Buying an Investment Property at Auction
Buying a property can be a long, drawn out process. One way to speed it up is to buy at auction. When the auctioneer’s hammer falls the highest bidder owns the property, so the whole buying process is over in a matter of minutes rather than months. There are bargains to be had, but certain pitfalls must be avoided.
If new to auctions, it is a worthwhile idea to sit in on one before joining in. Properties are sold in lots, with the auctioneer acting as an agent for each seller. The auctioneer will take bids until there are no more and, as long as the reserve price has been met, sell the property to the highest bidder. The reserve price is the lowest price the seller will accept. Most lots have one, and it’s confidential. The auctioneer will give due warning when concluding a sale, and when the gavel falls the sale is confirmed and the successful bidder is immediately under a binding contract that has the same legal implications as a signed contract by private treaty.
When familiar with the auction process, the next step is to request a catalogue from the relevant auction house. The catalogue will be printed weeks in advance of the sale and typically contains a photograph of each property, a brief description and a guide price. Identify the properties of interest and arrange to view them.
Don’t Cut Corners
It is important not to cut corners when buying at auction. When viewing properties, check that the catalogue description is accurate, get the opinions of neighbours and local estate agents, have the usual property and land searches carried out, and get advice from a solicitor and, when appropriate, a chartered surveyor.
Strict rules must be adhered to when buying a property at auction and failure to do this will be costly. Successful bidders must pay a 10 per cent deposit on auction day when the contracts are signed, and the balance on the property must be paid within a given time – typically around 28 days. Miss that deadline and the deposit may be lost, so it’s crucial to make financial arrangements in advance and, if necessary, have a mortgage agreed in principal with a bank or building society before buying at auction.
On auction day, take two forms of identification, banking details and a cheque book. It may be necessary to register with the auction house in order to bid, and get hold of an addendum sheet, if there is one, as it contains late information or alterations.
Stick to Your Price
Try to arrive early and find a spot in the room that will allow a clear view of the auctioneer. Decide on a maximum bid in advance and stick to it. When placing a bid, make an unambiguous gesture to the auctioneer. Either raise a hand or give a clear nod of the head. If unable to attend the auction, it is possible to bid by telephone or in writing.
Some properties in the catalogue may be withdrawn or sold prior to the auction, and the auctioneer has the power to change the order in which lots are sold, withdraw lots or cancel the auction altogether.
On occasion, a property that fails to reach its reserve price will still sell. The vendor can have a change of heart and decide to accept the highest bid at the end of the auction, so it is worth giving contact details to the auctioneer. Bidders can put in offers for unsold lots after the auction, and these may or may not be accepted by the seller.
