A very informative article on property auctions from Country Life magazine in the UK.
Auctions condense the angst of buying a property to little more than ten intense minutes—the thrill when the auctioneer auctions to your property, the charged moments of bidding and, if you manage to secure your lot, the heady delight of knowing that you can move there in 28 days.
Speed is perhaps the greatest advantage of buying at auction. The fall of the hammer is a binding contract, and vendors are bound to sell, so long as the winning bid meets their reserve price.
‘On the fall of the hammer, contracts are exchanged and this eliminates that awkward and stressful period in a normal property transaction when legal and survey investigations can scupper many a deal well after the price has been agreed,’ says Robyn Peat of George F. White (01388 527966).
At the same time, however, the fall of the hammer legally commits the winning bidder to buy. That’s why the first crucial step to ensure you make the most of an auction is to do your homework.
Start by securing a catalogue as soon as it’s published—usually three to six weeks before the auction day. Once you have found some properties that fit your needs, arrange the viewings. Bear in mind that you may be invited for group viewings, rather than individual ones—this is a standard practice for properties to be auctioned off. Even so, try and strike a personal relationship with the agent handling the auction ‘to get as much insight as possible and offprint information if available,’ recommends Lindsay Burden of Fox Grant (08707 745 600).
It is also worth asking the agents what price they expect the property to achieve. ‘They may or may not tell you but it does no harm to ask,’ says Mr Peat. ‘This can give you a guide as to whether the property has been priced conservatively to draw interest or not.’
If you find a home you’d like to bid on, research the surroundings, says Paul Mooney of Savills (020 7824 9091). ‘Talk to local agents, understand the area, find out prices at which other properties have sold,’ he advises. Ms Burden also advises taking a tour of the neighbourhood a few times ‘to establish that there are no hidden blights to put you off, such as a chicken farm whose smell pervades with a westerly wind.’
Then register your interest with the selling agents and ask for the relevant legal pack, which is usually available two weeks before the auction date. ‘The pack contains a draft contract, title documentation, all the relevant searches, and a copy of the HIP if applicable,’ says Matthew Allen of Fisher German (01295 226 287). ‘It may also contain information relating to the planning history of the property.’
Make sure you examine it in detail with a solicitor and raise any issues or doubt with the auctioneers—the property is sold subject to that legal pack, whether you have read it or not.
‘Check and recheck every scrap of information,’ recommends Mr Peat. ‘There are no second chances and mistakes can be costly.’
Now is also a good time to arrange a detailed survey. ‘Generally a survey will not have been done for you and I would not advise you to rely on another report anyway. You need to arrange for this to be undertaken,’ says Mr Allen.
If you intend to carry out any work that requires planning consent, ‘qualify any third opinions and judgements by making your own independent enquiries of the local authority,’ says Ms Burden. Also speak to several builders to get an idea of costs. In the meantime, Ms Burden adds, ‘keep in contact with the auctioneers to check for any amendments, sale updates or legal notices that may have cropped up.’
It is also important to have your finances sorted out. Because the fall of the hammer heralds the contract exchange, you will be immediately asked to pay a 10% deposit from cleared available funds, and will have to make the rest available within 28 days. This means that, unless you are a cash buyer, says Mr Peat, ‘you must make an application for mortgage funding (prior to the auction).
You cannot bid without having a firm offer of mortgage from a mortgage lender.’ If you are unable to pay at the agreed time for whichever reason, you risk being sued for the full amount plus a compensation.
All these steps, says Mr Peat, ‘will entail you outlaying money on a transaction that you may not be successful in.’ The upside, though, is that, if you are successful, you may be able to ‘acquire a property at or near to the lowest price acceptable to the seller’ through a highly transparent process. Not to mention that, if you have done all the legwork and got your funding in place, you may be even able to buy our chosen home before the auction. ‘If you are in a position to finance immediately and sign the contract, this may suit the client,’ says Ms Burden.
With credit becoming harder to obtain, however, some auctioneers, such as Fisher German, are now running conditional auctions, where a non-returnable deposit is paid at the fall of the hammer, but buyers then have six weeks to get their funding approved and two more weeks to complete.
When you have facts and funding straight, it is time to get ready for the auction. Begin from what Mr Mooney calls ‘the Savills mantra’: ‘An unhappy buyer should not commit ,’ he says. ‘If there is even a tiny doubt, you should refrain from bidding.’
If you are happy to proceed, though, try and become familiar with the process. ‘Get some auction room experience,’ says Mr Allen. ‘Attend a couple before dipping your toes.’
On the day itself, bring with you some form of ID ‘for money laundering reasons,’ says Ms Burden, who suggests carrying a passport, driver’s licence or utility bill.
Try to arrive on time, introduce yourself to the auctioneer and ask whether there have been any amendments to the property’s details. The sit in a visible place at the back of the room—like that, you will be able to survey what other bidders are doing while remaining within clear sight of the auctioneer. When the time comes, bid clearly by raising your hand or the auction catalogue—paddles are rarely available!
Once the bidding starts, it is easy to get carried away, so stay calm and have some safeguards in place to avoid going above your budget.
‘Set yourself a limit and stick to it,’ urges Mr Allen. ‘Just because someone else has carried on bidding long after you have stopped, it does not mean the property is worth as much as they are paying for it.’
Mr Peat suggests getting out of the room as soon as you have hit your ceiling, while Mr Allen recommends having someone else bid on your behalf. Remember that, if you go above your budget and you win, you can’t back out and have to honour the contract.
But what if you win within your budget? Wait a few minutes before uncorking the Champagne to sign the contract and pay the 10% deposit. Your new home will be yours in 28 days.
And if you are unsuccessful? ‘If the lot remains unsold at the end of the auction, stick around and talk to the client and their agent,’ says Mr Peat. ‘Many deals are done immediately after an auction.’
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