Buying at auction can be a good way of acquiring a property quickly and cheaply. However, it can also be a complex process with a number of potential pitfalls, so there are certain things you need to keep in mind before you raise your paddle.
You can find houses that will be put up for auction through property search websites such as Rightmove and Zoopla – enter the criteria for the type of house you’re looking for, then narrow the selection results down to those selling at auction. You can also sign up to receive brochures from auction houses, such as Savills and Allsop, to give you notice of what is coming up.
Just as you wouldn’t buy a house through an estate agent without seeing it first, make sure you leave enough time to view properties that take your interest. When you’ve narrowed your options down, consider getting a survey of any you want to bid on, to get an idea of how much work they will require: many houses sold at auction need a lot of updating. Also send the property’s details to your conveyancer, and ask them to carry out the usual searches, enquiries and title checks. These steps might seem a waste of money given that your bid may not be successful, but they can save you from making a very expensive mistake.
If you have time (there is usually only two to four weeks between the publication of auction catalogues and the auction), make a second visit to help form an idea of how much you are willing to pay. Before you get carried away, add about 10% to the guide price given by the auction house, says Archna Luthra of consumer website MoneySavingExpert.com.
“It’s easy to get excited about a property when the advertised price is so low… Remember the listed price is a guide price only and it’s likely it will go for more.” When budgeting, you should also take into account any fees that you will have to pay at the auction house – you’re likely to be charged an administration fee of up to £1,000. Don’t forget to factor in the cost of stamp duty as well.
Once you’ve decided that you’re happy to make a bid on the property, make sure you have the finances in place. You will need a 10% deposit ready on the auction day and access to the remaining 90% of the price to transfer within a defined period – usually 20 working days. If you’re planning to use a mortgage to pay the rest of the balance, it’s a good idea to have an agreement in principle sorted beforehand (this is a statement from a lender agreeing to lend you a certain amount of money). Check with the mortgage company whether they also require a full valuation of the house beforehand.
On the day of the auction, go in with your upper limit, and stick to it, no matter how much potential you think the house has. It’s worth watching another auction beforehand, just to get an idea of how the process works. You can even watch auctions online, such as on the website of auction house EI Group, to save you having to attend one in person. Another good way to ensure that you stick with an upper limit is to bid remotely, therefore removing some of the temptation to up your offer. This can be done via the internet, over the phone, or by sending a proxy bidder (somebody with instructions to bid on your behalf).
Alternatively, check with the auction house whether the seller will accept an advance offer. Allsop sells as many as 5% to 10% of its properties prior to auction, says Gary Murphy, head of residential auctions at the firm. The appeal of this option for sellers is understandable, as they have a guaranteed sale without the uncertainty of an auction. But keep in mind that if your offer is not accepted, the auctioneer will have an idea of how much you’re willing to pay on the day. Finally, remember that once the gavel goes down, you’ve entered into a legally binding contract. If you back out, you’ll have to pay the deposit and certain costs.