Buying a property at auction
Going, going, gone!
When the auctioneers hammer falls how would you feel? Ecstatic, qualified elation, or immediate regret? Buying at auction is not for the faint hearted but with a bit of luck and an experienced eye it can be profitable when you know what you're doing.
All that glistens is not always gold
Let the buyer beware! What if the property being auctioned suffers from subsidence, has hidden maintenance issues, or is built on contaminated land?
Many properties coming under the hammer are repossessions whose only history is the sorry personal tale of the previous owner. According to the Council of Mortgage Lenders there were 14,000 repossessions in the first six months of 2007 with a growing percentage coming from failed Buy-to-Let investments.
Golden rules for avoiding failure
There are clear advantages from buying property at auction but the greatest mystery usually surrounds the question of what to bid. This question can usually be answered by doing your homework and preparing for the auction day itself.
Buying property at auction
The advantages of buying at auction are mainly financial. On the whole they will normally achieve a lower bid price than selling through the open market. But before First Time Buyers start getting excited there is a cautionary note: the initial up-front investment is very large, or alternatively, by their very nature properties are in need of refurbishment.
However, in the bidding process you know exactly what you are paying. This transparency is unlike the setting of a closing date when the offer price of your rivals is entirely unknown.
Contact your ESPC Solicitor and your mortgage lender
Speak to the auctioneer who will arrange a viewing. Assuming interest, you need to be aware of the following steps:
- Get an immediate valuation arranged
- Contact your mortgage lender making them aware this property is to be bought at auction
- Organise a full survey rather than a valuation
- Contact your ESPC Solicitor who will do some of the conveyancing work prior to bid
- After standard local authority and Land Registry searches you now have sufficient information to make an educated bid
With no chains to break you may feel the only decision to be made is what to bid. As with anything the best way to ensure success is through preparation. This too can be expensive if your bid fails but not as expensive as living with the consequences of a wrong decision.
What to bid at a property auction
Indications are provided via the Guide price
When you've decided buying property at auction is for you the Auctioneer will send you a catalogue of forthcoming properties. Catalogues will usually display a photograph, floor plans, type of tenure and a guide price which is an estimate of the eventual selling price. The reserve (or lowest selling price) will often be set much lower and agreed between the vendor and auctioneer. This, unlike the guide price, is confidential and will not be disclosed.
Be prepared to be disappointed as many listed properties never come under the hammer with private deals having been negotiated prior to the big day. But what works against you can also work for you. Use the system!
Learn from the experience of others
'Man of faint heart never won fair maiden,' or so the saying goes. But if you don't feel comfortable with bidding you may wish to consider who to take with you. It adds to costs but your ESPC Solicitor will be able to help. With his market knowledge and your own attitude towards risk, together, set the upper limit for any bid.
Some 'experts' recommend standing at the back of the hall so you can assess the strength of the competition and perhaps even evaluate their bidding strategy. The Auctioneer will propose the increments which can be in sums of £1,000 or £5,000, but you retain the right to bid at a lesser or greater amount should this suit.
When bids are hard to come by the Auctioneer may take a bid 'off the wall' which is his attempt to achieve the seller's asking price. In this case no-one in the hall has actually made a bid and it is your job as potential buyer to spot the application of brinkmanship.
When the reserve price has been met the Auctioneer usually declares 'the property is on the market'. Don't get carried away. The golden rule buy low, sell high still applies.
Auction Day - Buy low, sell high
Your research should now work for you:
- Register your interest at the beginning of the auction and where applicable pick up your placard displaying your number.
- Monitor events and learn from the previous bidding wars
- Decide: should you declare early? Wait until the reserve price is reached? Or join the game at the end?
Once the reserve price is reached there is no turning back - legally the sale must go through. But if it fails to reach reserve all is not lost. The property will be withdrawn leaving all disappointed, but you can still make a direct approach to the seller and negotiate a deal.
In contrast, if yours is the largest offer and you hear the words "going once, going twice, going three times," you're home.
What happens when you win the bid?
The sale must go through and the vendors cannot withdraw. Give the auctioneer's clerk your details, proof of identity and a 10% deposit. This can be by cash or bankers draft after which you sign the auction memorandum and a contract will then be provided by the vendor.
The balance will then have to be paid within 28 days so contact your ESPC Solicitor who will then take care of your needs.
Have you got experience of buying property at auction?
If you have experience of buying property at auction we would like to hear from you. Contact the ESPC and we may share your thoughts on this website.
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