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Guide to Buying and Selling at Auction

Buying a house is one of the most nerve-wracking yet rewarding purchases you can make in life. From the excitement of the first viewing, to the satisfaction of moving-in day, the efforts to get to home ownership are worth it.

But, like with anything worth doing in life, there’s always a risk. The risk that somewhere along the line, the sale could fall through and you miss out on securing your dream home.

However, with house auctions, all sales are final. On the surface, this sounds great, but you need to be prepared, as well as willing to find ‘potential’ in unexpected places.

This guide will take you through the ins and outs of buying a property at auction.

Why Buy a Property at Auction?

There are many benefits to purchasing a property at an auction. Here are some reasons why more and more would-be home buyers are choosing to purchase at auction;

• No Gazumping – With conventional house buying and selling methods, there are many things that could go wrong, gazundering and gazumping are just two potential pitfalls. With auctions, all prices are final. So, there is no worry that a buyer could come in and undercut you. Once the hammer goes down, that’s it.
• You may get something different – public organisations (councils) as well as lenders sell auction properties, which means you may find houses/flats which are a little different and not something you will see every day in an estate agent’s window.
• You can get a mortgage – It is a common misconception that you cannot buy at auction if you’re seeking a mortgage. You can, even if the home is in need of some renovation work.
• Faster legal process – As well as having fewer potential pitfalls than conventional sales, the legal work required takes just 28 days to complete.
• May be cheaper – In doing a comparison with similar properties in the area, you may find that houses at auction are cheaper than buying through an estate agent. Bear in mind that some of the houses may need work, but if you have the imagination and budget, you could add value to the home, if you choose to sell at a later date.

How to Buy a Property at Auction: Step One – Find an Auction

Get a copy of the local newspaper and find property auctions in the area. You can also find UK listings online. Once you have found an auctioneer, get in touch and ask for their catalogue. Many are held on a monthly basis, which will give you a maximum of four weeks to view the listings you’re interested in.

Quick Tip: Take a builder with you on your viewings, they may be able to point out the immediately obvious repairs that need to be carried out. This may help you rule out properties which require too much work, before you pay a buildings surveyor, who will only tell you the same thing.

Step Two – Do some Research

Attend an auction to get an idea of how they work. Buying at auction is a process that’s not for the faint-hearted. The more preparation you can do in advance, the more confident you will be in raising your hand at auction.

In your research, the auctioneer will be able to hand you a legal pack containing relevant deeds, leasehold information, local authority searches etc. You may want to give these to your solicitor to examine for any hidden costs. As is the case in many options, the guide price will appear as enticingly low, but be warned, the auction may run over this price early on. Make sure that you are aware of any sneaky costs before you set your maximum bid for the auction.

Step Three – Get a Survey

If you have found somewhere you like, do some background digging before the auction. Talk to some local agents and find out if the price listed has any leeway. But of course, this will not give you an accurate assessment of the home’s value, so you will need to carry out a survey with the help of a qualified surveyor.

Whether you need a homebuyer’s report or a full structural survey will depend on the property’s condition. The cost of the survey is one of the risks associated with buying at auction. There is a chance that you will pay for a survey on a home, only to be out-bid on it at auction. This is where you must weigh up your options, can you afford to make a saving at auction by potentially forking out for a wasted survey beforehand?

For more on surveys and how they fit into the process of buying a house, take a look at our Guide to Buying your First Home.

Step Four – Get a Mortgage Agreed in Principle

It goes without saying, that if you are looking to purchase a home, you will need some funds put back for a deposit.

You will then need to get a Mortgage Agreement in Principle, from a lender, before you can proceed to auction. Read more in our Guide to Applying for a Mortgage and our tips for Improving your Credit Rating, for more information.

Step Five – Auction Day

You must walk into the auction knowing how much you can bid as a maximum and exactly how much the process will cost. If you are successful, you will be legally obligated to pay;

• The auctioneer’s fee
• 10% of the home’s value on the day of the auction (the remaining 90% must be available within one month, in order to complete the sale).
• The legal fees, which will be outlined in your Key Facts Illustration and Mortgage Agreement in Principle, as well as the cost of your solicitor/conveyancer.
• Stamp Duty – charged as a percentage for properties over £125,000

You will also need to bring to the auction;

• Two forms of identification, passport and a utility bill
• Nerves of steel!

Step Six – Stay Until the End

If a property you like did not make the guide price on auction day, don’t lose hope. Each lot should also have a ‘reserve price’. This is lower than the guide price and will usually not be disclosed to the public before the auction. Approach the auctioneer at the end and see if you can make the seller’s reserve price.

What are some of the Pitfalls of Buying at Home Auctions?

You may Lose Money – If you have paid for a survey, only to lose out to a higher bidder on auction day, there is nothing you can do about it. That money will be lost.  

You need a mortgage in principle – securing a mortgage isn’t an easy process nowadays, but if you go into an auction with no agreement in principle, just a deposit, you could find yourself in deep water. On auction day, you will need 10% of the funds ready, upfront, if you win the bid. After that, you will have 28 days to transfer the other 90%. If you successfully win the bid, pay the 10% but then have delays getting hold of the rest of the money, you will have to pay for the following;

• The cost of the home’s resale at auction
• The shortfall in the selling price and your offer
• You may even be charged an amount of interest for every day it’s not sold
• You will not get back your 10% bid from the day of the auction

How to Sell your Home at Auction

Property auctions aren’t just for repossessions; many conventional sellers may look to property auctions in order to sell their home. For sellers, going through auction has the following advantages;

• You make a quick sale – Once the gavel falls, the sale will be complete in 28 days. This is great for sellers who need to sell quickly in order to do things like emigrate or move areas, fast.
• Less ‘Fussy’ Bidders – If your home needs extensive work to make it appealing to buyers (more than the smell of baking bread and a lick of paint can fix) then auctions might be for you. These sales attract property developers who have a much keener eye for potential than your average buyer.

However, if you are considering selling you will need to factor in the following;

• You will need to move fast- Once the sale is complete, the house is no longer yours. You will need to be ready to vacate on auction day.
• You will need to pay fees to sell- Entry fees for property auctions could be a few hundred pounds (depending on the auctioneer). And this will not be refunded if you don’t make a sale. You will also have a to pay a percentage of commission to the auctioneer. In many cases, this may be more expensive than the commission an estate agent would receive if they completed your house sale. Typically, auctioneers charge around 2.5% +VAT, although the fee may be set, if your property for auction is low in value.
• Marketing – Auctions are less-publicised than typical estate agent listings. You may struggle to find the right buyer and may need to apply for several auctions before getting a sale.
• You need to be transparent – If you think that putting your home up for sale at auction will mean that you can be cagey about the works required, you are wrong. Selling through auction requires the same transparency as going through an estate agent. You may find buyers who can fix structural problems, but you will not find an auction buyer who will completely overlook them.

Step One- Research Before You Sell

If you’re looking to sell at auction, make sure you thoroughly research residential property auctions in your area. You may also want to look at national auctions. If you live in an up-and-coming area, your home may be spotted by a property investor looking to build a buy to let portfolio. Aim to advertise your property as widely as possible, as you will be more likely to get the higher bid you’re after.

Step Two – Check your Property Listing

Once you have covered the auctioneer admin fee, you will need to submit a ‘legal pack’ of home information, for your potential buyers to inspect before the auction. Typically, you will need to get your legal representatives to submit;

• Title deeds
• Any special conditions of the sale
• Land Registry search information
• Leasehold information and any related documents

Step Three – Reserve and Guide Price

You must submit two price points before the day of the auction. The reserve price is the rock-bottom offer you will accept at auction; the guide price is where you would ideally like bidders to start from on auction day. The reserve price does not have to be disclosed to the public, this is just between you and the auctioneer. However, if your property bids go over this reserve price, but do not make the guide price threshold, your home will be sold to the highest bidder over the reserve price.

If the bids do not go over reserve or guides prices, your property will be withdrawn from the auction. If you have tried and failed to sell your home at auction a number of times, you may find it worth lowering your price point, in order to make a sale. Seek advice for this and make sure that you don’t set the price too low for your needs.

Step Four -Be Ready to Move

If you are successful in selling your property at auction, the home belongs to the buyer from the day the gavel falls and they put down their 10%. You will need to ensure that you have lined up your next residence, or rental arrangement, as the sale will be completed in just 28 days.

Buying and selling your home at auction is an exciting, yet stressful process, but worth it if you can bid on a ‘hidden gem’ or finally close that sale and move on with your life.

Speaking to an independent mortgage broker can help you plan for your first auction and get your finances in order. Get in touch with an expert, for free, today.