Buying at a Property Auction
Auctions may be confusing for first-time buyers but can be a good way to get a bargain. We explain how they work and what you need to do
Once the preserve of property developers and builders, residential property auctions are becoming a popular way for first-time buyers to get on the property ladder without breaking the bank.
Buying at auction can be a scary prospect for first timers who have little to no knowledge of property, let alone the auction process. However, as long as you prepare properly there's no reason why buying your home at auction needs to be complicated and stressful.
Isn't it complicated?
As the average house price has continued to grow faster than average earnings, getting on the property ladder has become more difficult than ever. As a result, auctions are becoming an attractive option for first-time buyers looking for a bargain.
Although the typical property likely to be offered at auction tends to require more improvements than one bought from a private seller, hence the lower price tag, the standard of property has improved in recent years. As a result, it is possible to pick up a good one that doesn't require too much work doing to it.
"Until the 1980s it was really only professional dealers looking for run-down properties to improve and sell at a profit that went to auctions," explains Chris Coleman-Smith, auctions director at Savills. "However, the repossessions in the early 1990s meant you could find similar property to what was on estate agents' books. There used to be a question of 'Why is it in auction, what's wrong with it?' but that's not the case anymore."
The main reason first-time buyers tend to opt against buying a property through auction is that it's perceived as being complicated and not for beginners. However, while buying a property at auction is more complex than buying through an estate agent, there's no reason why you can't make it a success – as long as you do your homework.
Firstly, it's important to understand how the process works. The Royal Institution of Chartered Surveyors (RICS) has a useful guide on its website [see contacts box], but there's no substitute for going along yourself to watch how it works. The internet is a great place to find out about local property auctions taking place and you can also order auction house catalogues through their websites. There are also adverts in the property sections of local and national newspapers.
As with buying any property it's essential you familiarise yourself with the local market. Look at websites like www.landreg.gov.uk, where you can find out how much similar properties in that area have been sold for.
Unlike most internet databases, the Land Registry's information is based on completed sales so provides a more realistic figure. However, the data tends to relate to sales from at least three months ago, so remember to factor in any change in the local market since then.
Pros and cons
Although property auctions are seen as complicated by those unfamiliar with the procedure, one of their greatest strengths is how transparent the process is. Firstly, you can see what other people are bidding for a property at auction so don't have to rely on an estate agent whose main priority is getting the highest price for the seller. Also, once the hammer goes down the property is yours, so there is no chance of being gazumped – where a seller accepts a higher offer from another buyer.
Another benefit of buying your home at auction is the speed at which the process moves. As your mortgage offer and survey are already in place before the auction, you can move into your home a lot quicker. And, as you aren't involved in a chain of other buyers and sellers, it only takes a few weeks to complete the contracts and move in.
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However, as you have to pay for a survey before having your bid accepted there's always the chance that you could end up buying a number of surveys before having a winning bid.
One of the problems with auctions, especially if you're bidding on a popular lot (item), is that it can be easy to get carried away. If this is likely ask someone more level-headed than you to come with you to stop this from happening.
When you're bidding it's important to keep your research in mind. As long as you know how much the property is really worth, not just what other people in the room are willing to pay for it, you are unlikely to go over your budget.
What you have to do
"The advice I'd give to anyone attending an auction is to prepare and research before you go," says Paul Bagust, assistant director of RICS faculties. "You need to understand the process, what to expect and what's expected of you – it's not just about turning up on the day and bidding."
As a potential buyer, your first step is to obtain a copy of the auctioneer's catalogue, which contains a list of the lots being sold at auction on that day. The catalogue contains details on each property, such as a description, its location and the guide price. It also includes the basic information you need to know before bidding. Although it's tempting to scan through small print it's important to properly read it, especially if it's your first time at an auction.
Once you've found some properties you're interested in, you need to obtain the legal pack from the auction house. The pack should cost around £10 and contains information about who owns the property, any searches done and leasehold documents. It's also important to get a survey and valuation done, as you need these to get a mortgage on the property.
Finally, if you decide to bid on any property it's a good idea to keep in regular contact with the auctioneer to check whether there are any changes to the price or if there are any issues that might affect the sale of the property.
