Buying property at auction is favoured by some because of its quick process; it is far quicker than regular property purchases. As soon as the gavel falls the deal is done. There are bargains to be had when buying at auction, but it is important to know how, and what to buy that makes them true bargains. We have put together a guide to help investors through the auction buying process.
Find an auction house.
Property auctions aren’t held all that often, as a result they tend not to be regularly advertised. The best way to find the nearest property auction is to look through the internet, local agents or local press. The internet is a particularly useful tool when searching for auctions. Sometimes it will be necessary to sign up as a member in order to find more information. This will usually save you time searching in the future, as many sites will send a regular email to their members informing them of upcoming auctions. Bear in mind also that auctions do not always focus just on properties in that area, so you may find a London property in an auction in Ireland.
Visit another auction.
If you are new to property auctions, attend another auction first to get to know how they work. This will give you more confidence when you come to bid, and alleviate any initial fears you might have.
Request a catalogue.
Once you have found an auction house, request a catalogue and look for any properties that take your fancy. Go through the catalogue carefully, read the details thoroughly and identify the properties you are interested in. You might start with a long list initially that you want to whittle down as far as you can.
Found a property?
Once you have found a property that interests you it is important to move quickly. There is usually only 3-4 weeks between the publication of a catalogue and the auction itself.
Do your research.
Find out all you can about the property you wish to bid on. Request information from local estate agents about property prices and the surrounding area.
Instruct a surveyor to inspect the property; although this can be costly, it may well save you money in the long run. We have all seen the horrors on TV when properties are sold at auction and have legal or structural problems.
View the property yourself; do not just rely on photographs or descriptions as these will not show the area in which the property is in, and estate agents are not the only people known for “creative descriptions”
Have your finance ready.
It is not uncommon for an auction house to ask for a bankers reference at the point of registration, so be sure to bear this in mind. If you are successful on the day of the auction you will be required to pay a deposit of 10% of the property price before leaving the auction house, and you will only have 28 days to come up with the other 90%. If you require a mortgage you need to have this ready before attending the auction. Once the hammer goes down you are in a legally binding contract stating that you will pay the balance, which if broken will mean forfeiting your deposit (plus possibly costs). Also contact insurance companies with regard to insuring the property if you are successful at auction.
On the day of the auction.
Check the property is still in the auction. This will only involve a simple phone call on the day to the auction house to make sure your chosen property has not been withdrawn. It will save a wasted journey if it has. If you are already at the auction house then any change will be listed in an addendum sheet, these are distributed around the auction room and contain late information or alterations.
Get to the auction around half an hour before it is due to start. This will give you time to register if you haven’t already done so. Remember to take with you at least two forms of identification, your banking details and chequebook. (If you are intending to leave a deposit with a credit card, make sure the auction house accepts them) If you arrive with time to spare, you can find a good spot in the room in which to place yourself, (seating tends to be limited in auction houses) you will need to be visible to the auctioneer and be able to see other bidders.
Have a price limit in mind.
Keep a maximum price in mind before bidding. Take into account other costs the property will accrue, such as renovation, stamp duty and auctioneers fees.
On the day of the auction it is important to remain calm as some buyers get over exited and pay more for the property than it is worth, or what they wanted to pay. Remember, most people buy at auction to acquire a property at a better price!
Make sure you are seen when you bid as the auctioneer will only register a definite gesture; such as nodding your head or raising your hand. If you register you will receive a paddle or card with a number on it, use it as a gesture to bid.
End of the auction.
If you are successful bidding for your chosen lot, you will need to stay behind to sign contracts and pay the 10% deposit for the property. You then have 28 days in which to pay the remainder of the property price. (The auctioneer will give you details on how this will be carried out.) You will need to have an insurance plan in place for the property as from this point you will be responsible for anything that happens to the property.
If the lot did not make its reserve price, (Minimum price set usually by the seller, although sometimes by the auction house) then it is possible for you to approach the auctioneer with an offer for the property, if the seller needs a quick sale they may well accept a sensible offer.
Be aware that buying at auction is a binding commitment and carries the same legal implications as a signed contract by private treaty.
It all sounds a bit scary!
The first time at auction does require nerves of steel for some, there are ways around this though for the brave or experienced. Telephone bidding is often offered by the larger auction houses, as is bidding by proxy. (Having someone go to the auction and bid on your behalf) Another option is to leave what are called “Commission Bids”. These are a figure of which you are prepared to pay up to for a given lot. Bear in mind this is with respect to hammer price, not final price, so remember to factor that in. If the bidding at the time is lower than your commission bid, and has exceeded any reserve, then you will be sold the property at the next bidding increment, not what you have entered as your maximum bid.
- Tuesday 04 May 2010