The process of buying property at auction is quite different from buying a home through an estate agent. Before you consider buying, try to attend at least a few auctions to get an idea of what the process involves. The biggest and most important difference is that buying at auction is legally binding, so you must do your homework about the property before the sale. Unlike buying through an estate agent, you cannot change your mind if you later discover something bad about the property. It is your job to find out everything that you can before the auction begins.
Here are some important suggestions.
Preparing for an Auction
Preparing to buy a property at auction requires careful planning and a bit of financial speculation. Thousands of residential properties are sold at auction every year for different reasons and many of these are hard to value properties such as churches or halls, as well as repossessions. Mortgage lenders sell repossessed properties by auction because according to the terms of the contract sales must usually be completed within four weeks of the auction date. This means that lenders can recoup their money quickly and that buyers can find properties that are being offered below market value. You should find out the reason for the sale of the property you are interested in and decide whether you want to spend time and money looking into it in more detail.
A lot of information about auction properties is available from the auctioneer’s catalogue, which is available online 2-3 weeks before the auction. The reason for the sale should be indicated here, as well as a guide price. It is worth considering more than one property at the same auction because at this stage you cannot determine whether you will be the successful bidder. Guide prices may change right up until the day of sale, properties can be sold before the auction or they can be withdrawn. Make sure that you get a copy of the auction catalogue as soon as possible and register your interest in the property with the auctioneer as soon as possible (there is usually a form to complete) to ensure that you are kept up to date with any developments.
At this stage you should also be considering your budget. When you consider a property, remember that lots often sell for more than the guide price, and that guide prices can change until the day of the auction. Be realistic about how much money you have to spend and whether the property price is right for you. With your budget in mind you should arrange your mortgage finance (if required) and obtain a ‘decision in principle’ from a mortgage lender.
The next important thing to do is to arrange to view the property or properties. You will need to contact the auctioneer to arrange to see the properties, either through an individual appointment or at an agreed time with other interested parties. At this point it might be useful to bring an experienced building contractor with you to the property who might help you to spot any potential problems in the property. This might save you paying for a survey on a property that is obviously not suitable or will require extensive renovation. Most tradesmen will view a property for a small fee.
Viewing a Property
When buying any property you should try and view it twice: once during the day and another time at night. This may not be possible with restricted viewing times, but do what you can to make sure you know as much as possible about the property, especially if you are planning to live there.
When you are viewing the property you should consider the following:
- Is the property leasehold or freehold?
- Will you have to pay additional ground rent or service charges after you move in?
- How easy is it to park, and do you have any allocated spaces?
- Is there are garden, or shared access to a garden? Where are the boundaries of the property?
- What are the neighbours like? Is it a nice area? Does it feel safe at night?
- Are the roads busy during rush hour? Is it a noisy area generally?
- Where are the nearest shops and amenities? Are there good transport links?
- Does the property have central heating? Insulation? Double-glazing?
- How old is the heating boiler? What fuel does it run on?
- Are there any obvious structural problems, such as damp, walls at odd angles etc?
- Has any building work, such as extensions been carried out recently?
- How long has the property been on the market?
- Is the property currently vacant, or are the owners/ tenants still living there?
- What is the property’s council tax band/ energy efficiency rating?
If you decide that you are still interested in the property after viewing it, and the catalogue description matches what’s on offer, now is the time to contact your solicitor and arrange for a property survey. The extent of the survey is up to you, but if the property is older than 75 years and/ or it has recently been modified, it would be best to arrange for a full survey, even though this will be costly.
At this stage you must also get the legal pack from the vendor’s solicitor and 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 that there has been planning permission for any extensions etc, and also checking whether planning permission has been granted nearby which may affect you later on.
Make sure that you have read and understood all the information provided by the catalogue and the legal pack. Ask your solicitor or surveyor if you are unsure. The sale of a property is binding, so make sure you know what you are buying in advance.
If you really want to buy the property it is possible to put in an offer via the auctioneer before the auction date. In this case it is essential to have your finances in place as you must move quickly. You should put your offer in writing to the auctioneer, who will liaise with the vendor. If the vendor accepts your offer, contracts will be exchanged immediately and you will have to pay a 10% deposit, paying the remaining 90% within 20 working days. If you haven’t paid in full by the day of the auction, the vendor may not withdraw the property and you could lose your deposit (and the property) to the highest bidder.
By the time of the auction you should have a lot of information about the property, including a valuation (if a mortgage is required). Before you go to the auction, check that the property is still available. It may have been sold beforehand or the vendor may have withdrawn it. If the sale is going ahead, you can either attend the auction in person, make bids on the telephone, bid by proxy up to a limit agreed in advance with the auctioneer, or send your solicitor or surveyor to the auction to bid for you.
Remember to stick to your budget. In the heat of the moment you could get carried away and could bid more than you can afford. Once you arrive, or in advance, complete a registration form and make sure you have brought relevant ID documents, proof of address and a cheque or banker’s draft to cover the deposit on the property.
Make sure that you know the lot number of the property you want to buy, and are familiar with all the information in the catalogue. Get a copy of the addendum sheet, which will include last minute changes to the catalogue information, including guide prices, withdrawn lots or prior sales. If you are the successful bidder, the addendum sheet forms part of the contract of sale.
The auction will generally proceed with lots in the order they are listed in the catalogue. The auctioneer will announce each lot and the lot number should be shown on a screen. Make sure you are clear which lot you are bidding for, and sit somewhere where the auctioneer can clearly see you.
Make clear movements, such as raising your hand or nodding your head to make a bid. The auctioneer may not see smaller movements, and has the final say on whether to accept bids. The bids will go up in increments and you must stop bidding if the asking price is above your budget. Whether or not you can afford it, you are legally bound to the sale once you make a successful bid. The auctioneer will offer the bid to the room twice before bringing down his gavel to indicate a sale. Once the gavel has been sounded, the sale is over.
If the property you are interested in does not meet its reserve price, you can contact the vendor after the auction and see whether you can still come to an arrangement. An advantage of auctions is that it is a level playing field and you can see who is interested and how much they are willing to pay for the property. Being willing to offer a little more for the right home might make you an attractive buyer.
If you are successful, a member of the auction house staff will approach you to complete the paperwork. The 10% deposit is due immediately, and the remaining 90% is due within 20 working days. You will be asked to provide ID and your solicitor’s contact details and you will sign the contract of sale. Your part of the contract will then be passed to your solicitor and the auctioneer will retain the vendor’s part to pass to the vendor’s solicitor. 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 try to make as certain as you can that your finances are in place before the auction.
Assuming it all goes well, you will be the proud owner of a new property much more quickly (and perhaps for less money) than when buying through an estate agent.