Candid Insights Into British Property Auctions

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Property auctions in the UK provide a unique opportunity for buyers to purchase properties, often at below-market value. For sellers, auctions offer a fast and efficient way to sell a property without the hassles of private sales. In this article, we’ll take an insightful look at British property auctions, explaining how they work, the advantages and risks, and tips for getting the most value as a buyer or seller.

How Do Property Auctions Work?

There are over 300 auction houses across the UK that specialise in property sales. The largest auction firms include Allsop, Barnard Marcus, SDL Auctions and Auction House.

Properties are listed in auction catalogues 4-6 weeks before the auction date. Viewings are arranged so potential buyers can inspect the properties. A legal pack is made available containing information about the property title, surveys, tenure details and so forth.

On auction day, properties are offered via live or online auctions. Bidders must register to participate and provide identification and addresses. As each lot comes up, bidding starts at the reserve price set by the seller. The auctioneer seeks increased bids until the final highest bidder wins.

The winning bidder must pay a deposit, usually 10% of the hammer price, and exchange contracts immediately. The balance is due within 28 days when the sale is completed. Auction properties are sold on an ‘as seen, as is’ basis, so buyers take on any risks once their bid is accepted.

Why Sell at Auction?

For sellers, auctions offer several potential advantages:

  • Speed – The auction process is much faster than private sales, which typically take 2-3 months. Auctions allow sellers to move quickly.
  • Certainty of Sale – Unlike private sales which can fall through, auction sales are legally binding once the hammer falls. The buyer is committed.
  • Transparency – Auctions provide a transparent bidding process so the seller can see the market value has been obtained.
  • Cash Buyers – Auctions tend to attract cash buyers who have financing arranged, avoiding issues with dragging sales.
  • Improved Prices – The competition can drive up bidding and achieve prices above the reserve price.
  • Low Fees – Auctioneer fees are typically 1-2% plus VAT, lower than estate agent commissions on private sales.
  • No Chain – Auction properties are often chain-free, so sales can be completed quicker than private sales with chains.

For homeowners needing a quick sale, investors looking to flip properties or commercial owners, auctions can be an efficient sales method. However, reserve prices need to be set realistically to attract buyer interest.

Why Buy at Auction?

Buying at auction allows property hunters the chance to bid on a wide range of properties in a single day. Auctions can be an exciting environment where bargains can be had. Reasons buyers purchase at auction include:

  • Below Market Value – If buyers have done their research, properties may be purchased below comparable market prices.
  • Investment Opportunities – Many investors and developers source auction properties which they can refurbish and resell at a profit.
  • Unique Properties – Auctions allow access to properties not available publicly, such as repossessions and commercial buildings.
  • Renovation Projects – Buyers can pick up run-down buildings ripe for full renovation and remodelling.
  • Tenanted Investments – Investors can acquire tenanted properties with sitting tenants producing rental incomes.
  • Chain Free – No waiting around for existing owners in auction sales, which helps investors access stock faster.
  • Cash Buyers Have Edge – Unlike private sales, unconditional cash buyers have the advantage over mortgaged buyers.

However, auction buyers take on risks buying properties unseen and without surveys, so experience and due diligence are vital.

Understanding Auction Property Values

Establishing accurate property valuations is key for both buyers and sellers at auction. Sellers who overestimate values may fail to sell if reserves are set too high. Similarly, buyers can easily overpay if they get caught up in bidding fever.

When assessing auction property values, key factors to consider include:

  • Recent comparable sold prices – Check prices obtained for similar properties sold at both auction and private sales in the area.
  • Property condition – Does the property need upgrading work, repairs or even full renovation? Factor in costs to determine bids.
  • Location – Desirable areas command higher prices, while properties in poorer locations will have lower value.
  • Tenancy status – Tenanted investment properties with decent rents in place provide income to achieve higher prices.
  • Lot size – Small odd-shaped plots or land parcels may have a lower value than larger rectangular sites.
  • Planning issues – Development sites with planning permission have higher potential than those without consent.
  • Demand and supply – Local demand in the auction room on the day can heat up or cool down bidding.

Doing due diligence by inspecting auction lots, researching comparables and speaking to local agents helps buyers avoid overpaying. Auction price guides should also be reviewed cautiously as a starting point only.

5 Top Tips for Auction Buyers

Buying at auction can be daunting. Here are 5 top tips for property auction buyers:

  • Research Thoroughly – Do your homework to value a house in the local area and any factors specific to the lot. Use online resources and get professional valuations.
  • View the Property – Attend open viewings to assess the property condition and identify any defects, repairs or potential building costs.
  • Arrange Finance – Get your deposit and financing sorted before auction day. Cash buyers have the advantage over mortgaged bidders.
  • Set Your Limit – Decide your maximum bid and stick to it, considering the value factors rather than getting caught up in bidding wars.
  • Use a Solicitor – Engage a solicitor to check legal documentation and represent your interests during conveyancing.

Doing the groundwork is essential to avoid overpaying and nasty surprises further down the line after you’ve won the auction bid.

5 Key Tips for Auction Sellers

If you’re considering selling your property at auction, here are 5 key tips for success:

  • Choose the Right Auctioneer – Research different auctioneers based on their experience, specialist areas, fees and marketing reach.
  • Set a Realistic Reserve – This is the minimum price you’re willing to sell for. Get advice from agents on achievable reserve levels.
  • Market Extensively – Work with the auctioneer to promote the lot through online and printed brochures, adverts and viewer days.
  • Prepare Legal Packs – Gather and prepare detailed information on the property for conveyancing due diligence.
  • Consider a Minimum Bid – This starts bidding off rather than using reserves which can deter buyers. But it’s riskier.

Setting realistic expectations on value, marketing thoroughly and having all paperwork ready for buyers will help achieve a successful auction sale.

Pros and Cons of Auctions vs Private Sales

Auction sales differ quite significantly from normal private treaty sales. How do they compare?

Pros of Auctions

  • Achieve a sale quickly, often in 2-4 weeks at auction vs 2-3 months privately.
  • Creates a competitive bidding environment which can achieve higher prices.
  • The sale is legally binding for the buyer once the hammer falls.
  • The seller has control over the minimum price through reserves.
  • Low fees compared to estate agent commissions on private sales.

Cons of Auctions

  • Buyers purchase properties on a risky ‘as seen as is’ basis with limited comebacks.
  • Setting reserves too high can result in unsold lots if bidding doesn’t reach reserve levels.
  • Requires upfront work on valuations, marketing and legal packs.
  • Cash buyers have an advantage over buyers needing mortgages.
  • Risk of underbidding if buyer competition is low on the auction day.

Pros of Private Sales

  • Buyers have more flexibility with financing, surveys and negotiations.
  • Sales can achieve higher prices as buyers have time to assess value.
  • Buyers benefit from conveyancing work and surveys identifying potential issues.
  • Can negotiate subject to survey or finance clauses.
  • Access to a wider market through estate agent marketing and online portals.

Cons of Private Sales

  • Sales take much longer, typically 2-3 months rather than the auction’s 2-4 weeks.
  • Sales can fall through if buyers pull out having not committed legally.
  • Commissions tend to be higher than auction fees of 1-2% plus VAT.
  • Lack of transparency on buyer interest and sales prices achieved.
  • Chain-free properties often get sold quickly, leaving less desirable properties.

Private sales suit most typical home buyers, allowing time for surveys and mortgage finance. Auctions suit those who can purchase quickly and confidently for refurbishment or as investments.

Understanding Buyer Premiums and Fees

On top of the hammer price achieved at auction, buyers pay:

  • Buyer’s Premium – This is an extra percentage fee charged by the auction house, typically from 1.8% up to 3.6% plus VAT. This covers the auctioneer’s costs and commission.
  • Deposit – A non-refundable deposit is required on the day of 10% of the sale price. This commits the buyer.
  • Other Fees – Check for entry fees, administration fees, internet bidding fees and telephone bidding fees. These can all add costs for buyers.
  • Legal Fees – The buyer pays both their own and the seller’s legal fees during conveyancing, amounting to around £950-£1500 total.
  • Stamp Duty – If over the £125,000 threshold, stamp duty tax applies to the sale price. Higher rates apply above £250,000.
  • Survey Costs – If commissioning a survey, buyers should budget around £250-£600 for standard building surveys.

Buyers should factor in these extra costs on top of the hammer price when planning their maximum bid. Check auction terms and conditions for the specific fees.

Navigating the Legal Packs

Buying a property at auction isn’t like buying a normal house. Bidders take on legal commitments without conveyancing scrutiny or surveys. However, auction houses provide legal packs containing important property information. Legal packs contain:

  • Title Deeds – Proving property ownership and rights attached to the land.
  • Leasehold Documents – For leasehold properties, check ground rent, service charges and lease terms.
  • Searches – Local authority search results uncovering planning issues and development potential.
  • Surveys – Any existing structural surveys are included, but conveyancing surveys are not.
  • Energy Performance Certificates – Outlining energy efficiency ratings which impact value.
  • Tenancy Agreements – For tenanted properties, details of tenants, rents and lease terms.

While not as comprehensive as normal conveyancing, the legal packs contain useful information – if buyers review and understand them. Taking professional advice from a solicitor can help assess any risks.

Using Finance at Auctions

Mortgaged buyers can struggle at auctions competing against cash investors. Financing adds complexity with valuations, credit approvals and surveys. However, options do exist for buyers needing finance:

  • Bridging Loans – Short-term secured loans using the property as collateral. Higher interest rates but quick turnarounds.
  • Buy-to-Let Mortgages – For investors, regular BTL mortgages are an option for tenanted properties.
  • Joint Borrowing – Team up with a cash partner to provide the deposit and use a mortgage for the rest.
  • Auction Finance Deals – Some lenders offer tailored mortgage products designed for auction buyers.
  • Sell Before You Buy – Selling your existing home can release equity to buy at auction without finance.

Having mortgage finance pre-approved creates confidence when bidding. Be aware lenders will want a valuation, which may be below the price paid. Understanding financing costs is vital.

Avoiding the Pitfalls for Buyers

While auctions can seem an exciting way to bag a property bargain, they come with risks that buyers need to navigate carefully:

  • Hidden Defects – Buyers take on any issues with the property unseen, with no comeback later for the seller to fix problems. Surveys, valuations and viewing are essential.
  • Overpaying – Getting caught up in auction fever and bid wars can lead buyers to overpay for properties above actual market value. Stick rigidly to limits.
  • Hidden Costs – On top of the hammer price, extras like buyer premiums, repairs, auction fees and taxes can all add substantial costs.
  • Gazumping – Some sellers try gazumping tactics, seeking higher bids after the auction if reserves weren’t met. This risks buyers losing lots they thought they’d won.
  • Losing Deposits – If unable to complete due to gazumping or mortgage issues, buyers lose the 10% non-refundable deposit.
  • Problem Tenants – For tenanted properties, buyers take on sitting tenants without background checks, which may prove problematic.

Auction buyers need to be experienced and savvy to avoid being stung. Patient buyers may be better served bargaining hard on private sales where they have stronger consumer protections.

Can Sellers Withdraw Lots Before Auction?

Some sellers decide to withdraw from the auction process before the big day. Reasons for this include:

  • More attractive private sale offers being received once the property is publicly marketed
  • Concerns reserve price won’t be reached if buyer interest proves low
  • Issues arise around the property such as tenant problems, defects or vandalism
  • Legal problems or ownership disputes crop up ahead of the exchange of contracts

However, withdrawal isn’t always a simple process. The auction contract terms determine if it’s possible:

Pre-Auction Offers – Most contracts allow the seller to accept pre-auction private offers without penalty. This provides an exit route if needed.

Withdraw Fees – Check for clauses requiring “withdrawal fees” if pulling out close to auction day, often 1 week before. These can be 2% of the guide price.

Set Withdrawal Window – Some contracts specify a time window where the seller can withdraw without penalty, typically 4-6 weeks before the auction.

Complete Ban – A few auction contracts forbid any withdrawal once entered, so the seller must proceed to auction no matter what.

Scrutinise the small print thoroughly before signing an auction contract. Seek legal advice to ensure you have an escape route if needed before auction day.

Alternatives to Auctions for Quick Sales

If the risks and disadvantages of auctions don’t appeal, what are the alternatives for selling or buying a property quickly?

  • Sell via Estate Agents – Agents will market aggressively seeking pre-auction bids if needed urgently for probate or relocation. No auction risks or fees.
  • Offers Over – Invite quick bids by pricing aggressively as “offers over” rather than setting an asking price. This generates competitive tension.
  • Informal Tender – Set a deadline for sealed “best bids” from interested buyers to create a quasi-auction environment.
  • Online Agents – Low-fee online agents using portals and social media can gain quick exposure from motivated cash buyers.
  • Property Buying Companies – Sell directly and quickly to property-buying companies like We Buy Any Home and HouseBuyFast if timing is critical. But often at lower prices.
  • Property Auction Sites – Some property portals like BidX1 allow private sales at discounted “buy now” prices before scheduled online auctions.
  • Private Bargaining – Once listed openly, motivated buyers will put forward quickly closable cash deals at tempting offers if pricing is attractive.

With the right approach and marketing, urgency itself can help achieve quick sales outside of auctions.

Final Thoughts

Property auctions provide a transparent arena where motivated buyers and sellers can transact property sales quickly and efficiently. However, the process favours experienced investors with finance arranged. By understanding the pros, cons and tips for navigating auctions, buyers may be able to bag a bargain below market value. Meanwhile, sellers can use competitive bidding to achieve rapid sales. Overall, auctions are an exciting option, but thorough research and due diligence are essential on both sides to avoid being stung!

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