A guide to buying a property at auction
Guest post by Estate Agents Michael Anthony
In recent years, the boom in PropTech has revolutionised the property industry, shaking up the old ways of buying and selling property and forcing estate agents and other market participants to rethink their entire approach to their business.
Any estate agent who chooses to ignore PropTech - and the associated advances in technology that are shaping the industry - faces the very real risk of being left behind.
In order to fight back against the giant property portals and DIY property marketing channels that have sprung up over the past few years, many estate agents are seeking new ways to find buyers, market their properties and make the whole selling process move more quickly and efficiently.
One initiative that is becoming increasingly popular is for estate agents to partner with auction houses in order to bring a large volume of properties to the general public, which would otherwise only be offered to private investors. Estate agents such as Michael Anthony and Network Auctions have successfully built this kind of relationship, holding regular property auctions to offer a wide range of properties for sale.
If you’re considering buying a property at auction for the first time, our tips should help explain what to expect from the auction process and help you to make a sound financial decision about an auction property, whilst avoiding common pitfalls and expensive mistakes.
- Familiarize yourself with an auction house
Like any kind of auction, a property auction can be an exciting environment, with anxious buyers sitting side by side hoping to secure a bargain. It can also be quite an intimidating experience for the uninitiated, who may feel out of their depth if they don’t understand the process clearly. It’s hard to remain calm and detached when you’re bidding for your dream property and buyers can often find themselves going beyond the budget they set as they get caught up in the excitement of bidding.
It’s worthwhile attending one or two auctions in advance, with no intention of bidding, in order to get a feel for how the process works. Find out how the bidding process works, watch the prices rise and make sure you know what price increments are used. Simply observing other people buying at auction will go a long way to preparing you for when you’re ready to place your own bids.
- Inspect the property
Obtain a copy of the auction catalogue as early as possible and assess the properties that will be going under the hammer at the next sale. If you find a property that meets your requirements, arrange with the auction house or estate agent to view it well before the auction date. This will typically be either an accompanied viewing or a scheduled open day. The catalogue listing should provide an overview of the condition of the property, but do check it over carefully when you view it. If possible, take a surveyor or a builder with you when you view the property to give you an informal, but professional, opinion on any work that would need to be completed.
- Know the true market value
Guide prices at auctions are generally set quite low, so it’s important to do some research to fully understand the likely selling price and to set your budget accordingly. Look at similar properties in the same neighbourhood and research the area thoroughly to ensure you are making a sound investment. Prices of previously sold properties can quickly and easily be found online.
It’s particularly important to have a good idea of the market value that the property would have once any renovations or repair works have been completed, along with the likely costs of those renovations. With these figures in mind, you can establish a realistic limit for your bidding and avoid paying over the odds on the day of the auction.
- Seek legal advice
Before each auction, a legal pack is prepared for each property by the auctioneers. Obtain a copy of this for any property you are interested in and have your solicitor look at it prior to the auction. The pack will include details of whether the property is leasehold or freehold, the length of any lease, whether the property has any planning permissions attached to it and whether there are any pending developments nearby that could have an impact on the property.
It’s critical to organise your finances before bidding at a property auction. Auction purchases move much more quickly than standard property transactions and buyers are required to pay a 10% deposit immediately after the auction, with completion typically taking place within 28 days. It’s vital therefore that if you are financing a purchase with a mortgage, that you have already obtained a mortgage in principle offer on your chosen property and that your lender is aware that you are buying at auction.
- At the auction
To succeed at a property auction, it’s important to set a fixed price that you’re willing to pay and ensure you stick to it. Always bear in mind that auctioneer’s fees or commission will be added to the hammer price and make sure that you know what these are before the auction starts. It may be worth having to hand a sheet of paper setting out a range of hammer prices and their equivalent final purchase prices, so you can see at a glance what the actual price will be. Be prepared to walk away from any auction if the price goes above your maximum and remember that there will always be another auction and another perfect property for you.
In the past, selling at auction has been seen a way for owners or investors to offload questionable or unsellable properties, but things are very different now. Properties are sold at auction for a wide variety of reasons, not least of which is the speed and convenience offered by the auction process. Auctions offer buyers a chance to purchase properties at great prices, often at below market value. From first time buyers to those looking for an investment property, buying at auction has many advantages over traditional purchasing channels. With some prior research and a calm approach on the day, it could be the ideal route to finding your new property.
The Property Voice Insight from Richard Brown
Some really good and practical tips provided by Lewis Koch from the estate agency, Michael Anthony.
In support of some or even to expand a little I would add the following:
- Whilst I agree that auction is a growing channel to sell properties, still a large number of properties sold at auction have some kind of problem: structural (e.g. unmortgageable, subsidence, knotweed, etc.) or legal (e.g. enforcement orders, title issues, non-approved works, etc.). It is therefore our job to uncover these 'problems' and then correctly pricing them into our maximum bid.
- Following on from the above, it is therefore essential to inspect the property and also the legal pack, remembering that often the final version of the legal pack may only be published very close to the auction date itself!
- Pre and post-auction buying opportunities often offer a decent chance to bag a bargain, especially an unsold lot with the extra motivation of elapsed time without selling being involved. However, don't let this prevent you from making the full and complete checks on the property...perhaps it didn't sell for a reason!
- Finance is much trickier with an auction property and so a conventional mortgage is unlikely to meet the timing deadlines involved to complete. Remember that if you fail to complete, you will lose your deposit as a minimum.. therefore cash and bridging / auction finance is therefore the safest method of funding the auction purchase.
- Finally, remember that we all have a caveman or cavewoman inside of us, so don't get carried away trying to 'win' the auction...it is not a game show 😉
There are also now alternatives to a conventional auction, such as sale by modern method of auction, where an estate agent conducts an auction on a property, so the idea of a deadline, concentrated bidding process is certainly a growing method of buying and selling property for us to deal with...better get used to the idea then!