Buying property at auction can be exciting and that can be driven by some very attractive pricing. And while there are some pre-Brexit jitters in the property market, with auctions it is business as usual.
However, buying at auction is not entirely without risk. It’s important to fully prepare in advance.
Using the services of an experienced property buying agent should help you to mitigate some of the risks associated with auctions and improve your chances of a satisfactory outcome.
Why buy a property at auction?
It’s a fact that many people experience an adrenaline rush when they are bidding for something at a public auction. That’s a great feeling but ultimately, it’s not why you are there.
You should see the advantages of buying property at auction as coming under some of the following headings:
- speed – property auctions are real-time events. After you bid, you will usually know immediately whether you have been successful or not. It avoids potentially on-going lengthy discussions and negotiations with the vendor;
- attractive pricing – there may be exceptions but typically, the hammer prices at an auction may be more attractive than the final prices agreed through direct negotiation with the vendor;
- choice – you may see property types in auctions that are rarely found in conventional property advertising. There might also be several possibilities at a single auction;
- visibility and a level playing field – by typically being able to see or hear exactly who you are bidding against, rather than needing to deal with several possibly intangible intermediaries in a conventional purchase.
It’s an option well worth considering.
Do your homework before the auction
Perhaps the most significant risk at a property auction is that of simply getting carried away. Remember, the auctioneer has only one objective – to ensure that they achieve the highest possible price.
They’re not there to protect your interests or to ensure that you get a good deal. They will be very happy to see bidding wars developing between individuals in the room, as judgement can be lost and that means higher prices for their client – the vendor.
One way to help avoid becoming subsumed by the, at times, frantic atmosphere of an auction is to have thoroughly done your homework in advance. That means you should never go to this sort of venue without being clear on the parameters of your bid.
That includes things such as:
- select an auctioneer that is registered and therefore covered by appropriate guarantees in terms of handling your finances;
- have all appropriate survey and price guide information to hand, to give you the maximum sensible figure you should bid;
- if you’re confident in the maximum price you would be prepared to pay for the property, do not exceed it in the heat of the moment when bidding;
- be sure you understand the characteristics of the property in the context of your future plans. For example, if you’re planning to convert or extend it, you should be clear that you will be likely to obtain the appropriate planning or a change of use permission;
- carefully review all of the surrounding areas of your property. The estimated price of a property should always take into account its location and those areas surrounding it, as these will have a significant positive or negative impact on your projected future valuations;
- if your future ideas include significant building work, it’s important that you understand the cost and timescales of that and how they might affect your occupation or income generation plans;
- get legal advice on the documents relating to the property which should have been provided to you in advance by the auctioneer. Sometimes there are things such as covenants and similar legal paperwork. They may cause you headaches and cost after purchase if you didn’t know they existed;
- make certain you read very carefully in advance, the auctioneer’s terms and conditions. If the hammer falls and you are the winning bidder, you will instantly be bound by those same terms. Therefore, you should be clear what they mean and above all, that you can comply with them if you are successful;
- auctions often have a guide price for the property, which you can see. They may also have a reserve price, the value that the auctioneer will not sell below, and that is typically invisible to bidders;
Keep in mind that the guide price may be optimistic in an effort to push up bidding. That’s why having your own view of the property’s value is imperative. Do not be misled into thinking that the auctioneer’s guide price is in any sense an objective valuation;
- you should be 100% clear that your finances are already confirmed and subject to final approval, in place (see below).
Unless you are extremely experienced in this domain, it is often highly advisable to obtain the assistance of a property buying agent in preparing for an auction. In some cases, they may be able to represent you on the day as a proxy, if you are unable to attend yourself.
Make sure you have finances in place
Going to a property auction and bidding without being sure of the financial position would be unethical and might also involve you in a potentially significant cost.
Precisely what you will need to do to prepare your finances in advance will vary depending on your own financial position and your sources of funds.
There are though some generalities you should be aware of:
- read the auctioneer’s exact terms but normally you will be expected to pay 10% of the price immediately after the gavel falls;
- you will usually then have up to 28 days to settle the balance – note though, that is only 20 working days;
- it’s therefore imperative that you have a mortgage offer, in principle, agreed with your funds provider before attending the auction;
- should your provisional offer not materialise after winning a property, you may be able to secure bridging finance from other sources. That though may only be intended for short durations, as it can be expensive if continued into medium and longer terms;
- your deposit may be at risk if you are subsequently unable to raise the balance;
- you will normally need to register for the sale on the day. Typically, you will be asked to produce two forms of proof of identity (check what the auctioneer will accept) and if you’re there as a proxy for another buyer, you will need evidence of legal authorisation to act on their behalf;
- when registering, you may be asked for evidence as to how you will pay the deposit if you are successful;
- auctioneers will typically accept banker’s drafts, irrevocable bank cheques, instantaneous e-bank transfers or a bank debit card. As a general rule, credit cards, personal cheques and cash may be refused.
Individual auctioneers may have different policies here, so they should be thoroughly investigated well in advance of the auction day itself.
Property auctions can be a fantastic source of attractively priced properties, providing you have conducted due diligence in advance to reduce your risks, something our property finders regularly assist our clients with.
At Garrington, we have extensive experience of acting as a property buying agent for clients interested in purchasing at auctions. If you believe our services could be of use please contact us today to discuss your plans.