Purchasing a property at auction can seem daunting, but by arming yourself with the right tools and advice, it can be a cost effective way of getting your foot on the property ladder or extending your property portfolio.
Our highly experienced team has helped many clients through the legalities of purchasing property at auctions across the country, and, using our expertise, we have put together a guide to make your next bid at a property auction a successful one.
View the property
Auction houses usually release a catalogue of the properties, or ‘lots’, being sold at their next auction at least three weeks before the auction date. Register your interest in the properties that interest you to be kept abreast of any changes in status, such as withdrawal or early sale. Most auction houses will let you do this via their website, which makes the process quick and easy. It is essential that you arrange a viewing of a property before bidding, and it is also advisable to take a building surveyor along with you when you view a property to identify potential structural issues on-site.
Check the average area cost
To find a bargain at auction, you need to know the true cost of a property and set a maximum limit to the amount you wish to pay. There are many online resources that you can use to assess the average value of a property. Resources such as zoopla.co.uk, mouseprice.com, rightmove.co.uk and upmystreet.co.uk can all provide the values of property recently sold in the area in which you are looking.
It is also advisable to obtain an independent valuation of the property if you are seriously considering bidding at auction. This may be obligatory pre-auction if you intend to obtain mortgage finance to purchase the property at auction.
Arrange your finance
In general you need to ensure that you have the following in place before the day of the auction:
- A 10% deposit will be required on the date of the auction to secure the property you have successfully bid on.
- The funds available to pay a building surveyor and any other fees such as solicitors, surveyor and auction administration fees.
- Completion on a successful bid is usually within 28 days of the date of the auction, so it is important to ensure that the full purchase price (less the deposit paid at auction) will be available within this timeframe. If you are unable to complete within the timeframe set out in the auction contract, then you may lose the 10% deposit you have put down to secure the property at the auction.
Instruct a conveyancer to check the legal pack
Prior to the date of the auction, the seller will provide (via the auctioneer) an auction legal pack which should contain the following information:
- Office copy entries & plan for the property.
- Special conditions of sale, including details of whether the property is sold vacant or let, when completion will take place and any additional costs for which the buyer will be responsible.
- Local authority search.
- An energy performance certificate (EPC)
- Leases and tenancy agreements if applicable.
The pack may also contain other searches including an environmental search, drainage & water search or coal mining search, depending on the area. Please be aware that it is standard practice for the buyer to be responsible for the costs of the searches if you are successful in your bid at auction.
We cannot stress how important it is to have the auction pack checked by a legal advisor prior to the auction. Although auctions are a great place to find a bargain, they also attract properties that may be unmortgageable, or leave you with significant costs following completion. Some examples of this are properties with inadequate tenancy agreements, properties where the tenant has ceased paying rent, properties that have missing title deeds or documents, or properties affected by outstanding enforcement notices. By instructing a legal advisor to check the auction pack prior to the date of the auction, any issues can be brought to your attention and you can decide whether to proceed on this basis or carry out further investigations/negotiations with the seller.
Once you have successfully bid at the auction, you are affectively tied in to the purchase of the property and risk losing your 10% deposit if you decide to withdraw.
If all goes to plan and you are successful with your bid you will need to give the auction house certain information and documentation. Check with the auction house exactly what is required, but you will certainly need identification, a cheque book or debit card, your solicitor’s details and details of each individual who is purchasing the property. Bear in mind that some sellers’ solicitors may require each purchaser to be present at the auction to sign the contract.
Bidding at auction can be more complicated than it sounds. You can pick up tips and good practice through experience, but if you stick to the following rules you should end up with the result which is in your best interests:
- Don’t bid first, and if nobody makes a bid speak to the auctioneer privately afterwards to see if a deal (often favourable) can be struck.
- Do be disciplined and stick to your limits. Set a maximum figure before you enter the auction and don’t go over it. It’s easy to get carried away in auctions and end up losing money.
- Do attend an auction fully prepared. Brush up on terminology which is used regularly in auction houses. You can find a full list of terms here.
- Don’t sit at the front of an auction. This may restrict your view of rival bidders.
- Do visit an auction first. It is good idea to familiarise yourself with the auction process by attending an auction before you are ready to bid. It may help you to feel more comfortable when it comes to bidding
- Do make sure you sit somewhere you can be easily seen by the auctioneer.
- Do dictate the pace. If the auctioneer is increasing the bids by too large a margin for your liking, don’t be afraid to shout out a lower price.
After a successful bid
If you have followed our tips above and have been successful in your bid on a property at auction – congratulations! You will now need to sign the contract with the seller’s solicitors at the auction, at which point contracts will officially have been ‘exchanged’. This means that you are now legally bound to buy the property. You will also have to pay 10% deposit, usually via cheque or debit card (cash isn’t accepted).
You will also receive a copy of the auction pack together with a copy of the contract signed by the seller which will set out the legal completion date (usually 28 days after the auction), so it is vitally important that you take your auction pack to your conveyancing solicitor as soon as possible to avoid any delays in the process.
Completing the purchase
After you have signed the contract and presented the auction pack to your conveyancing solicitor, you will then need to prepare the final balance of funds to send to your solicitor in time for completion. If you wish to have any other checks carried out on the property, such as gas or electrical tests, you can also use this time, providing the seller allows you to access to the property for the same. On the completion date set out in the contract (or by earlier mutual agreement with your seller) you will complete the purchase of the property and be able to collect the keys from the auctioneer.