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Buying a house at auction

Buying a house at auction can be a great option if you are looking for a bargain, or want to buy a property quickly. But everything moves quickly if you buy at auction. Once the hammer falls you are committed to buying the property. Read our guide to how auctions work and see if buying property at auction is for you. 

What should I do before I attend an auction?

Do your research

An auction house will publish a catalogue around four weeks before the auction takes place or opens. They will also produce a legal pack for every property, containing details such as title deeds, local searches and a list of fixtures and fittings. This is the buyer’s opportunity to view the property and see it they are interested in buying the property at auction.

Take a good look at the property

Buyers can arrange for a survey of a property before the auction, so they are fully aware of any structural issues or renovation work that needs to be done. A survey will help a buyer to get a better idea of the price they are happy to pay for the property.

Check all the paperwork

Auction properties are often not in a great condition. Make sure you organise the correct type of survey – these range from condition reports to homebuyer reports, to full structural reports. Scrutinise the survey and know what you are buying. Mistakes can be costly!  

How does a property auction work?

People often choose to sell properties at auctions because they want a quick sale. They might have inherited the property, and if it is in a slightly run-down state do not want to spend money on it before putting it on the market. They are happy to accept a lower sale price than if it was sold in a more traditional way.

Properties will be listed by the auction house or estate agent organising the auction ahead of the auction date. Buyers will need to show a photographic form of ID and proof of address to be able to bid. A reserve price will be set – the lowest price that the seller will accept. If a property does not reach the reserve, it will go unsold. The highest bidder for each property will become committed to buying the property when the hammer falls. If a buyer pulls out of a purchase after they have won the auction, they will lose their deposit or reservation fee.

What are the two types of auction?

Traditional auction

You will probably be familiar with the traditional method of auction. This is an in-person event that takes place in a room at an auction house. Bidding takes place during the hours of the auction itself, and the highest bid on the day wins each lot. The buyer and the seller exchange contracts on the day of the auction, and the buyer pays a 10% deposit after their winning bid. Completion of the house purchase has to happen within 28 days, and the buyer loses their deposit if they pull out of the purchase.

Modern auction

Modern auctions work differently to traditional auctions. The auction runs over a longer time period, such as several weeks, and bidding takes place online, confidentially and without immediate time pressure. Modern auctions tend to attract better quality properties than traditional auctions because they are open to a greater number and range of buyers. People buying with a mortgage bid at these type of auctions more than at traditional auctions, which favour cash buyers.

Winning bidders at modern auctions have to pay a non-refundable reservation fee of around 5%. Buyers also have much longer in which to finalise their purchase - 56 days. Contracts do not have to be exchanged for 28 days after the auction ends, and buyers have another 28 days before they have to complete. 

How does bidding work at a property auction?

At a traditional auction bidding starts at or just below the guide price, and properties are sold to the highest bidder. The property is sold if it meets the reserve price. Buyers bid by holding up their auction cards, or by physically indicating (such as nodding) to the auctioneer. You could be bidding against people in the room or people making bids over the phone. The auctioneer will wait until the bids have stopped, and will usually issue a 1-2-3 countdown before officially ending the auction by bringing down his hammer (called a ‘gavel’).

The auction process at a modern or online auction is less intense and competitive. There is more time for reflection and less ‘bidding by instinct’. Like bidding on eBay you can place incremental bids or a maximum bid. As with online auction sites your maximum bid will be taken into account and you will still be competing in the bidding without having to place individual bids. The auction will end on a specific day and time rather than when there are no more bids.

Tips to be successful at auction

Have a plan and stick to it 

Set a budget and don’t waver from it. In-person traditional auctions can be quite pressurised environments, and if you have set your heart on a property it can be tempting to go beyond your means, especially if you become involved in a ‘bidding war’ with another buyer.

Be prepared to move quickly

Similarly, if you see an opportunity during an auction, back yourself. Even if it’s not for your first choice property, you might grab yourself a property bargain. If you win the auction, remember that you will have to pay a significant amount of money immediately – a reservation fee of 5% of the property price for an online auction and 10% deposit in a traditional auction.

Never put yourself at risk

No property is worth bankrupting yourself over. Don’t get carried away buying a property if you can’t afford it. The dynamic of in-person auctions, which are by their nature competitive, can be dangerous. You may be able to see the person you are bidding against, and personal pride can get the better of your judgement.

Let us help with your property search

If you’re thinking of buying a home, whether at auction or via more traditional means, we can help. Get in touch with your local branch today!