As Home Selling Expert grows I'm starting to get more calls from buyers who've found themselves in a bit of a pickle after winning a property at auction...
I've put this article together to cover some of the biggest property auction mistakes I'm seeing... Hopefully I can help you avoid a similar catastrophe!
Failing to do your due diligence before bidding is the single biggest property auction mistake you can make. As a minimum you should view the property and check the legal pack, but having a pre-auction report from a solicitor and a formal survey on the property is generally recommended.
You should also check the auction fees, and have your financing organised before bidding.
In this article I'm going to walk you through each step, and share some of the horror stories I've heard from auction buyers over the last two weeks alone.
1. Never bid blind... Do your due diligence!
This is where people can end up in really hot water really fast.
Remember, there's no backing out of an auction after the hammer falls. If you win, you'll usually be on the hook for at least 10% of the purchase price. It can be even more though.
Check out my article below to learn more.
Let's walk through the different parts of due diligence you should look to complete before bidding at auction.
And just keep this in the back of your mind throughout: Property auctions attract way more than their fair share of "problem" properties. So it means your due diligence is way more important than when buying through an estate agent.
1.1. View the property
Most people wouldn't buy a car without seeing it, or furniture without seeing it.
In fact, a lot of people won't even do their weekly shop online because they won't get to check their onions first.
Yet so many people keep buying properties at auction without seeing them first!
Please stop doing this!! I'm speaking with so many people who are ending up with problems because of exactly this. Here's a pretty terrifying example from the last 2 weeks which has cost the buyer over £15,000:
1.2. Get a survey
Going to see the property yourself is one thing, but having a professional view it for you is another.
As I mentioned earlier, auctions attract more than their fair share of "problem properties". Some issues aren't easy to spot for an ordinary buyer, but an experienced surveyor may pick them up in an instant.
Even if the surveyor misses something, you'll be covered by their professional indemnity insurance. It's an extra layer of cover for you should something go wrong.
I'm happy to pass you onto the surveying firm we use: Email me at email@example.com and I'll be happy to put you in touch.
1.3. Review the Legal Pack
This is really important, and too many people still overlook it. Let's start with the basics.
What is an auction legal pack?
The legal pack contains searches, information about the property, and information about the auction process. It may also include the auction "special conditions".
The legal pack is made available to every buyer before the auction. It can usually just be downloaded online.
Why don't you have an auction legal pack when you buy through estate agents?
When you buy a house through an estate agent, the first thing you do is agree the price with the seller, then all the due diligence comes afterwards. The fact that due diligence comes last is why so many house sales fall through after they've been agreed.
Auction work the opposite way around:
- The seller's solicitor provides a legal pack before the auction
- Buyers check the legal pack and do their other due diligence before they bid (at least that's what they're meant to do)
- Finally, buyers place their bids, and you end up with a legally binding sale.
Why you should review the legal pack
A property isn't just the bricks and mortar it's built from. It's the whole legal aspect around it as well.
The number of issues that can crop up with properties are limitless.
There could be:
- Ownership issues,
- Lease issues,
- Enforcement notices,
- Easements and rights of way (or a lack of right of way),
- Issues with the local area,
- Existing tenancies,
- Ongoing disputes,
- and so on.
These types of major legal issues will usually be covered in the legal pack.
Like inspecting a property though, it can be easy to miss things if you read the pack yourself. This is why it's a good idea to get a professional to look at it for you.
You can get a pre-auction report from a solicitor, where they'll check through the legal pack and write up their findings for you.
This helps you flush out any issues, and make an informed decision. There are some really scary issues you can run into if an issue in the legal pack gets past you.
Example: "What's that bulldozer for?"
I spoke with one seller who bought a property without checking the legal pack. Shortly afterwards, he started receiving letters about the upcoming demolition of the property.
A demolition notice was included in the legal pack, but unfortunately he'd failed to see it. This is an unbelievably costly mistake.
When paying a solicitor a few hundred pounds can save you tens of thousands of pounds, it's just a no brainer in my opinion.
If you want to learn more about legal issues at auction then check out one of my other articles here:
If you want a solicitor who can help with a pre-auction legal pack, email me at firstname.lastname@example.org. I'll be happy to put you in touch with my solicitor.
2. Check the auction fees & process
This is another scary one I see too many buyers fall foul of.
When you sell a house with an estate agent, the seller pays the estate agent fee. People often assume it's the same with auction, but it isn't.
2.1. How property auction fees work
In many cases the buyer will be responsible for paying the full commission fee. Auction house commission fees can be several times higher than estate agent fees too.
There'll often be a further admin fee of around £1,000+vat as well. (This is usually called a "buyer's premium").
This is why it's really important to check what fees, if any, you'll have to pay.
Here's an example of the fees you could run into:
- SDL Auctions are the biggest auction house in England & Wales.
- They charge a fee of 4%+vat for properties under £250,000, and 3%+vat above £250,000.
- It's subject to a minimum fee of £5,000+vat too - so even cheap properties will have a hefty fee.
- The buyer is responsible for paying this fee.
- Imagine buying a £300,000 property, not realising you had over £18,000 in fees to pay.
It could be a disaster for you, especially if you'd bid right up to your limit.
Thankfully, SDL Auctions are transparent with this and make every effort to let buyers know that they're responsible for the fees. But auction houses aren't always this transparent.
So some auction houses are deliberately hiding hefty commissions in the legal pack, because they know many buyers won't realise.
Don't be one of those buyers!
2.2. Look out for special conditions too
Different auction houses have different fees, and sometimes the buyer will pay; other times it's the seller who pays.
But unfortunately it's even more complicated than just checking out the fee structure for each auction house. This is because some properties will have special conditions which can change the amount payable, or who pays it.
This means you need to check the fees for every single property you look at, even if it's with the same auction house.
3. Money problems
A lot of money gets moved around in auctions. According to monthly data from EIG, the industry standard for UK auction information, almost £4.2bn worth of property sold at auction during 2021.
With an average sale price of around £200,000 per property, the stakes are high.
There are two big auction mistakes buyers make when it comes to cash.
3.1 Get your finance in place beforehand
First of all, yes - you can buy a property at auction without cash.
If you plan to do so, make sure you get your financing in place beforehand.
I've seen situations where buyers have placed a winning bid, only to learn they weren't going to be eligible for the loan they hoped for. If you can't complete on the purchase, you're likely to lose your entire deposit.
This can set you back years in your property investment journey, so be really careful to get everything organised before you bid.
3.2. Bidding: Know your limits
We've all seen the TV ads about safety and alcohol, telling us to 'know our limits".
Well honestly, the same goes for property auctions. It's easy to get drunk on the excitement of the auction, and blow right past any "maximum bid" you set for yourself.
It happens all the time, and it's a major source of post-auction regret.
So set your maximum bid, and don't exceed it.
Sticking to your limits is easier said than done
Don't underestimate how difficult this actually is in practice.
Auctions have existed for at least 2,500 years, dating back to ancient Babylon. The process has been developed and crafted over thousands of years, with the single aim of making buyers pay as much as possible.
The auction process seems to really exploit a flaw in our human nature. Auctions are seriously intoxicating, and the urge to bid is really hard to fight. But you should set your limits and not pass them.
My tip: Set clear "victory conditions" in your mind. Say your maximum bid on a property is £150,000. If you manage to buy it for under £150,000 that's clearly a win. But if the bidding exceeds £150,000 and you walk away, you should also count that as a win.
Just try and get your head right in advance, and it can save you a lot of regret later on.
Summary: Avoiding big property auction mistakes
In my opinion, property auctions probably need a little more regulation.
We have strict legislation to protect consumers in so many places - particularly around financial products and services.
But there are so many mistakes with auctions that are very costly, and really easy to make.
The number of people I'm speaking with who are suffering serious consequences from auctions is really quite haunting.
Auctions can be a great way to buy property at a good price. But please please please take this advice on board so you avoid the darker side of property auctions.
By Matthew Cooper, Co-Founder of Home Selling Expert