Buying property at auction can be a thrilling way to acquire your next home or a future investment, but you need to know what you’re doing before you set foot on the auction room floor. It’s true that property auctions can slash buying times and save you thousands, but they are not without risk and many a buyer has been burnt by jumping in without doing their homework first.
So, what do you have to look out for when buying a property at auction? Here’s our buyer’s guide to help you navigate the shark-infested waters of UK property auction houses!
Why buy property at auction?
As we’ve already touched upon, property auctions can be a great place to find cut price homes and they can also lessen the amount of time it takes for you to take ownership of the bricks and mortar you are buying. Not only that, once the gavel hits the block the property is yours, so there’s no chance of the purchase falling through at the last minute.
Many property auctions will also offer up more unusual properties within their listings, and they could prove to have heaps of potential providing they fit your needs. While all this sounds great, however, auctions aren’t for everyone...
Will buying a property at auction suit you?
This is a question only you can answer, and it’s an important one to get right. Buying property at auction is an exhilarating affair, but that’s one good reason why many should steer clear of auction rooms at all costs.
If you are prone to getting caught up in the heat of the moment or have a poor track record when it comes to restraint, do not entertain the notion of buying property at auction. Auction rooms are no longer the preserve of experts, but they can still catch the novice out...especially if you’re overly enamoured with a particular listing!
You also need to have a far reserve of funds behind you if you want to be successful. Yes, you can find a bargain property at auction, but you will need to stump up your 10% deposit and the administration fee on the spot if the hammer falls on your bid. You’ll then need to pay the remaining balance within 28 days, so having adequate funds (or proof that you can get the money required) is essential.
Losing out on a property can prove to be expensive, too. If you are outbid, you will lose the money you’ve already spent on surveys and research into whether or not the property is worth bidding on in the first place. It’s not unheard of for property to be withdrawn from auction at the eleventh hour either, which could again leave you out of pocket for the same reasons.
Buying property at auction risks
Along with the potential for losing out on a property and the associated costs that go along with it, there are other risks to consider when buying property at auction. There is an argument that most of these can be mitigated by carrying out thorough research and doing your due diligence, but horror stories do exist. Read Colin Todd’s story for a fine example.
Many landlords (those who the general public think fill auction rooms) avoid buying property at auction because they believe that sellers use the method to offload problem properties to unsuspecting buyers, and there’s an element of truth to that theory. Trying to cut corners, therefore, simply isn’t an option when buying a property this way. You absolutely must do all that you can to lessen the risk of being lumbered with a ‘lemon’.
Then there’s the aforementioned ‘heat of the moment’ syndrome to worry about. Countless buyers have gone to auction chanting the mantra, ‘I will not overbid’, only to get caught up in proceedings where they end up paying over the odds. It takes a special kind of person to be able to walk away once your maximum bid has been beaten - especially when you’ve spent good money researching the property prior to sale. If you’re in doubt of your ability to stick to your guns, stay away from auctions altogether.
Finally, there’s financing. Many believe that a standard mortgage will suffice for an auction property they can ‘do up’, but that often isn’t the case. Remember that you have only 28 days to stump up the entire cost of your purchase, so be 100% certain that you have the required means before you enter into a bidding war over a property. Failure to pay the remaining 90% means you’ll lose the 10% you’ve already put down. For more on this, see ‘Get your finances in order’ below.
How to find auction properties
Finding auction properties is easier now than it has ever been before thanks to the Internet. There are several ways you can go about it:
- Search Rightmove and filter properties by ‘auction’
- Google terms such as ‘property auctions in [your local area]’
- Check out sites like UK Auction List or Essential Information Group
- Sign up for local auction houses’ property catalogues
Homework to do before a property auction
So, you’ve read all of the above and decided to try your hand at buying auction property, what do you do next? Good question! Here are a few pointers to help you along the way:
Visit auctions before you buy
DO NOT BUY AT YOUR FIRST AUCTION. This is probably one of the biggest mistakes you can make, so take heed. Visit a number of auctions before you consider buying a property, or even bidding on one.
Visiting half-a-dozen auctions will give you a good feel for how they work and who operates within them. Check out the competition and keep an eye on what prices the properties on offer are fetching. You’ll likely be surprised by the discrepancy between the guide price and the sale price!
Do your research
Once you’ve got a handle on how things work at property auctions, you may feel confident enough to start bidding...but there’s still a little way to go yet. There’s more to it than simply turning up and waving a paddle about!
Make sure you have all the available information about the property, or properties, you’re interested in before auction day and be sure to go and view them first. Don’t be lazy here, your time will be well spent. Scour the legal pack associated with the property (this should be supplied by the auction house) to check for any special conditions such as any major works in the offing, outstanding bills against the property, or additional costs you may incur when buying that particular pile of bricks.
If you are in any doubt whatsoever over what you are reading, consult a solicitor. Yes, it is an additional expense, but you are better off looking at it as an investment rather than a cost. Missing something at this stage could lose you thousands further down the line, so pull the money up now for a reputable solicitor who has a history with auction property transactions. Doing so will leave you in far better shape than if you don’t.
Another thing you should seriously consider is a survey. While it’s another heap of money you’ll lose if you don’t get the property, buying a home that has severe structural issues will cost you a whole lot more. Therefore, it’s worth employing a reputable surveyor before you decide to bid. See our guide to choosing a decent surveyor for more details.
Finally, it’s important to remember that auction properties are often in a state of disrepair, hence their reputation for being bargains, so having a friendly builder on your side can be a huge plus. If you can, take the builder with you to view the property and get their expert opinion on what it will cost to get it up to scratch. Without that knowledge it will be hard to accurately assess what you should be setting as a maximum bid, which brings us to...
Get your finances in order
Contrary to popular belief, you don’t have to have cash on the hip to buy property at auction. You do, however, need a broker who has knowledge of the auctioneering process and is willing to work closely with you throughout the deal.
Remember, too, that you’ll need 10% of the sale price on the day, so make sure you have access to that as well. Failing to pay the remaining 90% within 28 days of the sale will see you lose that 10%, so make sure your broker gets you a mortgage in principle before you start bidding. In some instances, you may even be liable for the resale costs and any discrepancy between what you bid and the resale value. It’s also not unheard of for sellers to charge those who renege on a deal daily interest as well, so making sure you have the money in place is vital.
How to handle auction day
Auction day is where your prior preparation comes to fruition, but you can still blow all that hard work if you don’t pay close attention to what’s happening in the room...and in your own head! Here’s what to bear in mind to make things run smoothly:
Have everything you need ready to go before you head to the auction house. Make sure you have at least two forms of identification (one of which should be your passport or driver’s licence), proof that you have the necessary funds to pay the deposit, and your plan for the day ahead, including your all-important maximum bids!
Leave lots of time
Rushing to the auction house will not put you in the right frame of mind. You want to be as relaxed as possible, so leave ample time to get there - early is better than late, after all.
If you’re there with time to spare, go and grab a coffee before you head in, but don’t leave it too late as you’ll want to choose a spot in the room where you feel at ease. Make sure the auctioneer can see you clearly, too.
Stick to the plan
If you heed nothing else, please follow this rule: stick to the plan you made before auction day. Numerous buyers before you have gotten carried away during auctions - don’t be another statistic. Stay within your maximum bids and back out as soon as they pass by. There will always be another auction. There will always be another property. Be firm with yourself on this.
What to do if property auctions aren’t for you
Auctions can be a fantastic way to buy property cheaply if you’re confident in your ability to perform due diligence and stick to a plan, but that isn’t everyone. Some will panic at the very thought of buying a home in such a way, while others may think they can handle it only to be swayed against the idea once they experience an auction room firsthand. Whichever category you fall into, don’t be dismayed...you can still do well in the property market without auctions.
Seek out the best estate agent in the area you wish to buy and set up a meeting with them. Explain in detail what you’re looking to achieve and emphasise your willingness to work closely with them in order to reach your goal and you’ll be pleasantly surprised by their response. Local estate agents are there to help and, if you choose correctly, it could be the most important relationship you forge - either as an investor or homebuyer.
If you are interested in purchasing property in or around Buckhurst Hill or Wanstead, get in touch with our director, John Wagstaff, to find out more about how Petty Son and Prestwich can turn your property dreams into reality. Our family run business has been helping others achieve just that for well over a century, and we’d be delighted to welcome you into our circle whenever you’re ready to take the next step.