- Our new series of three articles is about buying a property at auction
- I reveal what happened when I registered to bid for an auction property
- Properties can often sell at auction for significantly more than the guide price
Unlike a more ‘standard’ property purchase, when the gavel goes down at a property auction, you have exchanged contracts.
It means that you are legally obliged to complete on the property – often within 28 days, although the exact details will be outlined by the auction house.
As I found when I registered to bid on a wreck at an online auction recently, it can be a brutal process for a prospective bidder.
They have nowhere to hide once they have entered the auction room – be it in person or online – and started to bid.
Bidders do not have the ‘cushion’ that often comes with the more traditional way of buying a property, when you can pull out of a deal relatively easily even after you’ve had your offer accepted, and right up to the point of exchange.
Andy Thompson, of Pugh Auctions, explains: ‘You are preparing yourself to make one of the biggest financial commitments of your life, without any chance to change your mind.
‘That focuses your mind on your reasons for doing it. There is no point of return if you take that plunge with a bid and the gavel goes down.’
As I detail below in the first in a series of articles about going to auction, this meant I decided to play things cautiously. In the follow-up articles, I’ll explain what happened when I entered the bidding process itself, but in this first instalment I’ll look at what I did beforehand.
Why I cut my initial budget by £100,000
When I registered to bid for my property, the amount that I was prepared to pay was more than double the low six-figure guide price.
Properties often sell at auction for significantly more than the guide price, and serious bidders should bear that in mind.
I didn’t want to end up pouring more money into the project than what the final product would be worth
However, by the end of my due diligence that I carried out before the auction, my final maximum amount that I was prepared to bid was £100,000 less than what I initially thought.
This was because my research revealed there were more costs than anticipated, and I didn’t want to end up pouring more money into the project than what the final product would be worth.
Mr Thompson outlined some of the secrets to buying at auction, and the preparation you need to do beforehand.
He said: ‘The key to buying at property is giving yourself time. You need to be able to prepare.’
The preparation will include going carefully through the legal pack, and appointing a solicitor to help with this.
The legal pack will include a host of documents, including an Energy Performance Certificate (EPC).
The EPC gives a buyer an indication of both the current and potential energy efficiency of the property.
As such, it may help guide you about the work that needs to be done and how much you need to budget to cover the costs of that work.
Then there are the ‘special conditions of sale’, which are in addition to the standard auction terms.
For example, if a property completion was going to be less than 28 days, it would be highlighted here, along with any extra fees.
Look out for ‘skeletons in the closet’
Mr Thompson explained that it is important to scrutinise legal conditions.
He said: ‘You might be thinking that you are buying a property for £100,000, but you’ve not read the legal pack and there are £4,000 worth of fees in there, which can make the difference about whether you can afford to bid.’
He goes on to add a further word of caution about skimming through these crucial legal documents.
He said: ‘You can end up looking at things very differently after the auction when you pick up the keys and you find a skeleton in the cupboard. Things may end up looking not so rosy.
‘You can get buyer’s remorse. If you get wrapped up in the activity before the auction, you can end up paying more than you had intended.’
Do you need to get a survey?
Some people may decide not to pay for a survey on an auction property, believing that it is not worth the cost if they are not guaranteed to buy the property.
You can buy it without a survey and find something out after the gavel has gone down. But by then, it is too late.
A survey in advance can also help you budget for any work that needs to be done on the property.
Mr Thompson said: ‘Buying a property, particularly at auction, is like watching a film. If you go and look at it a second time, you’ll probably spot things you didn’t see the first time around.
He also advises going to see the property at different times of the day.
‘You might go at lunchtime one day and it is bright and sunny, while on another day at 3.30pm, the surrounding roads are full of traffic and children leaving school,’ he said.
‘And take another pair of eyes with you to view the property as it is good to get another perspective.’
How to finance an auction purchase
Auction bidders also need to get their money ready in advance.
The misconception of auctions is that it is always for problem properties and cash buyers, according to Mr Thompson.
But he insists that, in reality, it is for anyone. The difference is that when the gavel comes down, you have to buy it. That’s not something that occurs when you make an offer normally.
If you are unable to buy it, you could lose your deposit and can be pursued for any money that the vendor loses out on.
Mr Thompson said: ‘The reality is that it almost never comes to that, and it is very rare that anyone ever loses their deposit. In 20 years of doing auctions, I have only ever known of about five people losing their deposit.’
The options for finance range from cash at one end and getting a mortgage at the other, with bridging finance in between.
This information about preparing to buy at auction is based on traditional auctions, which includes those online.
It is opposed to what is called a ‘modern method’ where the hammer goes down and you have not exchanged.
In these instances, with a ‘modern method’, you have only entered into an exclusivity period. You pay a reservation fee and then after 28 days you have the option to exchange, and then some days later go on to complete the purchase.
