Buying property at auction is not right for everyone. Make sure property auctions are the best fit for you before you start down this road. Understand your reasons to buy at auction and make sure you know what you are taking on.
Buying a property at auction can be both exciting and financially beneficial. You will avoid the lengthy purchasing procedures that are normally unavoidable when purchasing a property by private treaty. It also means that there is no risk of everything falling through at the last minute – at an auction, as soon as the hammer falls the property is legally yours. This, therefore, means that you must be fully prepared and ensure you do sufficient research before attempting to purchase.
Whether you are looking for your dream home, to find a suitable property for the rental market or to buy a property with renovation potential to sell for a profit, it is likely that you will be able to find a variety of potential bargains through the large number of property auctions that are held in the UK.
Our useful guide to Buying at Auction will help you to prepare for your potential purchase, by providing information on the step-by-step process.
ESTABLISHING YOUR BUDGET
In order to buy at auction, you are required to provide 10% of the purchase price upfront once your bid has been accepted. When establishing your budget it is important that you ensure that these funds will be available when necessary.
The remainder of the funds will need to be available at the stipulated completion date, typically 20 – 30 days after the auction.
If you are purchasing the property using a mortgage, you should not bid at an auction if you have not yet received a mortgage offer. When approaching mortgage lenders it is vital you let them know you intend to buy at an auction, and it is advisable to obtain an Agreement in Principle before you start your property research.
Although a property may have a guide price this does not necessarily mean it will sell at that price as the reserve set by the vendor is invariably higher, with the guide price being set low to conjure up interest. As a rule of thumb expect properties to sell for between ten and thirty percent above their guide price, although sometimes a property will sell for over double its guide. Make sure you calculate your budget based on realistic figures, rather than using the guide price in the auction catalogue.
FINDING THE RIGHT PROPERTY
As with all property purchases, buying at auction starts with identifying the geographic area that you wish to look in. With property auctions being held all over the country, you can widen your search as much as you want in order to find the right property.
To find all the latest property auction action use this site www.PropertyAuctionAction.co.uk to locate the auction houses, auction dates and browse the auction catalogs. The catalogs give some brief details of each property along with photos and a guide price.
If you are planning to purchase a property to live in yourself, then you must obviously take your requirements for size into consideration.
If you are intending to rent the property out, then you must consider the market you wish to attract. Do some research on the type of rental properties available in the area to get an idea of which type of property would work best within your budget. This will help you to streamline your search.
If you wish to purchase a property for renovation purposes then you need to consider the potential options that each property presents. There may be various options to split the property into multiple properties that could increase the potential profit.
Property Type – Freehold/Leasehold
When you purchase a house you will normally be buying the freehold. This means you own the land and property outright.
Practically all flats in the UK are sold on a leasehold basis, whether house conversions, new build flats, or purpose-built blocks. Leasehold means that you own the property for a set number of years, as specified in the lease – this can be anything between a few years to 999 years. Bear in mind that if a lease is for a short term i.e. around or less than 40 years then you may have trouble getting a mortgage on the property. The flat can still be bought and sold within that period. The actual owner of the whole building and the land it stands upon is the person or company who owns the freehold although sometimes the setup can be slightly more complex with a “Head Lease Holder” who owns the land and then the owner of the building below that. Ordinarily, you will be required to pay the Freeholder a Ground Rent, which is effectively a rent for the land that your property is on. This can be a nominal figure (known as peppercorn rent) or an annual charge, the amount depending on the location and size of the property.
When a flat is a leasehold there will be a management company that is responsible for maintaining the structure and common areas. There will be a charge payable annually by the management company for this service. Often, the leaseholders are represented on the board of the management committee for the building thus making sure the leaseholder’s views and interests are aired to the management company. The management company will create an annual service charge budget, based on previous expenditure and predicted costs. They will also build a reserve fund to cover any exceptional maintenance that needs to be carried out. It is quite common now for the management function to be outsourced on behalf of the freeholder and leaseholders to a company that specializes in managing leasehold buildings.
Once you have found a possible property, it is always worth carrying out some initial simple checks that will mean you have a better idea of whether the property really is suitable before incurring any serious costs.
Check the purchase prices that have been paid on similar properties in that area with one of the websites listing the property transaction information such as www.zoopla.co.uk or www.ourproperty.co.uk.
View current asking prices using one of the online estate agencies like www.rightmove.co.uk which allows you to view properties for sale in the area.
Get a guide on the demographics of the area using a website like www.checkmyarea.com or www.upmystreet.co.uk. It can also be useful to keying the postcode in with quotes into www.google.co.uk or the street and town name as this can throw up information about the area. Many council websites now have search facilities allowing current and previous planning applications to be viewed online.
For a small fee, you can obtain a copy of the title register and plan for the property in England and Wales from the Land Registry at www.landregistry.gov.uk usually showing the price paid for the property as well.
Sometimes if a property fails to meet its reserve it may be put up for auction again with the same or different auction house. Check if the property is being auctioned the second time around and find out from the first auction house what the reserve was. This will help you to see if the figures you have budgeted for are realistic.
Having performed some initial investigation you will then need to visit the property and check out the surrounding area. At this stage, you may want to take a surveyor along with you. It is always advisable to appoint a surveyor at some stage before the auction, especially for older properties. They are qualified to advise on any structural issues that may cause future problems or that could inhibit any renovation plans you may have.
Most auction properties have a timetable set up by the auction house for viewing the property. This is normally published online. Phone the auction house in order to register your interest in the property and also take this opportunity to ask them for some more details about the property e.g. current condition, neighborhood, etc, and how much interest has been shown in the property so far. Sometimes it will be down to a local estate agent to organize the viewings and again the same type of questions can be asked of the agent as listed above. Agents are normally a good source of information regarding the property and area and most are usually only too willing to discuss these matters with you. If you are buying to renovate or develop and then sell on then agents can also give you an idea of the potential resale value.
APPOINTING A SOLICITOR
If you feel at this stage that the property is definitely suitable, then you need to get a solicitor or conveyancing agent involved to perform the legal checks and searches upon the property. Although this will involve significant costs you will need to appoint a solicitor to begin the conveyancing procedure at some stage should you be serious about bidding for the property at auction.
The vendor’s solicitors prepare a legal pack containing (where applicable) Seller’s Information Packs, Energy Performance Certificates, special conditions of sale, title deeds, leases, office copy Land Registry entries, searches, and replies to pre-contract inquiries. Contact the auction house and request a copy of the legal pack – these documents should be passed to your legal adviser. They will help you make an informed decision about the lot. Remember that you buy subject to all documentation and the terms of the contract whether or not you have read them.
You are now able to use all the information you have accumulated up to now to evaluate the maximum price you are prepared to pay for the lot on the day of the auction. At this point, you are free to make a pre-auction bid. To do this contact the auction house and inform them of the lot and the amount you are prepared to pay pre-auction. The auction house and vendor will then have to evaluate whether this bid is worth taking now or whether to risk losing your offer and let the property find a better value in the saleroom. Should this fail, then you will not waste time attending the auction without success.
Once you are sure that you wish to bid on the property, you must prepare to attend the auction.
Before you set off to the auction phone the auction house to make sure the auction is still taking place at the published venue and time and that the lot you are interested in has not been withdrawn.
If you are successful in bidding for your lot then you will need to put down a deposit of ten percent. The deposit is usually paid for by cheque and cannot be paid for in cash or by credit card. You must take along two items for proof of identities such as a passport and utility bill. It is essential that you have all plans in place and all relevant paperwork so that you can complete the transaction.
Make sure you arrive at the auction at least half an hour before the auction starts. This will give you time to register, if necessary, and to check any last-minute special conditions relating to your lot. You may be given a card with a number on it so that if you are the successful bidder for a lot you will be easily identifiable.
Familiarise yourself with the auction room and find a place where you have a good vision of all the other bidders so you can get an idea of who is bidding against you.
If you are unable to attend the auction you can bid by telephone. The auction house will telephone you when the lot is being auctioned, by proxy in writing (you specify your maximum bid, and the auctioneer bids on your behalf) or online. In each case, you will need to register with the auction house, provide photocopies of all identification documents and a cheque to cover your deposit and buyer’s fee prior to the date of the auction.
BIDDING FOR YOUR LOT
When the auction starts the auctioneer will direct you to a copy of the general conditions of sale for the auction. They will not actually read them out so you should be familiar with them before the auction. The auctioneer will briefly explain the bidding process and then the auction will begin. The auctioneer will give a very brief description of the lot and then ask for the bidding to start.
Be aware the auctioneer may take bids “off the wall” which is where the auctioneer or someone in the room is bidding on behalf of the vendor, in order to get the bid price up to the reserve level. Once the reserve level is met, it is illegal for any party to continue raising the bids on behalf of the vendor.
When the auctioneer announces your lot it is time for you to go into action. Make sure you bid clearly so that the auctioneer registers your bid.
The bidding process is quite organized with the auctioneer only ever registering the bids of two people until one drops out and then they look for another bidder. You may not even get to bid if the current bidders go above your ceiling.
Quite often the auctioneer will open the bidding with one person making a bid and then no other bids until the auctioneer has announced the property will be sold on the third and final asking. At this point just as the hammer is about to come down someone makes a bid and the bidding war starts.
Keep in mind the ceiling price that you calculated before the auction and stop bidding when the price gets to your limit. Do not get carried away with the emotion of the auction room and start bidding above the limit you set yourself before the auction.
If you are successful in your bid for your desired lot then you may be asked to hold up the card with the number given to you when you registered for the auction and a member of the auction house staff will come to find you. There will be some forms to fill in and the deposit to be paid plus a fee to the auction house that is usually about two-hundred-and-fifty pounds. The balance of the money will be required to be paid by you within twenty-eight days although sometimes you may have to complete it within fourteen days if stipulated by the vendor. Make sure your solicitor is aware that time is of the essence and that you need to complete it quickly.
If the bids for a property are not accepted because they do not reach a level close enough to the reserve price that has been set for the property then the lot will be withdrawn from the auction. (sometimes left to the auctioneer’s discretion at the instruction of the seller). If you are still interested in the property then see the auctioneer after the auction. There may be a deal to be done with the vendor.