It’s a buyer’s market at today’s property auctions. But you still need to do your due diligence before bidding.
You might not realise it from the popularity of shows such as Homes Under the Hammer, but property auctions are suffering a slowdown. In the last year, £2.7bn-worth of residential property was sold through auctions in the UK – a sizeable figure, but down almost 14% on the previous 12 months due to fears about Brexit and other economic uncertainties. That downturn means it’s very much a buyer’s market right now, says Chris Coleman-Smith, head of auctions at property company Savills. Three or four years ago, the boot was on the other foot.
Still, if you’re a potential buyer considering bidding at auction for the first time in the hope of getting a good deal, there are a few tricks to learn before bidding. If you’re attracted to auctions solely because the guide price looks like a steal, you may well be disappointed when a property sells for much more. It’s not necessarily a trick to get people along – but it is an example of why you need to understand the subtleties of the process. “The guide price should really be seen as a guide to the reserve – the lowest price the seller will accept,” says veteran auctioneer Clive Emson. “There’s a protocol among auction houses that the reserve price should be within the parameters of the guide price, or if the guide is a single figure it should be no more than 10% above it.”
In fact, while bidders are generally looking for a bargain when they venture into the auction room, there is a more compelling reason for being there. “You can go in and walk out a couple of hours later with a contract,” says Coleman-Smith. “That’s something you can’t do in an estate agent. When you buy through private treaty, the owner can change their mind a couple of months down the road and decide they don’t want to sell.”
Be ready before you bid
Of course, that speed and certainty also means that there is little margin for error. It’s very different to making a first offer through an estate agent and then getting cold feet. So you need to do your due diligence and preparation before your bid goes in. Prices are the easy part: start by looking at comparable properties that have sold close by. Sites such as Rightmove and Zoopla, as well as the Land Registry, have a time delay before sold prices are posted, but you can get more immediate data from EIG, which covers all the main auctioneers and posts their sales data within days.
There are usually viewing days before the auction when you can see a property you’ve decided to target. There will also be a legal pack containing all the key documents, such as searches and the title deeds. Studying this in detail is crucial – it could alert you to major potential problems. “I had one property I was interested in, a flat in Brixton,” says property investor Samantha Collett. “But when I examined the documents I found there was no right of way over the communal stairway, so I decided not to go ahead.”
Many properties in an auction catalogue will be there because they are difficult to sell, so make sure you’re aware of any problems. Taking a friendly builder along to look at your prospective purchase is a good idea, since they can highlight any glaring issues, such as subsidence, and how much it will cost to fix.
If your bid is successful, you will need to have a 10% deposit available that you can transfer on the spot (you should also bring two sets of ID to prove who you are, for anti-money-laundering purposes). From that point, you will typically have around four weeks until completion, when the rest of the price is due. So you should already have these funds secured before your bid – whether in the form of cash, a solid mortgage offer or a bridging loan.