Yahoo Finance How to buy a property at auction
Despite the turbulent conditions felt by thousands of mortgage borrowers, 2023 was a good year for property auctions.
Last year saw a 16.6pc increase in the number of property auction lots brought to sale in the UK compared to 2022, and a 13pc increase in the number sold successfully under the gavel, according to figures from EIG property auctions.
Jeremy Lamb, director of auctions at Savills, said auctions’ rising popularity is set to continue.
“And it is quite a good time at the moment to buy something at auction because there is less competition than at more boom times for the market,” he said.
“If they reduce interest rates in the second half of this year then you may see more competition.”
There are outdated views of buying property this way, Mr Lamb added – that properties up for sale at auction are damaged or trickier than those on the private market – but that is no longer necessarily the case.
So, could buying property at auction be the route to buying your dream home? Telegraph Money takes you through what you need to know:
Who can buy a property at auction?
Anyone can buy a property at auction, as long as you have the money to do so. Some buyers prefer it as a route to ownership as it usually takes less time than private sales via an estate agent, and the process offers more certainty throughout.
Unlike buying through an estate agent, once you win a sale there is a timeframe within which the deal completes – and that is it. There is no room for further negotiation of an offer price, and you cannot be “gazumped” by a seller accepting a higher bid from a third party.
Richard Waton, head of auctions at Knight Frank said: “Buying at auction, it is nice to know you are paying the right price and you are buying it on a level playing field. There is no uncertainty and I think that’s really nice for buyers. Either you buy what you can afford on the day or someone has more money and outbids you.
“I have seen on the main market lots of properties going on offer and then falling through a couple of times.”
What is the auction process and how does it work?
The process of buying an auction property should start way before making your bids; it requires a fair amount of organisation.
The first step to buying via auction is to scope out upcoming events, and look through the catalogues of properties due to be sold. Once you have found one you are interested in you can get in touch with the team responsible for the listing and arrange a viewing of the property, the same as you would for a house being advertised with an estate agency. They should also be able to set out important information.
“Speak to the auctioneer and they will be knowledgeable, know the vendor and be able to set out the key steps that need to be taken,” said Mr Waton.
A sale via auction is final from the acceptance of the winning bid, so it is really important you are confident that you know as much as possible about the property you are bidding ahead of time; if you later find something about it you don’t like, there’ll be no option to back out of the purchase.
Savills recommends getting a solicitor to look through the property legal pack, usually available to download via an online listing. It is also advisable to get a survey done on the property so you have a more complete picture of the state of the property and can bid accordingly. This can often be arranged through the auctioneer.
Can you get a mortgage to buy at auction?
One of the misconceptions about buying property at auction is that you have to be a cash buyer, says Richard Worrall, president of NAVA Propertymark.
Many people buy at auction using a mortgage – it is just a question of getting your financing arranged in time, as high street lenders may struggle to approve a loan within the usual six-week window for completions.
“Getting your financing organised is the biggest challenge,” said Mr Lamb. “Regular high street lending sometimes isn’t quite quick enough.”
Mr Worrall said a bridging loan is a popular way to solve this problem – this is a short-term loan used to cover the purchase of the property while you wait for the full mortgage to come through.
This is supported by Chris Sykes, of broker Private Finance. He said: “For auction you generally can’t buy via a mortgage, you can try (and we’ve had some success) but it is generally only advised to move forward if you have the ability to bridge the purchase or have cash to complete it where possible as a backup.
“As the timescales are 28 days for completion it is generally too tight to complete on a mortgage; some lenders wouldn’t even offer in that time.”
Mr Worrall warns borrowers to remember that a mortgage in principle applies to you personally, based on your finances, not a specific property. It means a mortgage lender will likely do their own valuation on the property to be sure they are happy to loan you the full amount.
“You need to get your surveyor into the property and get the mortgage offer on the property before the auction,” added Mr Lamb. “It is more involved than an estate agent and more work to do up front, so you need to be quite organised.”
What happens during the auction?
Ahead of auction day you need to make sure you have registered to bid and have done all of your homework on the property, said James Emson, managing director of Clive Emson Auctioneers.
Arrive at the auction promptly, and if you think you will need longer to complete a purchase then let the auctioneer know before the bidding starts. If you win the auction there may be an option to extend the timeline, but only if you let the team know beforehand, warned Mr Emson.
It’s also important to make sure you have a clear budget in mind of what you can afford to spend, as well as being clear on the difference between a guide price and reserve price. Bidding will usually start at the guide price, but the reserve is the minimum the seller is prepared to accept. The sale price often goes well above both of these.
Reserve prices can be up to 10pc higher than the guide price, according to Propertymark, so don’t get caught out.
When you’re making bids, ensure they are clear and that the auctioneer has acknowledged them. If you can’t be in the room yourself then find someone who can represent you on the day, such as a lawyer.
Some auctions also accept phone or proxy bids, but you will likely need to sort some paperwork and money ahead of time if you want to use this method.
Once you have a winning bid accepted you’ll sign the contract then and there, and will be asked to pay a 10pc deposit straight away, so you need to have the funds available. From the moment the gavel falls you are bound by the terms and conditions of the sale, meaning you are also liable for the insurance on the property.
From there, you typically have between 14 and 28 days to get all of the financing in place and complete the sale. Backing out of the purchase after winning a bid could be incredibly costly and, unlike private market sales, you cannot negotiate the price at any point.
However, if you are unsuccessful, don’t be tempted to bid on another property without doing the research.
“If they don’t get the property they are after, don’t sit there and think ‘that one is cheaper’. They won’t have done any homework on it, it is great for the auctioneer but maybe not for the buyer. I have seen it happen before,” said Mr Emson.
Are all auctions done in the same way?
There are two main types of property auction: traditional and modern.
With a traditional auction you buy a property in the way described above, paying a 10pc deposit on the day of the auction and then usually completing the sale within a month.
Modern auctions take a slightly different approach. With a modern auction, you bid for a property in the same way but when the gavel goes down instead of paying a deposit you pay a reservation fee – usually around 3.5pc of the purchase price plus VAT.
This gives you the right to buy the property for around 60 days with 28 days to exchange and another 28 to complete, allowing more time to get financing sorted.
However, the fee means that it can end up being more costly overall and you risk losing the fee if the sale falls through.
