Buying property at auction can be a highly exhilarating experience. More importantly, it might also be one potential route for obtaining a highly cost-attractive purchase and perhaps even a genuine bargain.
However, it can also be a trap for the unwary and result in misery if commonplace mistakes are made. So, whether you are buying investment property or a property you plan to use for your own residential purposes at auction, it’s important to be in the know before entering a bid.
In what follows, we will outline our top five tips for buying investment property at auction.
Learn how the auction will work
There is a set of rules and disciplines that are used by experienced auctioneers and their buyers. It absolutely imperative that you understand how the public auction you are planning to attend will work and specifically:
- what criteria you may be asked to meet as a potential bidder. Some auctioneers may have strict pre-bidding authorisation processes which you will need to complete before being permitted to make bids. Just turning up on the day as a stranger and expecting to participate might result in disappointment;
- the immediate financial implications of winning your bid. Very broadly speaking, that might typically involve you needing to find up to 10% of your winning bid immediately and then the balance sometime within 15-25 days later.
So, ask the auctioneer in advance for advice about the exact mechanics of the auction, so that you are not caught out by surprise.
It’s far from unknown for successful winning bidders to discover, to their intense embarrassment and potentially financial cost, that they are unable to meet the financial commitments implicit in their winning bid.
Whatever your funding arrangements are, it’s important that you are 100% clear about them well in advance of attending the auction and making your bids.
- if you are seeking funding to support your purchase, make sure that it has been approved, in principle, in advance. Of course, absolute final approval will be dependent upon you winning and the paperwork being filled out for the exact property but you should be clear beforehand that there will not be any blockages or delays in the funds provider coming up with the cash;
- make certain you understand all the additional charges that might apply. For example VAT and stamp duty (e.g. including the additional 3% stamp duty surcharge you may be liable for);
- as touched on above, you should have immediate access to a figure of around 10% of the maximum amount you might wish to bid.
Analyse your target property
It is imperative that you have thoroughly researched the property well in advance and understand the maximum value it will be worth to you. A pre-auction inspection should be considered mandatory as well as surveyor’s reports for serious contenders.
If there are any problems or issues with it, you should know what they are in advance rather than discover them once you have made a purchase. Remember that the maximum amount you bid should be based upon hard facts and valuations.
Stick to your budget
Just in case there is any doubt, keep in mind that the auctioneer is not your friend, advisor or an unbiased party. They are there to persuade you to pay the highest figure possible for the property concerned.
As a result, one of the biggest dangers of any form of public auction is getting carried away and becoming sucked into what is termed a “bidding war” with other parties.
Be clear that many auctioneers are extremely eager for that to happen and the result will be pushing the price up to perhaps unrealistically high levels.
Once you have done your research and objectively reached a view of the value of the property to you, use that as the foundation stone of any bidding you engage in.
That can sometimes be done by setting yourself two figures:
- a realistic sum you would ideally hope to secure the property for, based upon an objective evaluation:
- an absolute maximum figure that you might be prepared to pay if competition for the property is high.
Do not allow yourself to be unintentionally drawn into a “win at all costs” mindset which will likely result in you paying more than your pre-set maximum.
Attend a property auction in advance as a learning experience
If this is something you have the time to do, it’s a good idea, especially if you have never attended one before.
These aren’t particularly intimidating environments but on the day where your particular target properties up for sale, you won’t want to be distracted by the novelty of it all.
A few other tips in this area might be useful:
- watch how people are indicating their bids to the auctioneer. They normally make very clear gestures though properties have been lost because a bid was missed by the auctioneer. So, wave a paddle or paper and don’t be inhibited about calling out to get their attention;
- most professional bidders will stand at the back of the room so that they can watch what is going on with the other bidders who are seated and people around them. This gives them and potentially you, the opportunity to see who you are up against. As a private buyer, you may typically be able to outspend professionals looking for a fast high-yield return and turnaround.
In the case of prestige properties with high values, it might be highly advisable to take someone with you who is experienced at property auctions or to ask them to bid on your behalf if you must be absent.
Experienced property finders may be able to offer this type of service to you.
Buying property at auction
Many simply don’t know about the properties which change hands via auction as they do not include the auction houses in their property search. Properties being sold via auction are not often listed on the property portals.
As property finders we search the entire market thoroughly and can provide our expert advice and guidance when considering a property being sold at auction. To learn more about our ‘whole of market approach’ please, contact us.