Buying a property at auction isn’t for the fainthearted but if you have cash in the bank, it can mean you scoop a real bargain. With house prices rocketing by more than 10 per cent a year on average, getting value for your money is increasingly difficult.
Estate agents report multiple offers being made on a single property within days of it going on the market, leading to bidding wars that drive up the asking price and inevitably leave scores of would be buyers disappointed. Tony Jamieson at Guildford-based estate agency Clarke Gammon says the housing market is still suffering due to lack of stock.
“We have an extensive list of buyers wanting to buy, so when a property comes onto the market there are often multiple offers,” he says. “But vendors are not prepared to move unless they can find [a place they want]so sometimes it has become a vicious circle and prices are still rising.”
While in Scotland accepting an offer is binding, even after an offer is accepted in England and Wales there’s still a risk that you’ll be gazumped, leaving you with money wasted on legal and valuation fees.
Sellers pulling out some way into the transaction is common, with recent research from Market Financial Solutions claiming one in three people who have bought a property in the past 10 years had been gazumped at least once. Property chains where the purchase of one property relies on the sale of another can cause long delays before contracts are exchanged, exacerbating the likelihood of entire chains collapsing if just one link breaks.
Buying at auction removes a lot of these problems. You show up, bid, and if successful you hand over your 10 per cent deposit and you’re the legal owner of the property then and there. Buying and selling your homes at auction has become increasingly popular, with the pandemic stamp duty holiday putting a clock on getting the deal done.
It was already seeing a surge of interest even before Covid struck. Figures from the Essential Information Group showed a 20 per cent uplift in the number of auction sales, with total value up almost 30 per cent.
There are risks to consider however and if you’re relying on the sale of your existing home to fund the purchase of your next one, you may struggle to buy at auction. But if you have your 10 per cent cash in hand and a mortgage offer approved, it could just be the easiest route to homeownership. Here is everything you need to know.
Finding a property
Tracking down a home you want to buy at auction isn’t a case of loading up Rightmove or Zoopla, you’ll need to register with Essential Information Group which lists almost all properties for auction along with details of whether it has been to auction before and similar properties in the area.
Estate agency trade body Propertymark advises anyone wishing to buy at auction deciding on the area they’re interested in and then contacting local property auction houses.
“They will be able to advise you on any upcoming auctions and add you to a mailing list so that you receive the latest auction catalogues,” says a spokesperson.
Before you bid
There are several steps you must take before walking into the auction house and starting to bid. Matt Bartle, director of mortgages and savings at Leeds Building Society, says: “Always get a survey done ahead of the auction. This will highlight whether there are any major faults with the property.
“The lender will also need a survey if you are successful, so a useful tip is to check with your lender which surveyor they will use thereby cutting costs. Get your solicitor to check through the property information before the auction to make sure there are no hidden legal clauses you may not be aware of.”
Having your own solicitor contracted and up to speed is vital if you want your mortgage to go through without hitch. Ms Johnston says: “Make sure you and your solicitor are entirely satisfied with all the legal aspects of the purchase before bidding. Legal packs will be made available prior to the auction and you should make sure your solicitor has time to study this document prior to the auction.”
Propertymark also makes it clear that you’ll need to do your homework to ensure the property you’ve got your eye on is worth making a bid for.
“Once you have spotted a property or two that you like, contact the auction house to arrange a viewing. Make sure to thoroughly inspect it and its surrounding neighborhood. Consider taking a builder or handyman with you to find out what you may need to do to the property, and how much it is likely to cost. And if you have any queries, don’t be afraid to ask the auctioneer.”
Rachel Johnston of Stacks Property Search adds: “Arrange a survey of the property you are considering prior to the auction. It may be a fee that turns out to be lost if you don’t buy the property, but it’s really vital that you are made aware of any structural issues that could have a big impact on the price you’re prepared to pay.”
Having a valid mortgage offer is also essential unless you’re buying with cash and it will need to be in place to release funds within, typically, a four-week window after the day of the auction. Depending on the condition of the home you’re bidding on, your choice of mortgage lender might be restricted. Most mainstream and high street banks and building societies will lend only on properties which are habitable immediately.
“That means having a functioning bathroom, kitchen, plumbing and heating,” says a spokesperson at Knight Frank Finance. There are some short-term finance or “bridging” options where specialist lenders are less worried about this, but they’re expensive and the interest you’ll pay could wipe out your equity if your old home takes a long time to sell.
The spokesperson warns: “Securing finance at auctions can be a complex feat. A mortgage adviser has a specialist knowledge of the auction process and can offer advice according to your situation.”
How does the auction work?
You can attend auctions in person but it’s also possible to take part online. Before the auction starts, check the “addendum” to the original auction catalog which is typically produced on the day. This contains all additional information and any changes to the property you want to bid on and it could affect whether you still want to bid.
Properties are listed with a guide price, which is where the bids start from but there is also a reserve price below which the vendor won’t sell. That figure isn’t disclosed but, according to Propertymark, it can be as much as 10 per cent higher than the guide price.
Every auction house will have slightly different rules if you want to bid, covering things such as proof of identity and proof of funds. Before you show up on the day, ensure you’ve followed their guidelines to a T. Once the sale begins, the auctioneer will announce each property and you can get ready to make your move.
Buying at auction is a gamble because you have no idea if you are going to leave the room successful. But Ms Johnston says there are some ways to maximize your chance of the final offer being yours when the gavel falls.
“If you are in the room, sit where you can see what’s going on and who you are bidding against,” she advises. “If the bidding is fairly slow, don’t show your interest too early.”
She adds: “Make sure that the bids work out so that it is you who is bidding when the price reaches your upper limit; this requires a certain amount of mental agility during the bidding process itself.”
If submitting bids online, she warns that having a stable and reliable connection can be the difference between success and failure.
“Decide in advance the maximum price you are prepared to pay, and don’t be caught up in the moment and go above this figure,” Ms Johnston says.
“Work out your finances in advance of the auction so you are absolutely sure you will be able to realize your upper limit if you are successful and DON’T get carried away and exceed the limit you have set yourself.
“The thing to remember when considering buying at auction is that when the hammer falls, you have entered into a binding contract to buy the property. You will be expected to produce 10 per cent of the price immediately and there will be a fixed completion date, stated on the auction particulars and confirmed by the auctioneer, generally in a month’s time.”
Why buy at auction?
David Sandeman, managing director of property auction specialists Essential Information Group, says speed and certainty is what drives most people to buy and sell at auction.
He says: “Sometimes purchasers are lucky and get the property at below market value. They can avoid getting in a chain situation and the fact that many properties coming to market are unmodernised is also a benefit to a lot of people as they can improve them how they want.”
Rachel Johnston says buying a property at auction is a good way of assessing the level of competition.
She says: “If you hate the feeling you may have paid over the odds, knowing that you have paid only one bid more than the competition can be comforting. The most hardened bargain hunter can prefer to lose at the auction itself, as if the property fails to sell at auction, a deal can often be secured immediately afterwards and the necessary paperwork signed there and then.”
There are downsides however.
“You could spend a lot of time and money on due diligence researching the property, only for someone to outbid you on the day,” says Mr Sandeman. “It’s therefore imperative that you understand that the guide price quoted is only an indication of where the reserve price is set and not what the auctioneers necessarily think the property will go for.”
James Emson, managing director at Clive Emson Auctioneers, says: “Although there are many things to consider, it’s a chance to have fun and it really doesn’t need to be complicated. If you do your homework, familiarize yourself with the lot you want, the terms and conditions and are clear with your bids, you’re in with a great chance of success and finding a bargain.”
What happens if your bid is successful?
If you’re successful in buying the property, then you will have a lot of work to do after the auction. Leeds Building Society’s Matt Bartle says: “You will need to hand over the deposit immediately and you will need to finalize the mortgage details with your lender as well as completing the legal work.”
Usually auction houses will give you between two and six weeks to pay the remaining balance, giving your lender and solicitor time to carry out their final checks.
“But once that is done,” says Mr Bartle. “The house is yours and you can crack open the champagne.”
The buyer: ‘It really was nail-biting stuff’
Jane Hawkes bought a cottage with her partner in Gloucestershire for £307,000 following an auction
Not all properties put up for auction receive bids high enough to reach the reserve price. In some cases it’s possible to register your interest before the sale with the auctioneer and then secure a sale privately immediately after the sale.
Jane Hawkes and her partner bought a cottage in Gloucestershire for £307,000 following an auction in 2007.
“We took part in the auction remotely by telephone as we lived in Surrey at the time,” she tells i.
“We didn’t actually secure the property at the auction but as the property didn’t meet its reserve price, the agents came back to us and our offer accepted instead.
“Even so, it really was nail-biting stuff, especially because we’d lost out on another property locally just a few weeks earlier in sealed bids. It was really stressful at the time but fortunately things turned out well.”