Buying A Property At Auction
Why should I buy at auction?
The benefits are numerous. Virtual vendors are most motivated and want to sell the product. You also are more certain to get the product and not lose to someone else.
Are there fewer costs in buying at auction than through an agent?
Well in fact the costs involved in buying the property are very similar. In both cases you will incur legal fees and surveyor's fees and possibly fees to arrange the finance. You won't be paying a buyer's premium in either case, but at most property auctions now you will be asked to or you will need to pay what they call an administration fee which is somewhere between £175 and £300 plus fees to the auctioneer together as expenses and that is the only difference really in the two scenarios.
What sort of houses are sold at auction?
When buying a property at auction, the sorts of houses you'll find at auction will generally be ones which have been offered for sale by banks which have repossessed the property, or by property companies trading on stock or local authorities. As a result, the properties may well be un-modernized and in need of work. The amount of work to the property can be just a new kitchen and bathroom, to all the way through to a full structural rebuild or possibly a complete demolition, starting again. Therefore this auctioned property is different to the general type of properties you find in estate agents, which are modernized and ready to move in to.
What are the risks of buying at auction?
When buying a property at auction, the risks involved are similar to that of buying through an estate agent. It's important to make sure that you've done all your preparatory work, such as legal searches, checking the title, and surveying the property to make sure the property doesn't have any defects you're not aware of. You have to remember that when the hammer falls on your bid, you've bought the property, and you cannot go to the auctioneer or the vendor after and say, "Oh, I didn't realize it had a big crack in the back wall." Therefore at auction, you buy the property as it is, without any recourse or guarantees.
How do I find a bargain at auction?
That's a question I'm asked on a regular basis. The key to it, really, is to have the maximum choice of properties available to you. Trolling sites likes ours will tell you everything you're interested in buying, if not make sure you're contacting all the auction houses who offer properties in that type of area. The key, though, is to look for properties which aren't going to be very popular. They might be ones with building defects, which most people won't want to touch, but if you've got the know-how and can deal with it, you'll be able to buy at a bargain price. And of course a bargain price is one where you get a property at less than you were prepared to pay for it. So if you don't have to go to your maximum bid to secure it, you have a bargain by default.
How can I identify repossessions at auction?
To identify repossessed properties coming up for sale at auction, there are several things you can look out for. In some cases, it will say by order of the mortgagees. In others, it will actually say who's selling it. So it might say for sale by order of Halifax. And other times it will say by order of the receiver, etcetera, etcetera. This will give you an indication. However, not all properties sold which have been repossessed either by a receiver, administrator or bank will have this flag on the title and details in the catalog. If you suspect it's a repossession, the easiest thing to do is to phone up the vendor listed and ask who the vendor is and they will tell you.
What do I need to do before the auction?
The tasks you need to do before buying at auction are numerous. Remember, that on the fall of the gavel, if it's on your bid, you have bought the property. So in line with it before you exchange contracts, in a private treaty market, you must make sure that you're completely happy with all the legals, on the property it's got good title, no restrictive covenants, no bad searches or council restrictions. You've got to make sure the property is in the condition you believe it to be in. This is probably going to involve a survey, either structural and/or valuation. And you need to make sure you've got the funds to buy it, so this will mean sorting out a mortgage, talking to banks, et cetera, et cetera. When the hammer falls, it's your property, there's no turning back.
Can I view a property before the auction?
When buying a property at auction, it is absolutely essential to view the property prior to bidding on it at auction. This is to make sure that the property you're buying is what you expect to be buying; whether it is the quality, location, and layout of the flat or house. If you don't view the property before the auction then you run the risk of buying a property which could be in a condition you're not expecting, or in a location you don't want.
How can I view the property before the auction?
There are three main ways in which you will view the property. Firstly, you will just turn up at the auctioneers office by prior arrangement, pick up the keys, go and let yourself in, have a look around and then drop the keys back to the office. Alternatively, the auctioneer may well meet you at the premises at a prearranged time. The third type is where the auctioneer publishes a schedule of viewing times and invites anybody interested to come at an appointed time. Generally there's three or four opportunities to view the property prior to the auction. If you are looking at several properties, you'll find the viewings of properties in the same area follow one after each other. So you can follow the auctioneer around from property to property.
What should I look for when I view a property?
Things to look for when you're viewing a property which is coming up for auction are numerous. Firstly, obviously, you want to get an initial view and opinion on the condition of it structurally and decoration wise. And obviously, given that you're buying property at auction, hopefully to make some money, you want to be able to try and figure out what the potential is, what it could let for, what it might be sold for when you've completed all the refurbishment works and get an estimate as to what it might cost to do this work.
Are there hidden costs when buying at auction?
Along with the usual costs of buying a property, legal, surveying costs et cetera at auction, the auctioneers charge the successful purchaser an administration fee to cover the work they do. This will be in the region of one hundred seventy five to maybe three hundred pounds depending on the auctioneer, and of course the A.T. to pay off on top of it as well.
Should I have my mortgage in place before the auction?
It is very wise to ensure that you do have your mortgage in place prior to bidding at an auction. The reason is that with only 28 days between the auction date and the completion, that would not leave you much time to arrange the financing if you have not already done so. In addition, if the property was un-auctionable, due to its condition or for legal reasons, you could end up being not able to raise the money to complete the property, and lose your deposit.
Can I put in an offer before the auction?
When buying a property at auction, you can put an offer on a property before the actual auction starts. Indeed, about 8 to 10 percent of all properties which are offered at auction are sold prior to the auction date.
Should I get a survey done before the auction?
When buying a property at auction, you really should get a survey done prior to the auction. The survey is to see whether there are any defects with the property which you haven't noticed. Obviously, if you're experienced in the property trade and building, you may well take the view that you can identify any potential problems. However, remember that when the hammer falls in an auction, it's your property, and if you find a defect after, you've got no recourse to the vendor or the auctioneer.
How should I use the guide price when deciding what to bid?
The guide price, really, should not be used as an indication as to what the property is going to sell for when deciding what to bid. The guide price is more an indication as to where the reserve is going to be set and will often be well below the final sale price. This in turn helps the vendor and the auctioneers generate interest in the property and get people in to look at it. Remember, the property will sell to the highest bidder and by looking at databases such as ours you will be able to see what similar properties have sold for. And often, the guide price will be well below the final sale price. So try to get an accurate estimate as to what the property is worth on the open market to decide what your final pitch will be as opposed to using the guide price, as it may not be helpful to you.
What should my solicitor do before the auction?
When buying a property at auction, your solicitor prior to the auction should be doing the same as they would do for you if you were buying a property via an estate agent. That involves checking out the legal title and all the things which pertain to you prior to you bidding at auction. It is essential to know exactly what the state of the legal issues on the property is prior to the bidding, and that you are completely happy with these legal issues. If you aren't, don't bid on the property.
What questions should my solicitor ask the vendor's solicitor?
The purchase lister should really be asking the vendor's solicitor any questions he has about the title. He wants to make sure that you're buying a good, clean property legally and that there's going to be no problems coming out in the future. So, the questions might well be explanation of any covenants, any questions as regards previous owners, and to see if there's any planning due in the area in the near future.
What are conditions of sale?
The conditions of sale form into two parts. The general conditions of sale or as they are now know, the common conditions of sale and the special conditions of sale. The general conditions of sale are the rules by which the auction will be conducted and the contractual relationship you will have with the auctioneer. This will detail the usual time taken for completion, the amount you will pay on exchange of contracts when the hammer falls and all the other legal niceties which go with it. The special conditions of sale are variations on the general conditions of sale which relate to a particular lot. An example might be that the completion will take 14 days after the auction and not 28 days. Or another special condition of sale that we often see is that you have to pay one percent of the sale price to pay the vendors legal cost. Many of the local authorities use that as a way or raising an extra one percent on the sale price of the property.
What should a buyer look out for in the conditions of sale?
When buying a property at auction, the buyer must read through the conditions of sale, making sure they understand the rules by which the auction is going to be conducted, and how the conditions of sale affect him when purchasing the property. The buyer should pay special attention to any special conditions of sale which relate to the box they are interested in. This is to see whether they are going to have a shortened completion time. You will find the general conditions of sale in the back of all catalogues, or often on the blue sheet. It is really important to make sure that you, the purchaser and your assistant have read these, understanding all the points and how they relate to the property you are interested in buying.
What are 'special conditions'?
When buying a property at auction, the “special conditions of sale” are contractual terms which relate to a particular lot in a catalog. The special conditions of sale can be the completion time, which might be reducing the 28 days to 14, or the fact that additional amounts of money are payable by the successful purchaser to the vendor. These special conditions of sale will relate to particular lots, and therefore must be read and understood prior to the bidding at auction.
How should I set my top bid?
When setting your top bid, you have to decide what you're looking to achieve out of the property. If you're looking to sell the property, having refurbished it, from the estimated value of the property when done you would actually need to subtract the amount of money for fees, the profit you would like to make out of it – 1 or 2% - and the cost of refurbishment works. When you deduct all these costs from the finished value of the property, you'll then have your top bid. Going above your top bid at auction can mean you're going to eat into your profit, or indeed lose money. And bear in mind, just because somebody else is going to bid higher than you, it doesn't mean they're going to make a profit; so do stick to your top bid.
How can I track previous sales at auction?
When buying a property at auction, you can track previous auction sales in order to see whether the property has been on auction before, or whether similar properties have been to auction. The best way to track this previous sale information is that you can look on the Internet, run a search in Google, or indeed find some information out in the auction house. The auction house may well be able to give you the information on the property you require.
