Auctions really came into their own in the early ’90s when lenders used them to dispose of thousands of repossessed properties, although these now comprise only a small percentage of properties sold at auction. One of the main reasons for buying a property at auction is to obtain a bargain, but you should bear in mind that many properties sold at auction are those that are difficult to sell and/or need serious renovation – the price you pay must reflect the condition and the cost of any necessary work. Others are hugely desirable mansions that sell for well above the guide price.
While buyers are seeking a bargain at auction, bear in mind that sellers are either trying to offload a problem property or bump up the price!
When buying at auction you usually need to move fast, as they’re often advertised only three to six weeks in advance and payment must be made in full within four weeks (20 working days) of a successful bid.
In addition to being a quick way to buy a home (no chains), you can also save money and there’s no possibility of being gazumped! The disadvantages include survey and legal costs, which will be wasted if you’re out-bid. You must know what you’re doing and what a property is worth, otherwise you can end up paying well over the odds.
Bear in mind that when buying a property for modernisation or renovation the costs can be astronomical!
Getting familiar with auctions
It’s advisable to attend a few auctions before bidding in order to familiarise yourself with the procedure in the UK. Before bidding at an auction, you must have the purchase contract and title (properties with title problems are often auctioned!) checked by your solicitor; obtain a valuation or survey, which may be provided by the auctioneer; and arrange a mortgage (if necessary).
British endors are usually required to provide a legal pack containing the title deeds, leases, planning permission, searches, special conditions of sale and other information. Note that the same rules apply to surveys as when buying the conventional way.
Tip: If you plan to bid on a large (over three stories), old (e.g. over 50 years of age) or unusual (thatched, timber, etc.) property, or you plan to carry out major alterations such as extending or converting a property, you should have a full structural survey.
Properties aren’t always sold with vacant possession and some are tenanted or part vacant, so ensure that you understand how a property is being offered.
When you’ve had a bid accepted at auction, the property is legally yours and you must pay a deposit of around 10 per cent (in cash or by banker’s draft) and you have just four weeks in which to pay the balance – so you must ensure that you have your finance in place before the auction.
You must also prove your identity (so take some form of ID with you) and your solicitor’s details. Bear in mind that when bidding at auction you bid unconditionally and if you’re successful your deposit is at risk if you cannot complete the purchase for any reason (you cannot back out as with a private purchase in England, Wales and N. Ireland). You should arrange buildings insurance immediately after the sale is completed.
Guide prices and reserve prices
Guide prices in the UK tend to be deliberately conservative in order to attract as many prospective buyers as possible and the actual selling price is often much higher than the guide price (over double isn’t unusual).
The guide price isn’t the same as the reserve price, which is the lowest price the seller is willing to accept. If no-one bids above the reserve price, a property will remain unsold. When bids pass the reserve price the auctioneer announces that a property is ‘on the market’ and will be sold.
If you’re among the last bidders for a property that fails to reach the reserve price, you should tell the auctioneer afterwards if you’re willing to improve your bid, as the seller may accept an offer. An auctioneer may also bid up a property (in increments of £5,000 or £1,000) to the reserve price himself, which isn’t illegal and is a common practice when bidding is slow.
You should take care not to go above the amount that you’ve decided a property is worth or what you’re willing to pay (if you go above a mortgage valuation you must fund the extra yourself) – it’s easy to get carried away when bidding! On the other hand, bear in mind that many unsuccessful bidders wish they had chanced another bid, so don’t lose a property for the sake one more bid.
Engaging a solicitor for bidding
It isn’t necessary to attend an auction in person and you can engage a solicitor to bid on your behalf (when you must provide written instructions), bid over the phone or by proxy in writing, by fax or via the internet – but you must complete a registration form and provide a cheque to cover the deposit beforehand.
It may also be possible to buy a property before an auction in the UK – when prior offers are invited the publicity may contain the words ‘unless previously sold’ – in which case a purchase contract must be signed before the auction for a property to be withdrawn.
This article is an extract from Buying, selling & letting property (UK). Click here to get a copy now.