Buying Blind: What You Need To Know About Purchasing At A UK House Auction
The process of purchasing a house at auction in the UK can be a thrilling, yet daunting experience for first-time buyers. Going blind without adequate research or representation could lead to costly mistakes or regrets down the line. This guide will explore everything you need to know before bidding at a property auction, from conveyancing to survey reports. Read on for tips and guidance to make an informed purchase at auction.
Before attending your first auction, some preparation needs to be done. Research which auction houses sell in your desired area and review their auction catalogues when published. This will give you an idea of available properties and guide prices. Viewings are usually conducted on specific open days. Attend as many viewings as possible to get a proper sense of condition and potential. Auction houses usually only provide limited information in the catalogue such as the number of bedrooms, reception rooms, outside space and broad location. Do not rely on the description alone – due diligence is key.
While viewings should uncover any major issues, also consider ordering a homebuyer’s survey report for properties you’re serious about bidding on. This will highlight any structural problems or repairs needed. Obtaining financial approval before bidding is also wise as you will need to provide deposit funds on the day if your bid wins. You should have finances ready and the conveyancer lined up to act quickly post-auction.
Understanding the Process
UK property auctions work on unconditional bidding. This means that if you place a winning bid, you are legally committed to the completion of that purchase. This is unlike traditional house buying where bids have conditions attached such as securing a mortgage. Understand that when your number is chosen, you must proceed with buying that property regardless of any issues discovered later down the line. This highlights why comprehensive viewing and independent surveys are so crucial.
On the day of the auction, you or your representative will need to register to receive a bidding paddle. When the property lot comes up, bidding starts at the reserve price and participants bid against each other to raise the price. The auctioneer will bang the gavel to indicate the winning bidder. At this point, the buyer must immediately pay a deposit and sign contracts. Deposits are usually 10% of the hammer price. The remainder of the funds will then be due upon legal completion within 28 days in most cases. Finance conditions cannot be added, so DO NOT BID unless you know finances are secured and available.
A key step is appointing a conveyancer or solicitor to handle the legal side of things. Conveyancers facilitate the transfer of funds and property title on your behalf. Hire one well in advance of the auction date so they can check over contracts and prepare for a quick completion. Using a conveyancer familiar with auction timeframes is highly recommended. They can spot any undesirable clauses in the contract and negotiate terms if needed. Be aware the buyer typically covers both sides’ legal fees in an auction scenario.
Get all the conveyancer due diligence done before auction day including local searches and drainage surveys. This will speed up the completion process. Ensure your conveyancer has copies of your mortgage offer if applicable, identification documents, and deposit funds ready for transfer when signing contracts. Stay in close contact throughout the process. Your conveyancer will handle the legal intricacies you may not fully understand while representing your interests.
Given the unconditional nature of bidding at auction, it is smart to obtain a survey report on the property’s condition from an independent RICS surveyor. This will supplement viewing notes from open days. A homebuyer’s report or full building survey will highlight any urgent repairs needed or underlying defects. This allows you to make an informed decision on whether to bid based on true property valuation. It also flags costly issues early so you can negotiate the price or walk away if repairs exceed your budget. Note that auction houses offer properties on an ‘as seen’ basis – they make no guarantees about property condition. Do not rely on their catalogue description as a survey substitute.
A survey also provides important information for insurance purposes. Mortgage lenders will require a report to approve financing as well. Allow enough time before auction day for the surveyor to inspect the property and compile the report. Surveyors base their findings purely on visible defects and accessibility issues on the day. Further problems could emerge post-purchase when renovation begins. Even with a thorough survey, buying at auction involves an element of risk. Budget extra contingency funds in case of nasty surprises are uncovered after completion.
Arranging financing early is crucial when buying at an auction. Secure an Agreement in Principle from a mortgage lender or have cash funds readily available before bidding. As noted, auction contracts are legally binding with no provisions to add finance clauses later on. If you fail to complete it due to lack of funds, you lose your deposit and still owe the remaining purchase price. This can quickly become a financial nightmare. Obtain your mortgage offer early and ensure you can cover the deposit amount plus other costs like surveys and conveyancing.
Budget carefully and stick to your limits when bidding. Auctions can get caught up in bidding wars that see prices exceeding market value. Overpaying could make it harder to secure lending approval or wipe out your deposit savings. Mortgage lenders will still assess property value and your affordability despite what the hammer price was. This may require negotiating the price down post-auction if the winning bid is too high for lenders to approve a mortgage. Have a clear budget and maximum bid price in mind before attending. Bidding sensibly will keep financing on track.
Setting a Limit
Establishing your maximum bid limit ahead of the auction is crucial. Assess market rates for comparable properties in the area to gauge value – do not get emotionally led into overpaying in the heat of the moment. Factoring in opportunities to add value through renovation is wise but be realistic. Review your survey report and make cost estimates for any repairs needed. Then set your bidding limit accordingly with a safety net for unknowns. Having a firm stopping point will help avoid getting carried away and paying more than you can sensibly afford. Stick stoically to that number and be ready to walk away if bids exceed your budgeted amount. There will always be other opportunities.
Most auction properties host dedicated viewing days scheduled before auction day. Attending as many viewings as possible for lots you may bid on is essential. It provides the only opportunity to examine conditions and assess potential accurately. Never bid based solely on catalogue descriptions, photographs, or street view – you must see properties in person before committing funds. Take thorough notes and photographs during viewings to compare properties. Evaluate how much work is required and the potential costs involved. Also, look for any signs of serious structural issues or dampness. Check room dimensions against floor plans and look for granted planning permissions or certificates. Flag any concerns to your conveyancer. Viewings allow you to uncover potential deal-breakers and gauge whether auction homes have misrepresented the property in listing details. Attend every available viewing time to inspect as thoroughly as possible before auction day.
Auctions can occasionally throw up bargains in desirable areas, but many lots require work and sit on less popular streets. Check the specific area and neighbourhood carefully when viewing. Properties in run-down surroundings will be harder to add value to or sell for profit. Look into planned developments nearby and transport links. Visit at different times of the day to check for noise issues or antisocial behaviour problems. What may seem like a bargain can quickly become a nightmare if located on a busy main road or near eyesore properties that drag down desirability. Location plays a crucial role in profitability and should guide your bidding appropriately. Be wary when location seems too good to be true at auction – it may indicate serious underlying problems not immediately apparent on viewing days.
In addition to usual conveyancing searches, consider ordering environmental reports before purchasing at auction. This is especially important for ex-commercial buildings or land where previous industrial use may have caused contamination. Even residential properties in built-up urban areas could have issues like flooding risks, radon gas, or asbestos to uncover. Environmental searches bring peace of mind that the property will not require costly remediation or pose health hazards which mortgage lenders may be unwilling to finance. While extra upfront, reports highlighting problems allow you to renegotiate the price to cover future remediation or walk away if too concerning. In a binding auction scenario, this could save you from being stuck in an unsafe money pit. Making assumptions about contamination risks without professional reports is unwise.
Guide and Reserve Prices
Auction catalogues will list guide prices which indicate the approximate value expected. However, the reserve price is only disclosed on the day of the auction. Reserve prices are the minimum amount the seller will accept and represent the true starting point for bidding. The difference between guide and reserve prices varies greatly. Make sure you know the reserve before getting pulled into a bidding war – it may be substantially higher than the indicative guide price originally suggested. Some auctioneers will provide the reserve upon request to serious bidders ahead of time. Do not assume you can secure a property near the guide price. Be prepared that winning bids often exceed guide prices by up to 20% depending on the competition. The reserve should cap your maximum bid to avoid overpaying in the heat of the auction.
Some auction houses permit vendor or seller bidding when marketing properties. This controversial practice allows the auctioneer to bid on the vendor’s behalf up to the reserve price, effectively setting their minimum bidding threshold. Vendor bids are not disclosed to bidders, which makes genuine interest unclear. Make sure to establish whether vendor bids will feature when signing up with an auction house. If permitted, tread carefully when bidding. Gauging genuine bidder interest against phantom vendor bids can lead to overpaying beyond real market value. Insist on full transparency of bidding before participating. Be prepared to walk away if irresponsible vendor bidding practices mar the fairness of the process.
If bidding exceeds your limit at auction, all hope is not lost. In some situations, you can negotiate with the seller after the hammer falls if the winning bid comes in considerably above expectations. This only applies when bidding has wildly exceeded market value, making securing financing tricky. Sensible negotiation may bring the price back down to a mortgage-friendly amount, avoiding the need to forfeit your deposit and pull out. This does rely on the seller being open to bringing the price closer to fair market value. You will need evidence from surveys and comparables to support why the sales price requires lowering. Post-auction negotiation should be seen as a last resort, not standard practice. Approach with sensitivity and well-reasoned arguments around affordability.
Ready for Renovation
The vast majority of auction properties require some degree of renovation work before moving in. From dated décor to squalid conditions, prepare for a project. Review the survey thoroughly and estimate costs for essential repairs or restoration. Include contingency sums to cover unexpected problems. Factor in expenses like securing planning permissions or hiring waste disposal services. Create a budget spreadsheet to organise costs and cash flow. Remember property may be unmortgageable until uninhabitable conditions are fixed. You will need access to considerable ready capital to finance works while off-market. Have tradespeople lined up in advance and know equipment hire costs. Buying at auction brings the excitement of a renovation journey but demands full project planning. Never underestimate potential costs.
Purchasing a house for sale at auction can secure you a profitable property at below-market value but comes with risks. Thorough upfront research, viewings, surveys and finance checks are essential when bidding unconditionally. Know your budget limits and walk away if too many red flags appear. While potentially more complex than traditional house buying, auction purchases can yield hidden gems with the right due diligence. Avoid going in blind – take all reasonable steps to minimise unpleasant surprises post-sale. With eyes wide open and patience, auctions can bag you a superb investment property at a competitive price if prepared. Just bid wisely and never compromise on comprehensive professional advice. Happy bidding.