How Do Property Auctions Work?

Ad Banner

In the UK, 2.3% of house sales are due to property auctions. It’s a low figure, but there is a rise in demand for homeowners looking to sell their homes via auction. There are two auction routes: the modern auction method and traditional auctions. Both have advantages and disadvantages and in this article, we will cover the definitions of auctions, the process of both modern and traditional auctions and how property auctions work for sellers and buyers.

If you are looking for something specific, then please see our drop-down menu below:

Subscribe To Our Newsletter

We ask this in order to deliver you a better experience.

Brief Breakdown Of Property Auctions

If you are selling a property, property auctions work by — once you list your property with an auction house or estate agent, it will probably be listed on their website at least a month before the auction. The auction house/estate agent does this to generate excitement, interest and demand behind your property — they may also carry out open days on your property. You and the auction house will set a reserve price (the lowest you will sell your property for).

If you choose a Traditional 28-day auction system, the auction house will set a day and time where they will invite interested buyers to the auction. On this day, the buyers will bid in quick succession until there is a winning bid over your reserve price. If you choose a Modern 56-day auction system, the interested buyers will submit proxy and straight requests online until a set time and day.

For both systems, the highest bidder over your reserve price is the winning bidder. They will pay a deposit/reservation fee as the auction ends. We have a thorough guide to selling your property at auction buy a property here.

Definitions During A Property Auction

Before we can discuss the process of how property auctions work, it is essential that you understand the property auction jargon that will come up later. We have compiled a list of the most used definitions below:

What Is A Reserve Price?

A reserve price is the minimum price you will sell the property for, which is agreed between you and the auction house/estate agent. This price is confidential between you and the other party and will not be released to potential buyers. The reserve price on your home will vary depending on current market conditions, your house valuation and the types of buyers involved in the auction.

What Is A Guide Price?

A guide price determines how much demand or interest your property has in the auction. The auction house will use it on marketing brochures or other materials available to potential buyers. It will almost be much higher than your reserve price and be different from the expected selling price.

What Is A Proxy Bid?

A proxy bid is often called a telephone bid and is where the bids are mostly taken over the phone with the auction house. The potential buyer will advise the auctioneers on their maximum bid.

The auctioneer will then bid on the auction up to their maximum bid on their behalf. If the bidding continues over the top, then the proxy bid will end. Nowadays, for online auctions, the process is automated, so instead of ringing the auction house, you will enter your maximum bid via the system and then the system will automatically bid up to your maximum.

What Is A Straight Bid?

A straight bid is the opposite of a proxy bid. It is where you pay directly into the auction system, and as the auction bid commences, you continue to increase your bid until you either win the bid or opt out.

Traditional: How Does A Property Auction Work?

Traditional auction systems last around 28 days, depending on the auction house you choose. Classic auctions are also known as unconditional auctions and are the auction of choice for cash buyers and investors as there is less flexibility and a shorter time frame to wait to buy.

It’s important to note that if you pull out of a traditional auction once the gravel falls, you will lose the 10% deposit as a buyer. You may also have harsh penalties and fees. If the seller pulls out, they will face penalties themselves.

How Does Traditional Auctions Work For The Buyer?

One – Find Auction Properties On Property Portals

If you want to buy a property via auction, your first port of call is to search property portals like Rightmove and Zoopla. A listing will tell you which auction system the listing is sold by. If you find a home which takes your fancy, you should contact the auction house or estate agent advertised on the listing page.

The estate agent/auction house will give you more details about the place and how to arrange a viewing/attend an open day. They will also send you any marketing materials like a brochure or add you to their mailing list for future properties.

Two – View The Property

Before you buy any property, you should view it in person to ensure you don’t miss any structural damage that may cost you a fortune later on. We recommend that you take an expert or someone with experience with you as you view the property, like a surveyor, architect or builder, as they will be able to inspect the building’s integrity and give you a rough estimate of the amount of work it needs to be habitable.

Three – Get Finances Sorted

Are you buying with a mortgage? You must apply and receive an Agreement in Principle (AIP) with your building society or bank. This will allow you and your solicitor to understand your finances and set your budget. When you apply for your AIP, you will need to let your mortgage lender know that you will use the loan to buy an auctioned property.

Four – Research Similar Properties

Using Zoopla and Rightmove, you should find current and historic sold house prices for similar UK properties, preferably in the area you are looking to buy. Look at how their value has changed over time to see if buying a property in this area will be profitable in the long run or not. It may also help you find a fair price to bid for at auction.

Five – Solicitor

It would help if you got your solicitor to read the legal pack provided by the auction house/estate agent. The legal package includes all the essential information regarding the property, like the Electric Safety Certificate, Title Deeds and Searches. Your solicitor should check that all the documents are legal and legitimate and then inform them that you want a survey done. You want to ensure that the property is what you expect to pay, as it will be too late to pull out later down the road.

Six – Careful Of Guide Price

Guide prices are often low because the auction house or estate agent wants to gain interest and excitement around the property. The house will likely sell for much more than the guide price on the auction day. Speak to your solicitor and decide the maximum price you will pay on the property at auction that you are happy with. If a property has much excitement surrounding it on the auction day, they may lift the guide price.

Seven – Go To Other Auctions

If you are inexperienced with auctions, visiting other auctions for similar properties can be a great way to get to know the process. It can help you build your confidence, especially if you engage with how the auctioneer runs the bidding process.

In the run-up to auction day, you can make offers on the property via the website listing. But you must ensure that you are 100% genuinely interested in the property, as the buyer may expect a higher price from a pre-auction bid.

Eight – Auction Day

The auction day may fill you with nerves or even excitement, but it’s essential that you remain calm. Make sure, whatever you do, to have all your paperwork ready, like your photographic identification and proof of residence; if you are buying with a mortgage, you should ensure you also have your AIP. And, if you are buying with cash, make sure you have evidence that you can afford the 10% profit.

Once the bidding begins, it’s crucial that you stick to your budget and maximum bid. As bids start toppling over your maximum bid, it would be best if you walked away, as it’s essential you don’t blow your budget. This property wasn’t for you, but now you may find another.

If the property doesn’t sell, this may be because none of the bids was close to the buyer’s reserve price. If you were the most relative to their reserve price, they might contact you via the auction house to negotiate terms — you may still be in for a chance of winning the bid.

Nine – Post-Auction Win

If it is your lucky day and you win the bid, then it’s time to pay your 10% deposit and get the property through completion. It is also time to secure your mortgage — your bank/building society will conduct a mortgage valuation to ensure that your home is worth what you’ve agreed to pay. This is why it’s critical that you carry out your survey in step 5 and keep to your budget. If they are satisfied with the property and its valuation, you will receive your mortgage offer in good time.

It would be best if you also made sure that as soon as you exchange the contracts, you are covered with building insurance, as the property is now your responsibility. The building insurance will protect the bricks, mortar and structure in unfortunate events like fire or flooding

How Does Traditional Auctions Work For The Seller?

One – Get Your House Valued

The first step if you are looking to sell your house via an auction is to get your home valued. When you sign up with an estate agent or auction house, they will carry our background checks on your property using property portals, the Anti-Money Laundering Checks and the HM Land Registry. They will also survey your property, inspecting any structural issues or problems to ensure the house is valued correctly.

Two – Collect The Legal Pack

You will need to hire an external solicitor to draw up your legal pack — some auction houses may recommend a solicitor or even pay for the fees themselves. The auction house will show the legal pack to prospective buyers alongside the listing on the auction website.

The pack must contain; The Title Register, Conveyancing Searches, Special Conditions of Sale, Property Information Form (TA6), Fixture & Contents Form (TA10), Leasehold Information (TA7) and Property Enquiries (LPE1) Forms, Tenancy Agreements and Proof of Rental Receivables (for tenanted properties), any Commercial Property Leases, Planning and Building Regulation Documentation.

Three – List Your Property

Before the auction house lists your property, they will need to ensure you have signed a legally binding contract and agree to the terms of the property sale. This will include the auction date, conditions, marketing strategy and fee structure. You should ensure that the auction house knows your reserve and guide price.

Four – Market The Property

The auction house should have already taken professional photos and created a floorplan of your property — they will list your property on their website and property portals like Rightmove and Zoopla at least a month before the auction. They will also share your property with any potential investor databases or mailing lists they have. The auction house should have already taken professional photos and created a floor plan of your property.

The auctioneers will organise and conduct viewings, appointments and open days in the weeks leading up to the auction to gather interest in your property.

Five – Dealing With Pre-Auction Offers

Some auction buyers may make an offer on your property before the big day. This is a standard tactic, but you should vet the buyer’s integrity. If they are a genuine buyer, then it can be a great way to bypass the auction process — however, it is recommended to wait and put your property on the auction as you may receive much higher bids due to the competitive environment.

Six – Auction Day

The auctioneer will try to drive the incoming bids to the agreed reserve price. With a traditional auction, some bidders may be proxies — meaning they are making offers via the telephone. They will already have a maximum bid, which may not be over your reserve price, and therefore the auction may end with no winning bidders.

If someone does bid over your reserve price and wins the offer, then at that point, the buyer and seller must exchange contracts. The buyer must also pay a 10% deposit of the bidding price. The property buyer will then have 28 days to pay the remaining balance.

Seven – Dealing With Post-Auction Offers

If the auction process concludes with no winning bids, then the bidder with the closest proposal to your reserve price will be made known to you. You may then negotiate with the bidder to come to an agreed price for the property. If it ends well, then the exchange of contracts will occur — if not, you can either withdraw from the process, or your property will be placed on the next auction for a fee.

Modern: How Does A Property Auction Work?

Modern auction systems last 56 days, depending on your choice of an estate agent or auction house. Modern auctions are also known as conditional auctions and are the auction choice for house flippers and people looking to buy with a mortgage as there is more flexibility and a longer time frame to wait to purchase.

How Do Auctions Work For The Buyer?

One – Find Auction Properties On Property Portals

Similarly to the traditional auction, if you are looking to buy a property via a modern auction, you should first check the property portals. The property listing will tell you which auction system & auction house the property is with – you should contact the estate agent or auction house for more information.

However, where the modern auction differs is that instead of an auction day, there is an auction period which we will cover in step eight. The auction house will send you invites to house viewings, open days and mailing lists.

One – Find Auction Properties On Property Portals

Similarly to the traditional auction, if you are looking to buy a property via a modern auction, you should first check the property portals. The property listing will tell you which auction system & auction house the property is with – you should contact the estate agent or auction house for more information.

However, where the modern auction differs is that instead of an auction day, there is an auction period which we will cover in step eight. The auction house will send you invites to house viewings, open days and mailing lists.

Two – View The Property

With any route to buying a house, if you are inexperienced — you should always look around the house either as an open day or 1-2-1 house viewing. Many property investors tend not to view properties because they know the local area and condition of the buildings; this is a mistake you can’t afford to make. We would again recommend having a professional surveyor with you to give a rough estimate of the house and its condition.

Three – Get Finances Sorted

When buying a property with a mortgage, you must have an Agreement in Principle with your bank or building society to get a finite stance on your budget. You should inform the lender that you wish to use the mortgage to buy the property.

Four – Research Similar Properties

By researching similar properties in the area of the home, and the market trends on Zoopla & Rightmove, you can see how the value of the site has increased or decreased over time – this will help you work out if the property will see a positive return on investment in the future.

Five – Solicitor

When you first contacted the auction house, they should have provided you with The Legal Pack – a comprehensive list of documents that will provide essential information about the property. This list of records will help you and your solicitor make an informed decision on your budget and help you minimise the risk of surprises later down the road.

Six – Careful Of Guide Price

Taking into account the budget you have counselled with your solicitor, create a maximum amount you will be willing to pay for the property. If the guide price is above your maximum budget, it will be wise to opt out of the auction because the prices may rise higher than the guide price during the auction.

If the guide price is still within budget, we should warn you to be wary of it, as auction houses typically lower the guide price before the auction to gain interest and excitement about the property.

Seven – Go To Other Auctions

Because a modern auction is not a single day but several, it is wise that before your auction begins, you should view other similar auctions on your own so you can get an idea of the process. Modern auctions are often done over the internet and can have people from across the world bidding.

Before the auction starts, you can make an offer on the property via the auction house. However, most auction houses recommend that the seller continue to auction as the property may sell for more. If you made an offer on the property pre-auction, it might have to be substantially over the guide price — which may not fit your budget.

Eight – Auction Period

A modern auction may last up to 30 days, depending on the auction house. This means bids may be slow and sporadic to come in during the early period and then speed up when it gets closer to the end of the auction period. Whatever you do, do not blow your budget once the auction begins to grow traction.

You should ensure that you have all necessary documents and legal paperwork ready, like any ID, proof of residence and your AIP if you buy with a mortgage. If you are a cash buyer, you should ensure that you have evidence of the 10% down payment.

Nine – Post-Auction Win

If you have won the auction, it is time to pay the reservation fee and complete the comprehensive survey with your solicitor. The survey is not a legal requirement, but it will help you understand the structural integrity of the building. Unlike the traditional auction, at this point, you can still pull out as you have not exchanged the contracts, but you will lose the reservation fee (generally around 5%).

Your mortgage lender will also carry out a separate valuation to ensure the home is worth what you’re willing to pay. They will also check that you have a practical bathroom and kitchen and that the house is liveable.

The process from auction to contract exchange is much more flexible than the traditional systems and will typically take 28 to 30 days. Once you exchange contracts, there will be a further 28 days for you to complete. If you decide that the property is not for you after you have exchanged contracts, you will lose your reservation and 10% deposit and any penalties set by the auction house.

How Do Auctions Work For The Seller?

Steps one to four are the same as the traditional route to selling your property via an auction.

Five – Dealing With Pre-Auction Offers

Like the traditional auction, some prospective buyers will offer before the auction starts. However, it is better to wait until the auction begins, as the auction can last up to 30 days. During this time, you may receive much higher bids and miss out on a dream offer later on in the auction as the upfront offer may be significantly less than when there is a competitive bidding system in place.

Six – Auction Period

The auction period, as mentioned, may last up to 28 days. You may receive national or even international bids for your property during this time. They could vary significantly and be relatively slow at the start of the process but begin to ramp up towards the end of the period. People can still proxy bids on a modern auction, so there remains a risk of the auction ending with no winning bidders; however, there is an increased chance that the auction will result in above guide price bids.

If someone bids over the reserve price set by you and the auction house, they win the auction. The winning bidder will need to pay a 5% reservation fee on the day of the auction win – this is not legally binding, and they can pull out (and lose the fee) at any point before the exchange of contracts. There is now a 28-day period on top of the 30-day auction for the buyer to carry out any surveys and exchange contracts.

Seven – Dealing With Post-Auction Offers

You can negotiate with any high bidders for post-auction offers if there is no winning bid. If this process results in a win, it will continue as usual – if not, you can either opt out of the process (facing no fees) or continue onwards onto the next auction, although this can be pretty time-consuming.

Eight – Exchange Of Contracts

After the 28 days for the exchange of contracts, the winning bidder will have to pay a 10% deposit and a further 28 days to complete. This makes paying with a mortgage relatively easy as there is more time for the buyer than in a traditional auction.

Subscribe To Our Newsletter

We ask this in order to deliver you a better experience.

Comparison Between Modern & Traditional Auctions

Differences Between Modern & Traditional Auctions for Property Buyers

There are many similarities between modern and traditional auctions for the buyer but also differences. See our comparisons between the two below for property buyers:

Modern AuctionsTraditional Auctions
You can bid from anywhere worldwide, at any time, 24/7, for 30 days.Unless you are a proxy bidder, you can only bid if you are at the event on the day.
 If you buy with a mortgage, there is double the time between the exchange of contracts and completion than traditional.Traditional auctions are great for people looking to buy properties quickly, like investors and cash-buyers.
On the day the auction ends, you will only need to pay a 5% reservation fee and then a 10% deposit after 28 days. You can pull out at any time until the exchange of contracts.When the auction ends, you have to pay a 10% deposit and exchange contracts; after this, you cannot pull out without facing harsh penalties.
If your property doesn’t sell at auction, you may wait a while for the next one.If your property doesn’t sell at auction, you can join the next one, which will be less time-consuming than waiting for a modern auction.
Modern auctions may require more communication between parties once the property has been auctioned. If there are gaps, it may indicate that the buyer is considering/has pulled out.Traditional auctions have adequate fixed timeframes once the property has been auctioned. The sale progression is smooth and quick, with little communication between parties.

Differences Between Modern & Traditional Auctions for Property Sellers

Although the first stages for a property seller are similar, the later stages are quite different; see our table below for comparisons between modern and traditional auctions for property sellers:

Modern AuctionsTraditional Auctions
Due to the online nature of modern auctions, the seller may experience bids from across the world who may not know the area of the property and understand its value.Because traditional auctions are localised, the auction bidders will know the area and why the property is valued. This may mean that bids are targeted, and a higher chance of winning.
 There is a higher chance that the property buyer may pull out as there is a considerable time between the auction and completion.There is a lower chance of the property buyer pulling out as there is a far shorter time between auction and completion.

The Pros And Cons Of Auctions

In this article, we have looked at the differences between the two auction systems, but what about the auction process as a whole? Check out the table below:

Pros Of Auctions Cons Of Auctions
Possible bargain – as a buyer, you may win a bargain property & as a seller, you may sell your property for a deal too.Uncertain – There is no 100% success rate with auctions; your property may not sell. There is also a level of uncertainty that, as a buyer, your bid will win.
Even chance – as a buyer, there is an even chance of you winning even though you are pitched against much more experienced buyers. As a seller, as long as your house valuations are accurate, there is an even chance of selling your house amongst the competition.Time-sensitive – Although modern and traditional auctions differ in periods, there are periods where things are time sensitive, and if you miss out, you could be missing out on a potential buyer or seller.
Relatively fast – for both buying and selling, modern and traditional, it is a relatively fast process.Easy lock-in – As a buyer, you may be locked in and unable to pull out without facing penalties. As a seller, because you are locked in, you won’t be able to opt out if the other party stops responding.
Buy or sell with a mortgage – you can buy or sell a property with a mortgage; most traditional auction buyers are cash buyers.Emotional – selling or buying a house through an auction can be an emotional rollercoaster.
Trustworthy – a reputable auction house will know what they are doing & be a part of The Property Ombudsman which means they must treat you fairly.Research heavy – both parties will need to research each other significantly, using solicitors and auction house resources.

How Do Property Auctions Work: FAQs

Who owns property auctions?

Franchises or independent firms either own property auctions. They can vary in styles and reputability. When researching auction houses, it’s always important to check that they are part of The Property Ombudsman and the National Association of Property Buyers, which means they are trusted brands.

Is it safe to buy property at auction?

It depends; as long as the auction house of choice is part of The Property Ombudsman and the National Association of Property Buyers or has excellent TrustPilot reviews, you know the brand can be trusted.

In terms of property security at auction, it is one of the most secure ways to buy property. If you choose a traditional auction system, there is a shallow risk that the sale will fall through due to the short time frame between exchange and completion. If you choose a modern auction system, there is slightly longer time between business and fulfilment, but you will still face penalties if you pull out.

Why do properties get sold at auction?

If a property has an accurate house valuation, the reserve price and guide price can sell extremely well at auction. This can often take a great deal of skill to get right as most houses have their quirks, making it difficult to compare at a research level.

Do you need to view a house before buying it at auction?

We would recommend that before you buy any property, you view it in person. Auction houses will organise one on one viewings or open days, which make it easy to view the home. You could also arrange extra viewings if there are specific questions you want to ask.

Although, we acknowledge that sometimes in-person viewings can be challenging to attend, in which case either send a third party to view the property or take part in an online viewing (either via virtual reality or a video tour).

Do properties always sell at auction?

Properties of all shapes and sizes sell at auction. Around 18,000-20,000 properties sell at auction each year, and there has been a 22% increase in the auction sold houses since 2020. However, some places may not sell well at auction — but this is something you will need to test out yourselves. Alternatively, to sell your property at auction, you could try a cash-buying company or online estate agent who may be able to give you a guarantee on a sale.

Subscribe To Our Newsletter

We ask this in order to deliver you a better experience.

Tom is a Digital Content Writer passionate about sustainable property & property trends. Regardless of the subject, he will always write blogs of the best calibre. Read more about Tom here.

Ad Banner
About Tom Condon 126 Articles
Tom is a Digital Content Writer passionate about sustainable property & property trends. Regardless of the subject, he will always write blogs of the best calibre. Read more about Tom here.

Be the first to comment

Leave a Reply

Your email address will not be published.


*