Are you considering selling one of your properties through auction? Or perhaps you are a property investor and are thinking of turning to auctions to grab your next deal. Whatever your reason, this blog covers what actually happens at a property auction, and how to prepare before entering the auction house whether you are buying or selling.
How property auctions work
In auction, properties are known as lots, and these lots are publicly released in catalogues ahead of the auction. This could be months before the property goes to auction, or as little as a fortnight ahead.
With every lot, there’s a guide price and a reserve price, but don’t get mixed up between the two. The reserve price is the minimum the seller is willing to accept for their property, and this is most often kept private. Guide prices are similar to a valuation and are what the auction house or seller thinks the lot could be worth. Both the reserve and guide prices can change up to the day of the auction, so they are not set in stone.
If you’re thinking of going to auction and can be known for getting carried away, it may be a good idea to bring along someone else to do the bidding for you. You wouldn’t want to get too excited and bid more for a lot than you’re actually willing or able to pay.
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Preparing to buy a property at auction
- Choose an auction – as with most things these days, you can find a property auction house online.
- Viewing property – often when buying a house through the traditional estate agency route, you’ll view it more than once. Do the same with any property that sparks your interest in the auction catalogue, you still need to be sure it’s what you want.
- Mortgage arrangement – as with making an offer for a property on the open market, when preparing to bid for a lot it’s best to have a mortgage in principle ready. You’ll get a set number of days to exchange and complete.
- Read the small print – the seller’s solicitor will usually put together a legal pack for the lot going under the hammer. Within this, documents may be included such as conditions of the sale and the local authority search of the property. Be sure to read over these carefully, and send to your solicitor to do the same.
- Valuate and survey – consider getting an independent valuation on the property you’re interested in to make sure you don’t bid too much. As well as this, surveys are highly recommended, especially with a property in need of renovation. The survey will help ensure there aren’t any major structural issues with the lot that you may not be able to see yourself.
- Building insurance – as with any route to buying property, you likely need building insurance in place from the exchange date. Exchange means you are legally bound to the property. If you’re purchasing through a mortgage lender, they require this insurance.
- Put a cap on it – we mentioned previously that it can be easy to get carried away at a property auction. Therefore, before you head into the tense auction house, set a price cap for yourself and stick to it. If you’re outbid you could lose the cash you spent on a survey and solicitor, but this can be small compared to largely overpaying for a property.
Preparing to sell a property at auction
- Choose an auctioneer – auction houses can operate on either a local or national scale, so you’ll need to decide which is best suited for your property. If you think your house may appeal to investors wanting to buy-to-let, consider an auction house based in London as this reaches more investors even if the property isn’t based in London itself.
- Watch out for auction fees – many auction houses charge for listing your property in the catalogue, and this cost can vary from hundreds to thousands. If you’re fortunate enough that your property sells at auction, there’s most often a commission charge which is a percentage of the sale price. This fee can be higher than estate agent fees; frequently around 2.5% plus VAT. However, if your property is cheap you may pay a set fee instead of a percentage.
- Proof-read – before the auction catalogue gets printed, ensure you have the opportunity to check your listing. Even a small mistake could have a large impact on the performance under the hammer.
- Prepare a legal pack – you’ll need a solicitor to prep legal documents and contracts prior to the auction.
- Pick both a guide and reserve price – choose a guide price which both accurately values the property but is also likely to attract buyers. Setting a reserve price is often optional, if you would like one you’ll need to let the auctioneer know prior to the auction.
- Under the hammer – you’re able to either go to the auction in person or wait for a phone call after your lot has finished.
- Completion – usually there are a certain number of days after the auction that completion takes place. On completion, you can collect your money (subtracting any fees of course).
I began writing for Property Press Online in October 2019. Particular areas of interest are housing market news and new developments in the market.