Buying Differently: The Art Of Securing Properties At UK Auctions
Purchasing property at auction in the UK can be an exciting and rewarding way to secure your dream home or investment property. With a bit of preparation and know-how, you can get a great deal on a property and avoid some of the hassles of traditional property purchases. This guide will walk you through everything you need to know about buying homes for auction in the UK, from understanding the process to tips for making successful bids. We’ll cover how auctions work, the pros and cons, the costs involved, and key strategies to help you buy the property you want at the best possible price. Read on to learn the inside scoop on navigating UK property auctions with confidence.
How Property Auctions Work in the UK
Property auctions in the UK follow a basic structure, with some variations between auction houses. Here are the key things to know:
- Properties are listed by the auction house with a guide price – this is not a reserve but gives a rough idea of the expected sale price.
- You’ll get to view and inspect properties at designated open house times before the auction.
- On auction day, properties are offered via live auctioneer or online auction.
- If your bid wins, you pay a deposit on the day, usually around 10% of the hammer price.
- Legal completion happens within 28 days in most cases.
- Finance needs to be arranged beforehand as you cannot rely on mortgage finance at the fall of the hammer.
Unlike sealed bid auctions, you openly bid against other buyers in the room or online. The bidding goes up in set increments until the final highest bidder wins. Make sure you know your limit and stick to it in the heat of the moment.
Pros and Cons of Buying at Auction
Auctions have some unique advantages but also come with risks to weigh up:
- Can purchase below market value – properties may sell under guide price.
- Speed – 28 days to completion is much faster than traditional purchases.
- Certainty of sale – the winning bidder is legally committed to purchase.
- Reduced chain issues – many auction properties are from motivated sellers.
- Limited viewings – you may only get one open house viewing before auction day.
- Risk of unknowns – limited surveys and legal checks before the auction.
- Financing issues – not all lenders support auction finance so you often need cash.
- Fees still apply – you pay both auction fees and property purchase fees/taxes.
- Bidding competition – popular properties attract multiple bidders.
As you can see, auctions enable you to snap up bargains fast but sufficient due diligence is essential to avoid nasty surprises post-sale.
Understanding Auction Property Guide Prices
The guide price quoted on auction property listings offers an idea of the expected sale price but should not be taken as definitive. The guide price is set by the auctioneer based on market feedback and interest during the marketing period.
The actual sale price on auction day could be below or above that guide price. As a rule of thumb, expect to pay within 10-15% of the guide price, but hot properties can sell for much more if demand is high.
Some things to bear in mind with guide prices:
- They indicate interest levels and a ballpark figure.
- The reserve price is usually around 80-90% of the guide.
- Prices can be deliberately pitched low to attract interest.
- The final price depends on competition and the number of bidders.
- Research sale prices of comparable properties for a more accurate idea of value.
- Be prepared to bid over the guide price if it’s a desirable property.
Never take the guide price as an accurate reflection of market value. It’s simply a starting point for the auction process. You still need to do your due diligence on property valuation to determine how much you want to bid.
Costs of Buying at Auction
In addition to the winning bid price, buying at auction incurs fees just like traditional property purchases:
- The buyer’s premium paid to the auction house is around £3,000-£5,000.
- A non-refundable deposit, typically 10% of the sale price.
- Legal conveyancing fees are around £500-£1000.
- Stamp duty if applicable.
- Survey fees if opting for a survey before the auction.
- Financing fees if applying for an auction finance loan.
- Removal and refurbishment costs after completion.
Factor all these costs in when setting your maximum bid price. Also, the budget for repairs or renovations the property may need post-sale.
Buying strategies: With or Without Viewing
You have two main strategies when bidding at auction:
Bidding without viewing internally
Bidding ‘blind’ is risky but can work for experienced investors used to assessing properties externally, reviewing legal packs, and factoring in contingencies. Know the local market extremely well and have clear profit goals driving your bid.
Bidding after internal viewing
Most buyers prefer to inspect the property fully at the open house before auction day. This allows you to assess the condition, take measurements, and identify any major issues. Get professional advice on approximate renovation costs that may impact your bid price.
In both cases, rely more heavily on location potential, land value and developability rather than dwelling condition to identify promising auction opportunities.
Doing Your Due Diligence Before Bidding
To avoid nasty surprises down the line, conduct detailed due diligence before the auction:
- Review the legal pack thoroughly covering title, searches, leases, and planning docs.
- Commission property surveys to check for structural issues, asbestos, and electrical safety.
- Research local market values via sold prices, agents, and independent valuers.
- View comparable auction results in the area to gauge price competition.
- Consider access issues – check rights of way, road ownership, and boundaries.
- Look into potential development options and permissions if relevant.
- Calculate a realistic renovation budget if major works are needed.
- Seek mortgage advice to pre-approve finance if required.
Allow sufficient time for this – at least 2 weeks before the auction is recommended if possible. Ask the auctioneer questions about any red flags. Do not rely purely on external inspection, the legal pack and auctioneer comments when bidding. Get independent professional advice to avoid making a wrong purchase that could be hard to sell on later.
Securing Finance for Your Auction Purchase
Unlike traditional property purchases, auction finance cannot be arranged in time for the exchange of contracts. Make sure you have financing sorted beforehand:
- Secure a mortgage in principle from lenders offering auction finance. This shows you have passed the affordability tests.
- Some lenders offer specialist auction loans but options are limited so shop around.
- Bridging loans are an alternative to cover the price and renovation costs short term.
- Joint financing with a partner spreads the risk and borrowing capacity.
- Cash buyers have a clear advantage – no lender to satisfy during the tight auction timeframes.
Having at least your deposit in cash gives you flexibility if mortgage finance falls through later. You may also be able to negotiate with the seller post-auction if there are difficulties securing a loan.
Registration and Bidding Processes
To bid at auction, you must register with the auctioneer before auction day:
- Provide proof of ID, funds, and address details.
- Some may ask for spending limits or deposit payments upfront.
- You’ll be assigned a paddle number to use when bidding in the room.
On the day, arrive early and get familiar with the bidding process:
- Listen carefully to the auctioneer and auction staff. Ask questions if unsure.
- Check any last-minute amendments provided or announced.
- Note competing bidders for each property – this signals interest levels and price competition.
- Keep bids simple – nod, raise your paddle, or shout. Avoid gestures that could be misinterpreted.
- If bidding online or by phone, allow extra time for any technical delays. Do not lose out due to a bad connection.
Stick confidently to your budget and ceiling price regardless of auction room dynamics. Avoid getting caught up in bidding wars that push you above your limit.
Bidding Tactics and Strategies
Apply these tactics to make successful bids:
- Set your absolute maximum you will bid and do not exceed it, even if only by a small amount.
- Concede before hitting that limit so you have some remaining bargaining power.
- Bid decisively – hesitating can signal you are reaching your ceiling which encourages others to outbid you.
- Bid early to establish interest if it’s a key property for you and deter competitors.
- Bid late to surprise other buyers, giving them less time to react and increase bids.
- For multiple properties, bid on the one you want first to secure the priority purchase.
- Don’t make sudden jumps in your bidding increments. Increase in smaller increments to nudge up the price.
- Consider partnering up with another bidder whose budget ceiling is higher than yours.
Mastering the bidding tactics takes practice. Attend a few auctions first to observe so you understand the patterns and psychology of bidding before taking part.
Securing the Property After Your Winning Bid
Congratulations, your auction bid was successful! Here’s what happens next:
- Hand payment of your deposit over to the auction staff, usually around 10% of the hammer price.
- You are now legally committed to purchasing the property. Complete purchase via the auctioneer’s conveyancing within 28 days.
- If an issue arises impacting completion, you may be able to negotiate an extension, price reduction or cancellation with the seller. But you may forfeit your deposit.
- Transfer remaining funds on completion – organise any mortgage finance beforehand.
- Receive title deeds and keys on legal completion once all parties have signed contracts.
- Arrange building insurance effective from the exchange date. Organise access for any urgent repairs needed.
- Keep to cost budgets when planning renovations to deliver the profit or rental potential you anticipated.
The weeks after a winning bid are hectic. Liaise closely with the auctioneer and conveyancer and be responsive to avoid delays. Have your next steps project planned before auction day.
Summary and Conclusion
Purchasing property at auction can help you secure a great investment or future home at an attractive price if approached with care and know-how. Now that you understand the UK auction process, costs and timeframes involved, the key is thorough preparation before bidding. Do not cut corners on due diligence and pursue attractive properties aligned with your budget and property goals. Weigh up the risks and rewards carefully for each auction lot and stick to your spending limits when the competitive bidding starts. With the right approach, homes for auction can add value to your property investment or ownership journey in the UK.