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Buying a home at a property auction is exciting and daunting at the same time, but you could make an expensive mistake if you win the bidding but don’t have your finances in order when the gavel goes down.
The bang on the desk means the winning bidder has a legal obligation to complete the purchase regardless of any problems with the property.
That’s why checking out the legal pack and conducting a structural survey before the auction is essential.
Homes under the hammer can come with headaches, but many property professionals take on the risk to buy, refurbish and flip or buy to hold as a rental or holiday let.
Thousands of properties are auctioned every year. The market is split between homes and commercial premises.
The residential market comprises houses, flats, and a few odd properties for conversion, like former churches, pubs and banks. However, most need significant modernisation beyond a lick of paint and new carpets.
Some are not mortgageable because they are built of non-standard materials, like concrete.
Others have structural problems, like subsidence cracks or fire damage.
Homes are in an auction because they are difficult to sell, or the owner wants a quick sale and is ready to take less than market value.
Like all property searches, the place to start is an online portal like Rightmove or Zoopla.
Many auctions are carried out with online bidding.
The properties' catalogue is published two or three weeks before the auction. However, many auctioneers are releasing the details as they take them on due to the popularity of internet sales.
Buyers will find the auction guide price in the catalogue.
The guide price hints at the minimum price the seller is likely to accept at auction - and the price can change up or down several times before the sale day.
Don’t forget the guide price is not necessarily the final sale price. The auctioneer and seller will likely agree on a reserve before the auction. The reserve is the seller’s red line as the least they will accept for a property. Sometimes, the seller grants the auctioneer discretion to accept a bid within 10 per cent of the reserve.
The guide price is not a valuation, so buyers should put their price on a property.
It’s good business to know how much you want to bid, how much you must spend to refurb the property and the expected value when the work ends. Don’t forget to factor in legal costs, auction costs and working capital to pay any loan and other bills you may have to pay until you sell or move tenants in.
It’s a good idea to arrange an early viewing, so you have time to go back to the property or arrange for a builder or surveyor to take a look. View during daylight and go back to the neighbourhood at night to look at parking, noise or any nuisances.
The legal pack will list any special sale conditions, like a shorter completion period, searches and other documents needed for completion. If you are unfamiliar with conveyancing, ask a solicitor to look over the pack.
Check for any buyer or seller’s premium - these are fees plus VAT added to the hammer price by the auction house or seller.
Bidders need to register with the auctioneer. In the saleroom, the auctioneer will only take bids from buyers with a numbered paddle - a card held up to show you are a registered buyer.
Remember to pick up an addendum sheet highlighting changes to the catalogue, withdrawn lots and variations in the guide or reserve prices.
If you bid, make sure the auctioneer can see you and make clear signals with your head or hand. Do not bid unintentionally or go over your limit. Homes are like buses, you may wait a while, but another will come along, so bid within your limits and don’t get carried away.
If you are the winning bidder, you must pay a 10 per cent deposit when the hammer goes down, and the rest usually is due within 20 days.
Should your funding fall through so you cannot complete the purchase; you will lose your 10 per cent deposit and any fees you have paid.
A buyer usually has 28 days from the hammer to complete a deal. A few purchases are conditional and run along with a different timescale.
Unless you are a cash buyer, you must have a loan agreed in principle before the sale. It would be best if you also had confirmation the money will be available in time for completion.
If the loan has retention - money held back until work reaches a particular stage, like fitting a kitchen or a bathroom is finished - you need cash to cover the shortfall.
Forget high street banks and building societies. If you don’t have a special relationship or line of credit, they will be unwilling to help fund your project.
Buyers can make an offer for a property before the auction or if the reserve is not met at the sale.
About one in ten properties are sold this way.
Winning bidders are responsible for insuring the building straight away.
The Essential Information Group analyses data from every UK auction.
The latest figures for the quarter February to April 2022 show:
According to the Office for National Statistics, auctioned homes sold for an average of £198,378, compared with the average UK home price of £278,000.