market value, as the price depends on bidding on the day.
The purchase is final. The contract of sale is agreed on the day.
Many properties offered at auction are ‘problem properties’ which cannot be viably sold by private treaty. (This may often be because they are not mortgagable as they stand.)
Here’s a quick briefing on sourcing successfully at property auctions right now:
Contact all the auction houses who auction property in the area you’re interested in. Sign up to receive their catalogues (most of these are available online now) so that you receive details of all properties coming up for auction.
If you’re looking to buy in the regions check both with your local auction houses and the main London property auction houses – many of them also sell regional properties.
The first thing to do when you see a property you’re interested in – do the maths. Estimate what you could sell the property for, deduct your costs, then see if the guide price is in the ballpark. Estimate what you could rent the property for, and calculate if the likely buying price will offer a viable yield.
Tip. Overestimate your costs and overheads but underestimate your likely selling price or rental value.
Understand guide and reserve prices. Guide prices are only a guide to the price the property might sell at, and are frequently exceeded. Properties sometimes sell for less, but less frequently. The actual price achieved depends purely on the bids made on the day.
Guide prices are not reserve prices – the price below which a property may not be sold. However, reserve prices are typically set within the guide range indicated (eg.£150,000-£170,000) or no more than 10% above a single figure guide (eg. £170,000).
Always inspect the property. Don’t buy sight unseen. (There are some very distressed, distressed property lots offered at auction!) Only experienced investors who can afford to take the financial risk should ever consider buying sight unseen.
Make any checks you wish to do on the property now – there is little point in doing them after you have bought the property at the auction. If you wish to have a survey done, take expert advice on condition, get estimates for repairs and renovations etc. do this well in advance.
Study the legal pack. The legal pack gives all the terms, conditions and any restrictions applying to the property and the sale.
You do not have to take legal advice to the legal pack but since it constitutes the basis of a legal contract of sale it is advisable.
Have your finance lined up before the sale. If you are relying on mortgaging the property being purchased to raise the necessary finance then, although there are some mortgage brokers who offer to arrange finance subsequent to any auction purchase, it is highly advisable to do this before.
Allow for any extra buying costs. These might include a buyer’s premium, administration charge or search pack fee which in some case can be a significant proportion of the cost of the property. Also allow for your own legal fees. In some cases you may be required to pay the seller’s legal fees too.
Attending the auction. You don’t necessarily have to attend an auction to bid on repossessed properties. Most auctions allow you can to make a proxy bid through the auctioneer or to bid by phone. (Both of which need to be arranged in advance.)
There’s by and large no secret to bidding at auction. Here are a few pointers: When the sale begins just bid up to whatever you are willing to pay. The auctioneer will normally offer each lot by suggesting an opening bid. If no one bids, make a lower opening bid if you like. Bidding will normally rise in units suggested by the auctioneer (eg.£1,000) but it doesn’t have to, you can bid a fraction of that unit if you like. A declaration by the auctioneer that the property is ‘in the room’ or similar indicates that the reserve price as been exceeded and the property will sell. If a property fails to sell in the room because the reserve price has not been reached it is normally acceptable to make an offer at or above the last bid if you are still interested in buying – do this direct to the auction staff (not the auctioneer) as soon as possible.
When you buy at auction the sale is final and is completed on the date agreed which is usually 28 or 30 days after the auction. In some cases the seller may dictate a shorter or longer completion period – always check.
It is highly advisable to have a solicitor lined up and ready to act for you, and their confirmation that they will be able to carry out the necessary contract work within the specified period, before you actually bid.
While most property auction purchases go smoothly and offer good opportunities for private purchases there are also a number of pitfall which await the property auction purchaser. This article offers further information on what you need to look out for: Buying property at auction: What could possibly go wrong?