An auction is a great way to get a property below market value and avoid the usually lengthy homebuying process.
The great thing about auctions is that you can see all of the bids that have been put in, and once a sale has been agreed, you cannot be out-bidded/ gazumped by anyone.
We have written a brief guide on the process of buying at auction and what yo need to consider.
1. Browse the auction catalogue.
The catalogue is often released 2-3 weeks ahead of the actual auction date. The earlier you browse the catalogue the earlier you can go and view the properties and ensure it meets your needs.
2. Read the legal documents and identify a conveyancer
The particulars should contain all of the key information, however, you may need to request a separate legal pack to get the full picture.
The legal pack highlights:
- Title deeds
- Local and environmental searches
- Fixtures-and-fittings list
- Any hidden covenants or loopholes
You may also want your conveyancer to review the legal pack for you in case of any hidden covenants or loopholes. Don’t forget you will only have 28 days to exchange contracts if you win the bid, therefore; the earlier your conveyancer has sight of the legal pack the better.
3. Do your due diligence
Before investing in a property you should carry out some research to get a better understanding of the properties economical potential and any risks associated with investing in the property.
You can review the selling and sold prices of similar properties on the market and compare them to the guide price of the property you are interested in. Due diligence should also be carried out on the potential rental income, future regeneration in the area and the condition of the property. All of the above will help inform the maximum bid you will enter.
4. View the property
You should arrange viewings with the estate agent. Ensure you view the property with any necessary specialists e.g. builders, architects, surveyors etc before attending the auction. This will allow you to identify any potential problems and work that needs to be carried out and will inform your calculations especially if buying to refurbish then sell/remortgage.
NB. A lot of auction properties can come with hidden issues so it is critical to use experts as early on in the process as possible especially if you are not an experienced investor.
5. Register to bid
When registering to bid you will likely need the following:
- Details of all parties who will be bidding on/buying/paying the deposit on a property
- Certified ID documents for all parties
- Details of the solicitor who will be acting on your behalf
6. Get your finances in order
Get a mortgage in principle before attending an auction. This will allow you to set a limit on your bids and will also allow you to move quickly if you win the auction. Once you win an auction you will have to put down a 10% (non refundable) deposit straight away. You normally have 28 days (20 working days) to exchange contracts once you have won the auction.
You can also get a bridging loan when buying at auction. Property investors tend to use bridging loans in the short term to secure the purchase of an auction property (and sometimes the cost of renovations) while they organise a mortgage. NB. Bridging rates are often quoted monthly and the rates tend to be between 0.75% – 1.5%. E.g. if you took out a bridging loan for £200,000 this would cost £2000 a month at a rate of 1%. Annual rates can be more than 10%, compared to 3%-5% on standard mortgages.
7. Attend the auction and bid
This may be done online or in person. Ensure you have a limit that you’re sticking to. This should stop you getting into a bidding war with someone and stop you bidding more than the property is worth. You’ll also need two forms of identification and proof of your 10% deposit.
8. Instruct your conveyancers and get your mortgage ready.
Once you have won a bid you will generally have 30 days to complete the purchase. You will need to instruct your conveyancers to complete the necessary legal work and you will need to ensure funds are released on time.
Some extra tips
Be prepared to act fast
Whilst it is important to take your time considering any property, there is usually only four weeks between the publication of the auction catalogue and the auction, so you will have to act fast.
Where can I find auctions?
- Spicer McCol
- Auction house London
Whilst it is not a legal requirement to carry out a survey ; it’s something worth considering. A survey can help you avoid expensive surprises/costs after your purchase; such as hidden damp, or unexpected rewiring and give you peace of mind regarding things you may have noticed e.g. cracks in walls or mould. A survey that identifies major issues will also help you decide the maximum bid you are willing to enter or whether you even want to bid at all.
Guide price and reserve price
The guide price is exactly what it says; it’s just a guide! It is very rare for a property to be sold at the guide price.The reserve price is the minimum price that the seller is willing to accept.
NB. The reserve price is not disclosed to bidders and is often at least 10% higher than the guide price.
NB. Sometimes, the auctioneer may have permission to sell the property privately if the reserve price is not met.
The deposit is non refundable. Therefore, you need to ensure that you’re 100% sure you want to purchase the property. As soon as you win an auction you will be legally bound by the terms and conditions of the sale.
As soon as you’re selected as the winning bidder the property becomes your responsibility. Therefore, it is wise to take out building insurance once you have won the auction.
Do not base your calculations of the guide price as it is unlikely that it will sell for that amount. Also ensure you consider what your future plans for the property are. If you’re renovating, you will need to consider how long it will take to renovate (you will still have to be paying the mortgage during this period) and you will also need to consider if you will be able to remortgage and release equity when the renovation is completed.
Get familiar with the bidding process
Every auction house will have different rules and regulations. Take time to read up on their terms and conditions and familiarise yourself with what needs to be done in order to submit a bid.
*This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published.