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Buying at Auction (Survival Books)

Buying at auction is increasingly popular and the number and variety of properties (from terraced houses to country mansions) sold at auction is over 30,000 a year. Apparently December is one of the best times to buy at auction, as most people are busy spending their money and time on Christmas. Auctions really came into their own in the early ’90s when lenders used them to dispose of thousands of repossessed properties, although these now comprise only a small percentage of properties sold at auction. One of the main reasons for buying a property at auction is to obtain a bargain, but you should bear in mind that many properties sold at auction are those that are difficult to sell and/or need serious renovation – the price you pay must reflect the condition and the cost of any necessary work. Others are hugely desirable mansions that sell for well above the guide price.

While buyers are seeking a bargain at auction, bear in mind that sellers are either trying to offload a problem property or bump up the price!

When buying at auction you usually need to move fast, as they’re often advertised only three to six weeks in advance and payment must be made in full within four weeks (20 working days) of a successful bid. In addition to being a quick way to buy a home (no chains), you can also save money and there’s no possibility of being gazumped! The disadvantages include survey and legal costs, which will be wasted if you’re out-bid. You must know what you’re doing and what a property is worth, otherwise you can end up paying well over the odds.

Bear in mind that when buying a property for modernisation or renovation the costs can be astronomical.

It’s advisable to attend a few auctions before bidding in order to familiarise yourself with the procedure. Before bidding at an auction, you must have the purchase contract and title (properties with title problems are often auctioned!) checked by your solicitor; obtain a valuation or survey, which may be provided by the auctioneer; and arrange a mortgage (if necessary). Vendors are usually required to provide a legal pack containing the title deeds, leases, planning permission, searches, special conditions of sale and other information.

Note that the same rules apply to surveys as when buying the conventional way.

Properties aren’t always sold with vacant possession and some are tenanted or part vacant, so ensure that you understand how a property is being offered.

When you’ve had a bid accepted at auction, the property is legally yours and you must pay a deposit of around 10 per cent (in cash or by banker’s draft) and you have just four weeks in which to pay the balance – so you must ensure that you have your finance in place before the auction. You must also prove your identity (so take some form of ID with you) and your solicitor’s details. Bear in mind that when bidding at auction you bid unconditionally and if you’re successful your deposit is at risk if you cannot complete the purchase for any reason (you cannot back out as with a private purchase in England, Wales and N. Ireland). You should arrange buildings insurance immediately after the sale is completed.

Guide prices tend to be deliberately conservative in order to attract as many prospective buyers as possible and the actual selling price is often much higher than the guide price (over double isn’t unusual).

The guide price isn’t the same as the reserve price, which is the lowest price the seller is willing to accept. If no-one bids above the reserve price, a property will remain unsold. When bids pass the reserve price the auctioneer announces that a property is ‘on the market’ and will be sold.

If you’re among the last bidders for a property that fails to reach the reserve price, you should tell the auctioneer afterwards if you’re willing to improve your bid, as the seller may accept an offer. An auctioneer may also bid up a property (in increments of £5,000 or £1,000) to the reserve price himself, which isn’t illegal and is a common practice when bidding is slow.

You should take care not to go above the amount that you’ve decided a property is worth or what you’re willing to pay (if you go above a mortgage valuation you must fund the extra yourself) – it’s easy to get carried away when bidding! On the other hand, bear in mind that many unsuccessful bidders wish they had chanced another bid, so don’t lose a property for the sake one more bid.

It isn’t necessary to attend an auction in person and you can engage a solicitor to bid on your behalf (when you must provide written instructions), bid over the phone or by proxy in writing, by fax or via the internet – but you must complete a registration form and provide a cheque to cover the deposit beforehand. It may also be possible to buy a property before an auction – when prior offers are invited the publicity may contain the words ‘unless previously sold’ – in which case a purchase contract must be signed before the auction for a property to be withdrawn. If you plan to bid for a property you should register your interest before the auction so that you can be informed if it’s sold beforehand. The auctioneer’s fee is usually the same as when buying from an estate agent (e.g. 2.5 per cent), but may vary depending on the value of the property and in some cases may be subject to negotiation.

Information about auctions is available from the Royal Institute of Chartered Surveyors (020-7235 2282, www.rics.org/property_auctions) and many websites, including Property Auctions.com (www.propertyauctions.com), UK Auction List (www.ukauctionlist.com), UK Property Auctions Guide (www.uk-property-auctions-guide.co.uk), Auction Property for Sale (www.auctionpropertyforsale.co.uk) and the Essential Information Group (www.eigroup.co.uk). Number One 4 Property (01772-621909, www.numberone4property.co.uk/Auctions/auction_home.htm) provides a subscription Investment Property Database Service (IPDS) for a period of one or three months or one year. You can also visit auctioneers’ websites such as Allsop & Co. (020-7494 3686, www.allsop.co.uk), the UK’s largest property auctioneer, which provide online catalogues and details of individual homes for sale. Auctioneers also publish catalogues which are sent to prospective buyers. A good book for anyone planning to buy property at auction is Buying Bargains at Property Auctions by Howard R. Gooddie (Law Pack Publishing).

© Survival Books Limited 2005

“Buying, Selling & Letting Property” 2nd Edition, David Hampshire.
Reproduced with the permission of Survival Books Limited.

Further information on this topic can be found in “Buying, Selling & Letting Property” 2nd edition, by David Hampshire.

For extensive, annually updated information about buying, selling and letting property, you can purchase this book at www.survivalbooks.net

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