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How to Buy a Property at Auction

Why Buy at Auction?

The main attraction of buying at auction is being able to irrevocably buy without having to agree a Private Treaty purchase which is then subject to protracted legalities with scope for cancellation.

There is also the possibility of finding the home of your dreams significantly cheaper than the market value.   Guide prices are  usually set to be very competitive and often cheaper than  similar properties being offered for sale by private treaty, but it’s wise to remember that a “guide price” is just that and the outcome of an auction will depend on how many bidders you are up against and how much you, or they, are prepared to pay.  It’s very easy for a bidding war to start. Also remember that most auction lots are the subject of Reserve Prices (see Glossary below).

Properties for sale in an auction can be more varied and may include unusual homes that may be harder to value, repossessed houses in need of a quick sale and properties in need of renovation work. 

Auctions are fast and decisive.  The conventional drawn out process of house buying is condensed into a matter of minutes.  It's a completely transparent process, and an open and fair competition between bidders. There's no chance that someone can sneak in and gazump you, because once the auctioneer's gavel falls, the sale is legally binding.

Before the Auction

Top Tip:  If you are new to auctions and are thinking about buying a property at auction go along sit in one beforehand and observe – bidding isn’t for the faint hearted!

You should research the property yourself in the same way as with any property purchase. Instruct your lawyer to run all the usual searches and look into anything that might affect the price or future value of the property.  Ensure that you have their reports back well in advance of the auction if you are thinking of proceeding. 

You then need to decide whether to commission a survey and whether you want a Homebuyer’s report or if you want a structural survey (Building Survey). This is something of a Catch-22 situation.  If you pay for a survey and your bid is unsuccessful you lose the money but equally if you are the winning bidder and you haven’t had a survey done you will have no idea of the size of project you are taking on and how much you are going to have to spend.

You should view the property's legal (or 'auction') pack, which carries all the information and will include the title deeds, local authority and environmental searches, fixtures-and-fittings list and a seller's information form. If it's a leasehold property, it will include a copy of the lease and details of service charges and ground rent.

It is imperative that your finances are organised as if you are the successful bidder you will need to have a 10% deposit ready for payment immediately and must be in a position to pay the remainder upon “completion” – usually within 28 days.   If you need mortgage assistance it’s wise to arrange a mortgage in principal with a bank or building society before buying at auction.  You could lose your 10% deposit if you fail to complete within the time limit (normally 28 days).  If you renege on the deal and the property is offered for sale again and reaches a lower price than when you bought it, you may even be sued for the difference.

Never bid on a property at auction without certainty of cleared funding.

Work out the maximum you are prepared to pay for the property and stick to it.   

Bear in mind you'll have lawyers' and surveyors' fees, possibly stamp duty land tax and the cost of any repair work which may be needed.  

Auction lots are sometimes subject to a Buyer’s Premium fee ( commonly 1% +VAT  of hammer price). 

Bear in mind, too, that on signing the contract you'll be responsible for insuring the property.

Once you've done all the above and everything seems satisfactory, then - and only then - are you ready to bid.

 

At the Auction

Once the hammer has fallen and if you are the successful bidder there's no looking back and you need to move fast. This is the equivalent of exchanging contracts when you buy in the conventional way (private treaty) and you'll have to pay a 10% deposit straightaway to the lawyer acting on behalf of the vendor. 

At Andrew Grant Auctions you can pay the deposit by cheque or banker’s draft.  We will also need two forms of identification from you (a utility bill, passport, photo driving licence, bank statement etc). These are to enable us to verify your identity as part of stringent anti-money laundering policies.

 

Useful Auction Terms


Actual Completion Date
The date when completion takes place or is treated as taking place for the purposes of apportionment and calculating interest.

Addendum
An amendment or addition to the conditions whether contained in a supplement to the catalogue. This may be a written notice in the catalogue, or announced at the auction.

Auction
A public sale in which property or items of merchandise are sold to the highest bidder.

Auctioneer
The person who conducts an auction. The auctioneer introduces each lot offered for sale, acknowledges bids, and announces whether lots are sold or unsold and their final bid prices.

Auction Catalogue
The catalogue gives a description of the property, details on how to view each property and the General Conditions of Sale. These are prepared by the auctioneer, stating the basis on which the auction is carried out.

Bid
The offer to buy property at a specific price.

Completion
On completion of the sale of the lot there is usually a defined time period from the auction to the completion date in which the sale must be finalised. Penalties will be applied if the sale is completed late which can include losing your deposit.

Exchanging contracts
If you are the successful bidder at the auction sale, the sale is binding on the fall of the hammer and you will then be asked to sign and exchange contracts in the auction room.

Guide price
A guide price gives an indication of the price that the property is expected to sell for and what the vendor is hoping to achieve.

Guide prices are for information only and shouldn’t be relied on as an indication of reserve price, or representing professional valuations for any purpose. Purchasers are deemed to have relied on their own knowledge or obtained the independent, professional advice of others.

In the room
A bid from someone in the room (not by phone.)

Legal pack
The vendor's solicitors prepares a legal pack containing copies of all the legal papers that you and your solicitor are likely to need to make an informed decision about your lot. The pack should include (where applicable) copies of: special conditions of sale, title deeds, leases, office copy entries, searches, replies to pre-contract enquiries.

All legal packs will be available for inspection at the auction room. You must be aware that you buy subject to all documentation and terms of contract whether or not you have read them.

Lot
Each separate property described in the catalogue or (as the case may be) the property that the seller has agreed to sell and the buyer to buy.

Previews or exhibitions
A viewing of the property held in advance of the auction. Pre-auction viewings are open to the public and may be attended at no charge.  Often with auctions these are block viewings for any interested parties.

Private treaty
The sale transaction of a property “privately” agreed between a seller and a buyer (with or with out an agent)

Proxy bid
The auctioneers can undertake bidding on behalf of buyers unable to attend the auction in person. The buyers must contact the auction house prior to the auction to obtain an official, proxy bidding form. This must then be returned to the auction house with a deposit cheque within the time specified by the auctioneers. The buyer writes the maximum amount they will bid to on the form and the auctioneers will bid on behalf of the buyer, up to, but not beyond, the stated price.

Reserve
A reserve price is the lowest price the seller will accept. This is agreed between the seller and the auctioneer. Most properties entered into the auction have a reserve price. This is confidential and not disclosed to any interested parties. And auctioneer may bid on a property on the path of the Seller up to the Reserve Price.

Telephone bid
A telephone bid, made by a member of staff from the auction house. The staff member telephones the client from the salesroom to bid on particular lots and relays the client's bids to the auctioneer during the bidding on those lots.

Tenancies
Contracts to occupy or lease the property subject to rent. A lot may be sold subject to existing tenancy agreements.

Withdrawal
Failure to reach the reserve price or insufficient bidding. The auctioneer will withdraw the property from the auction.

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