At property auctions, you can buy property not typically available on the open market.
It might be in bad condition, with unusual restrictions, or simply unique property.
But this is precisely why most investors see auction property as a great opportunity.
Read on to learn how buying property auction works.
Types of property auction
There are two types of property auctions:
- Unconditional auctions: Traditional auctions, where sales are initiated (i.e., contract is exchanged) immediately after bidding finishes. As the name suggests, there are no conditions around whether sales will complete at this point. 28 days (/20 working days, excluding bank holidays) after bidding finishes, sales are completed.
- Conditional auctions: Online auctions where conditions for sales are met after bids complete. Buyers and sellers have a longer time frame complete a sale than unconditional ones.
In this article, we’ll be looking primarily at unconditional auctions.
How to find auction properties
Most auction companies list their properties on a website, which should show up in Google.
Some listings on Rightmove and Zoopla might indicate properties’ availability via auction, too.
And some owners might use a ‘for sale’ sign which mentions ‘via auction’ or place adverts in local magazines.
You can set up alerts for when a new auction property enters the market. Or you could ask the auction company to contact you.
Choosing a reputable auction company
Professional website
Most reputable auction houses have a professional-looking website, especially since websites allows potential bidders to view items online.
In-person presence
You should be able to meet an in-person representative of the auction house.
They will often have premises that you visit, which is where auctions occur.
(Some auction houses are online bidding only, although this is less common.)
Independent reviews
Online reviews are the best way to ensure a company is worth using.
These should be from many independent people over an extended period.
You should be suspicious if all the reviews are similarly written and uniformly positive.
Registered with relevant organisations
Auction houses in the UK should be registered with the local council. You can contact the latter to make sure.
And the ‘The National Association of Valuers and Auctioneers’ (NAVA) as an independent regulator. Speak to them to confirm the validity of any auction company you consider.
Clear terms and conditions
You shouldn’t feel deceived by any auction company you work with.
Their terms and conditions should be crystal clear and accessible.
If they sneak in hidden costs, this is also a major warning sign.
Buying properties at auctions: Steps & time frames
There is some variation between individual auctions, but most follow the same processes and time frame (8 – 12 weeks).
This process is made up of the following stages.
Registering with auction house (1 hour)
This might involve providing details about your funds and showing proof of ID and address.
This is to ensure that you are not breaking any anti-money laundering regulations.
Viewing auction properties before auctions (1 hour)
Most auction companies recommend that potential buyers view properties before auction day.
This will usually be at least a few weeks before auction, to give potential buyers to carry out surveys (see next step, below).
They often send out catalogues (print or pdf) with property information, and legal packs are viewable.
But viewing properties in-person gives you a clear perspective on
- Size
- Layout
- Condition
- Local area.
And more.
You should contact the auction company to arrange a viewing. Often, it’ll be done as an open house viewing. But not always.
You don’t need to make an appointment if this is the case. You show up when it takes place.
But you’ll need to make an appointment if you want a one-on-one viewing. Typically, a representative of the auction company will show you around.
As with regular viewings, you aren’t legally obliged to make an offer on auction properties.
View out-of-bounds auction properties
Sometimes, a property that can’t be accessed is listed at auction.
There may be for several reasons, including:
- Structural problems
- House pest problems (ranging from Japanese knotweed to insect infestations)
- Problem tenants (or even squatters).
And more.
In this case, there should be virtual options for you to view (photos and videos).
Speak to the auction company and ask if these are available.
Understanding guide prices
In auctions, a guide price is the approximate amount that a property will be sold for. It’s to steer potential buyers, but it’s not binding.
Auctioneers usually set guide prices (in agreement with sellers).
The reserve price is the minimum amount the seller is willing to accept. Bidding starts at this figure.
Remember, guide prices are often set to elicit higher selling prices. Sellers and auction houses want to encourage bidding momentum that drives a higher sale.
Surveys (2 hours)
Viewers interested in bidding on properties commission surveys to reveal any unknown problems.
These often take a few days to arrange, but only a few hours for the survey to complete.
Auction day (1 day)
Auction days usually last several hours.
However, the bidding on any given property often only takes about 10 – 20 minutes, depending on the interest in it.
You don’t always have to be present in-person to make bids. Many auctions allow people to make bids by phone, online, or even by proxy via a third-party representative.
If you attend in person, you’ll usually raise your hand to get the auctioneer’s attention when you want to bid.
This might involve providing details about your funds. You will likely also want to view the property you are due to bid on in the days or weeks before the auction.
Auction environments
Auctions often have intoxicating atmospheres!
Auctioneers encourage this with what they say and how they say it.
For example, they might describe properties as ‘a steal’ or ‘a once in a lifetime deal’, etc. And when taking bids, they
Is it safe to buy auction property?
Yes, it should be safe to buy an auction property if you do your research on the company involved.
Like with all industries, not all businesses are entirely trustworthy. Look into anyone that you consider buying with.
As a general rule, buying an auction property is safe. It’s done approximately20,000 times across the UK every year. And many buyers are pleased with the deals.
Condition of auction properties
Auction property is often in bad condition in some way, physically or legally (e.g., a short lease).
You can get a great deal at auction houses. But you often can’t use a mortgage to complete the purchase. So, many auction property buyers use cash.
Getting good value for money at auctions
It depends on the circumstances. Getting a survey done beforehand allows you to understand the true condition of the house.
You can then make your own judgement on what a ‘fair price’ would be. Independent property experts can give you their opinion on this, too.
Do I need cash to buy a house at auction
The short answer is: not necessarily.
You only need some of the cash available on the day. You’ll only be asked to pay a 10% deposit on auction day.
However, you’ll need to pay for the entire house within one month of auction day.
This is why most people at auctions are cash buyers.
However, you do not need to be a cash buyer to bid on a property at auctions.
There are other ways to finance the purchase…
How to buy a house at auction without cash
Get a mortgage
If the house is in good condition, you can use a mortgage to pay for it.
Many lenders might agree to this as long as:
- You have bought it for a fair price
- It is structurally sound
- There are no significant defects.
However, each lender has a different mortgage approval process.
Get a loan
Using a loan is another way to pay for a house at auction.
Private lenders will offer loans for various reasons, including loans for buying property with cash.
Some banks offer this, too – albeit at relatively high interest rates. Bridging loans are a typical example.
Equity release
Equity release is an option if you have another property that you can utilise for this purpose.
It allows you to unlock some of the equity in that existing house and use it to pay for the remainder of the auctioned property.
Peer-to-peer lending
Peer-to-peer lending and crowdfunding are also worth exploring, although this can be difficult if you’re trying to raise huge amounts.
Buy at auction without having a deposit
You’ll likely need help to do this. Almost all auction companies will require at least a 10% house deposit on the day.
This shows you are a serious buyer committed to paying for the house.
This is because an exchange of contracts will take place on the day, too. Check the terms of the auction house you’re using.
Do I need proof of the entire funds on auction day itself?
Not usually. You will need to pay a deposit on the day.
But you won’t typically need to immediately demonstrate that you have the rest of the funds.
Beware of pulling out of a sale
In any case, the exchange of contracts occurs on auction day, making the sale legally binding.
This means that even if you fail to produce the remaining funds over the following month, you’re still legally obliged to proceed with the purchase.
In short, the seller can sue you if you withdraw from the sale after this.
Standard practice for taking out a loan
Many people who buy at auction will arrange for the extra money (i.e., taking out a loan) after they know that they’ve succeeded in buying it.
After all, it’s at this point they will know the precise amount they need for the loan.
