How to buy property at auction
You’ve seen Homes Under the Hammer, you’re desperate to experience the thrill of the auction room for yourself and start building a property empire but….errr…..how exactly do you do it?
Here’s a 10 point beginner’s guide:
1: Find properties
Look on the major property websites like Rightmove and Zoopla. On both these websites you can type in the postcode of the area you want to buy then selection ‘Auction’ from the drop down Filter menus.
You can also sign up to Rightmove’s investor’s newsletter to get early notification of suitable properties.
Otherwise go directly to nationwide auction houses like Allsop, Auction House, Barnard Marcus and Savills, all of which publish their property catalogues online two to four weeks before each auction.
2: Download the legal packs for any properties you’re interest in
These should be available from the auction houses and are usually published in the online catalogues. They will include details such as whether the property comes with vacant possession (ie without a tenant), the length of the lease for leasehold property and whether it is generating any income.
Look for any ‘special conditions’, such as how long you’ll have to complete after the purchase (it’s usually 28 days but might be longer or shorter), and any money the buyer must pay on top of the purchase price. For instance, you might have to pay the seller’s legal costs.
Check the legal pack for anything that might cause a problem, such as a short lease, a sitting tenant or high additional fees.
3: Still interested? Now you need to view the property
You will have to act fast because they are usually only advertised two to four weeks before the auction and auctioneers usually do block viewings on fixed dates, they don’t offer individual appointments.
Some don’t offer any viewings at all on properties with tenants. Personally, I would give these a wide berth. Ask yourself, would you buy a £1000 outfit without trying it on? No? Then don’t spend thousands more on a property you haven’t seen.
Remember that if you ‘win’ the auction, you can’t back out of the deal, even if you later find you’ve bought a dud.
4: Like what you see? Get a survey
Your surveyor needs to arrange this directly with the auction house. You should also have a solicitor check over the legal pack. You could buy without a survey and having a solicitor check the legal pack, but then again you could end up with a wreck. Your choice.
If you need to raise money to buy the property, you should at least get a http://www.mortgagesimplicity.co.uk/” target=”_blank”>mortgage offer ‘in principle’. Once the hammer falls on the day of the auction, you will have to hand over a 10% deposit on the spot, and you will usually only be given four to six weeks to complete the purchase, but most lenders take eight to 12 weeks – often much longer – to come up with a mortgage.
If you need finance and can’t get a mortgage arranged in time, you could consider taking out a bridging loan. These are short-term loans you can take out for a few months to give you breathing space while you arrange a mortgage or until you’ve completed any renovations to increase the property’s value, meaning you should be able to mortgage it for a higher amount, BUT they are expensive (interest rates can be as high as 1% to 1.25% a month and there are arrangement fees on top) so you should only consider this option if you’re certain you can ultimately mortgage the property.
In some rare cases, the vendor might agree to give you longer to complete the purchase and charge you interest on the outstanding purchase price, but you shouldn’t depend on this. Worst case scenario, you’ll lose the property AND have to pay the vendor’s fees if you can’t complete the deal on time.
6: Sort out your deposit
As soon as the hammer falls, you’ll have to pay 10% of the price plus any additional fees, so find out what these are and make sure you have enough ‘cleared funds’ on the day of the auction.
7: It’s auction day, don’t forget your ID
When you arrive at the auction, you’ll need to register before you can bid, so get there early to complete the paperwork. You’ll need at least two forms of ID, including at least one item of photo ID. Check with the auction house what they’ll accept beforehand.
You’ll be given a bidding number – and then you’re set!
8: Don’t get carried away
Bidding might be fast and furious or it might start slow, then, just when you think you’re going to get your desired property for a song, it could speed up and romp past the amount you expected to pay.
Don’t get carried away, stick to the budget you’d set yourself and give up as soon as the price goes beyond that. There’s always another property!
9: Nervous? Avoid the auction room
If you’re worried that you might get carried away – or conversely, freeze with fear and fail to bid at all – consider bidding over the phone or submitting a proxy bid, whereby a member of the auction team will bid on your behalf up to your stated maximum price. Some auction houses even offer online bidding.
Alternatively, why visit an auction room first for a dry-run, so you’ll know what to expect on the day.
10: You’ve won, act fast!
When the hammer falls, the property is sold to the highest bidder and if that happens to be you, congratulations – but there’ll be little time to celebrate! You’ll be asked to provide your bidder’s number, then to sign the paperwork and pay the deposit. Remember, there’s no backing out and you must complete the purchase within a short timeframe, so you’ll need to get your skates on to organise any finance you need.
Still tempted? Read our article on whether you can really bag a bargain at an auction.