The first step towards buying a property at auction is to arm yourself with the knowledge required and find out whether a property for sale at an auction has genuine potential or not. There are a few things you need to know before entering the auction room.
Buying a property at auction is a great way to pick up a bargain, but they also carry the risk of owning a building that suffers structural problems.
There is usually a bit of a mystique around this purchasing method, with many believing buying a property at auction is only appropriate for experienced investors and developers. However, anyone can successfully buy a house at an auction, provided they know the process as well as the potential pitfalls.
Properties you can buy at auction
From conversion opportunities through to bungalows and plots, every type of property can exchange hands at an auction; and the property can come onto the market for a range of reasons.
Some people believe that houses sold under the hammer have something wrong with them, but this is not necessarily true. For example, the property may be hard to value or that the owner is in a hurry to sell and wants to ensure a quick sale.
Reasons for buying a property at auction
One of the obvious reasons is that the property you are interested in has been put on the market in this way. But there are other reasons, as well.
By buying a property at auction, you avoid the delays and uncertainties of a conventional sale – where you could be gazumped or delayed in case the current owners’ purchase falls through. Moreover, in case you are successful, you’ll know that the amount you have paid is only just above the next person’s bid.
Also, you may be able to secure the property for less than your maximum price.
Is buying a property at auction cheaper?
Estimating the market price of certain properties can be difficult, so selling at an auction is a good way to find out its market value.
You may come across some unusual buildings as well, such as chapels, water towers, or public lavatories suitable for conversion, which are usually difficult to value accurately.
Charities, trusts and some public bodies may get the best possible price for their properties, and auction helps them achieve a transparent result, similar to mortgage lenders selling repossessions.
How is property auction achieved?
For the buyer, the process starts with the publication of an auction catalogue. This includes a list of houses and plots up for sale, along with their guide prices, information on the property and the terms of purchase.
It may also provide a link to a legal pack which you can access online, which will mention the elements of the title and any conditions of sale and planning information.
At the auction, the deal is finalised as soon as the hammer falls. It marks an exchange of contacts, which means the buyer should pay the deposit along with a buyer’s premium. The sale is then concluded within 28 days after the auction.
An essential factor to recognise is that a winning bid is a successful purchase, which means you have committed to buy as soon as the hammer falls. You may also make an offer to secure a property before the auction or make a bid after the auction in case the house is not sold.
Preparing for the auction
There are a few things you need to be prepared before entering the auction room. You must have a solicitor and a surveyor to get the required professional advice well before the event date.
If you are buying a plot or conversion opportunity, you may also need the advice of a planning consultant or architect to understand whether a site is suitable according to your requirements and the possibility of gaining permission.
Importantly, you should have your finances secured and be ready with the deposit in case your bid is successful.
Always keep an eye on the upcoming auctions in your area. There is a limited time frame between the publication of the catalogue and the event itself, so you cannot afford to wait. If you are new to auctions, a good idea is to attend a few auctions just to get a feel of the way the auction process operates. Reading various catalogues and legal packs are also worth the efforts so that you thoroughly understand the fine print.
Investigating the property
Once you identify a suitable property in a catalogue, arrange a viewing at the earliest. If it’s going to be a renovation or conversion project, take along a surveyor or contractor to identify structural issues, if any.
If it’s a plot of land, find out about the site’s planning permission and see its planning history.
There will be no time to secure permission for a new design before the auction, but you may get pre-application advice from the local authority.
Alternatively, assess the prospects for success by talking to a planning consultant. You should also pass the legal pack onto your solicitor and make sure they are happy with all aspects of the sale.
If the property is according to your requirements, you should have a realistic budget so that you are certain of your bid price when you go into the auction.
You should also contact your lender and discuss the potential purchase so that you have the funds available with you on time to complete the purchase within the allotted time. It should be noted at this stage that guide prices are often set low to entice buyers.
Making a bid
You will need to register in order to bid, which is done prior to the auction process or at the auction itself.
Be clear on your maximum price limit and stick to it as it is easy to be swayed away during the auction room environment. Be aware that properties are often offered at minimum reserve cost; the auctioneer may indicate when this price is reached.
If your bid is successful, you will need to sign a memorandum of sale, pay the deposit, buyer’s premium and arrange for the insurance, as you’ll be liable for the property from the moment you are contracted to purchase. You will need to notify your solicitor regarding your purchase immediately in order to complete the purchase within the stipulated time.
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