Property auctions are probably the most emotionally-charged thing you can take part in within the property world. You're going to spend a load of money in a very short space of time, there's steep competition from other bidders, and once the hammer falls there's no going back.
No wonder it's stressful. So how do you manage all that?
The key is good preparation. So what should you do before bidding on a property at auction?
Before bidding at an auction, thoroughly research the property and carry out detailed due diligence. This should include consulting a solicitor, and having a survey. If it's your first time at auction, get familiar with the process too so you know what to expect on the day.
We've got plenty of tips to give you on each aspect. First, we'll detail the research you need to carry out on the property itself before auction day.
Next, we'll cover things relating to the auction process itself, and how to get comfortable with the auctions if it's your first time.
1. Research the property
When you buy at auction, there's no backing out afterwards. Even if your solicitor (or a surveyor) finds something terrible with the property, you're legally committed to buying. You'd face steep penalties if you withdraw.
This means that doing your due diligence first is absolutely vital. Here are the steps you should follow before the auction to build familiarity with the property:
1.1. Value the property
As you're working through your valuation, you're trying to determine a rough price you'd be willing to pay for the property.
It's fine to work with outline figures for now. You can firm up your research after seeing the place in person.
We'll have other more in-depth guides coming soon on how to value a property without viewing it. To subscribe for updates, email email@example.com.
1.2. View the property
Book an appointment to see the property in person. There are guides all over the Internet for how to get the most out of a property viewing - check them out and make yourself a checklist for the appointment.
Take someone else with you if you can too. Ideally this would be a surveyor or builder, but even a partner with less property experience can help pick up on things you might have missed. They can help to add another perspective too.
Once you've viewed the property and have been able to budget for any work needed, revisit your valuation work and firm up on your prices.
1.3. Do your due diligence
If you still want to move forward with the house after viewing it, get your solicitor to review the legal pack. We always recommend getting a survey too. Remember that auctions will attract the types of properties that may have serious underlying issues.
Although solicitors and surveyors cost money, I firmly believe they'll save you money in the long run:
- A surveyor just needs to save you from a nasty issue like subsidence or non-standard construction once and they'll have saved you tens of thousands of pounds. More than worth the comparatively small £200-£300 survey cost.
- A solicitor just needs to pick up on some legal complication once to do the same thing too.
It's really tempting to skip this step and just assume everything'll be ok. (It'll save you probably £500 in costs...) But you'll have seriously shot yourself in the foot if you run into an issue.
1.4. Check the auction terms
When you buy or sell a house through an estate agent, you know where you stand with fees: They're going to be about 1-2%+vat, and the seller's going to pay them.
With auctions, it's not so straight forward:
- The fee will vary, depending on the auction house,
- Who pays the fee will vary (the buyer or seller could be liable for the fees),
- There may be additional fees on top.
Exactly who pays, and how much, will be set out in the auction terms, so you need to read these carefully.
This is not just a small detail either. It's going to have a serious impact on how much you'll be willing to bid on the property.
For example, if an auction fee is 3%+vat and you're bidding up to £400,000 on a property, that could be £14,400 in fees!
Probably something you'd like to know before winning the auction.
Warning: Read terms very carefully
Unfortunately, you'll need to read these terms really closely too.
I've come across some less reputable auction houses who've decided to take a really sneaky approach with their costs.
Not only will they bury them in small print, but some will also write the costs in words rather than figures. This makes it much harder to spot.
For example, "five thousand pounds plus vat" is harder to spot in a long paragraph than "£5,000+vat". It's a nasty practice, but it's happening.
I'd suggest checking the Special Conditions in the auction pack too, in case fees are varied in any way here. Although this is rare, in theory it can happen. Duncan Taylor, Real Estate Consultant at Penningtons Law mentions: "The auction pack may contain special conditions which vary the common conditions".
There can be additional fees too
It's not always just the main selling fee you have to worry about.
Sometimes, additional fees will be due on top. As an example, Agents Property Auction charge the winning bidder an additional £1,000+vat fee on the fall of the hammer.
In short, check the auction terms and legal pack closely to uncover any fees. You can then factor these into how much you're willing to offer.
1.5. Get your finances in place
Buying with cash
If you're buying with cash, make sure the funds are instantly available. I've come across buyers in the past where this hasn't been the case. For example, if your money's in a high-interest savings account then sometimes you have to give 4-6 weeks' notice to get the funds released to you.
This can be a real problem if you leave it until the last minute!
Buying with finance
If you're buying with some kind of auction finance or bridging loan, make sure it's all pre-agreed and ready to go. The last thing you need is to be bogged down in lengthy lender checks (which you might not pass!) after you've already committed to a purchase.
1.6. Decide on your ideal price, and your maximum price
After doing your valuation work, seeing the house in person, then doing your due diligence, you should be very familiar with it.
Now it's time to set your ideal price for the property, as well as the maximum price you'd pay.
The first price is what you'd really like to get the house for. The other is the price that you just will not go beyond. Even in the heat of the moment.
Why set two prices?
Setting an ideal price as well as a maximum one helps remind you that the maximum bid is already a lot higher than you wanted to pay. This helps prevent you falling into that "Ohhh it's only another £1,000" trap, where you start exceeding your limit.
2. Research the auction process
Once you've completed all the above steps, you're ready for auction day.
If you've never taken part in a property auction before, it's worth immersing yourself into them a little bit before the auction day itself. This can let you know what to expect, and help keep you calm on the day.
If you're going to an auction room to bid, it can be a very intense and intimidating atmosphere - especially if it's your first time.
Even if you're bidding online, it's still surprising just how intense an experience it is. After all, most of us aren't used to spending tens or hundreds of thousands of pounds in the space of a few minutes!
There's such a huge amount on the line too... it can be really stressful.
You can mitigate this a bit though. I really recommend dipping your toe into the auction world beforehand. By knowing what to expect, it'll help you keep your head on the day.
2.1. Visit an auction beforehand
If you're going in-room on the auction day itself, then ideally you'd like to visit an auction beforehand.
Just go along and watch. You don't need to register if you aren't bidding. Some even give free drinks, so enjoy the free beer or Prosecco if you get one!
Auctions are pretty crazy, and you'll see some fantastic high-pressure bidding wars.
All in all, chances are you'll have a fun day out, as well as doing some important research.
2.2. Watch an auction live-stream
The next best thing is viewing an auction live-stream online. This is a good idea if:
- You can't make it to an auction room before the house you want is being auctioned,
- Or the auction you'll be taking place in is an online auction anyway.
Where can you watch property auctions online?
EIG Property Auctions are like "Rightmove" of property auctions. All auction properties are listed on their website, but most interestingly almost all property auctions are live-streamed online here too.
There tend to be several auctions per week - so drop in on one just to watch. Check out their live-streams page here to find upcoming events.
2.3. Scope out the auction software if bidding online
On a similar note to the last one, if you're going to be bidding online then get familiar with the auction software you'll be bidding on beforehand.
Some auction houses have their own in-house software, whereas others will use a service like Offr.io. This sits on the auction house's website and drives the bidding.
Don't leave it until auction day to get set up on the software. The last thing you want is a morning of technical difficulties - and maybe even missing out on the auction because of it.
Auction software's designed to be very easy to use, and tends to be super reliable... But why take the chance? Just get set up in advance.
2.4. Watch Homes Under The Hammer
There's another great way to immerse yourself in the world of property auctions... TV.
There's a reason Homes Under The Hammer has been constantly on TV for nearly 20 years now. (And why they've made over 1,000 episodes!). It's because the show really immerses you into the world of property auctions - which are pretty exciting things.
So put the kettle on, put your feet up, and tune in. (You can call it research).
Stream online here: BBC iPlayer: Homes Under The Hammer.
I think I say this on just about every auction article, but due diligence is key. Get familiar with the property, go and see it, and get a professional opinion from a solicitor and a surveyor.
Check the auction terms too to find out who's paying the fees, and how much they'll be. (Keep a close eye out for any hidden fees too).
Make sure your financing is in place, and then decide on your ideal and maximum bid prices.
If it's an online auction, register with the bidding platform well in advance of auction day, and make sure you're set up and ready to bid.
Finally, if it's your first time at auction then it can be worthwhile to immerse yourself in the auction world. Check out an in-person auction, stream one online via EIG, and watch some Homes Under the Hammer!
By Matthew Cooper, Co-Founder of Home Selling Expert