There are distinct advantages and disadvantages, as well as risks and considerations, to investigate before buying a commercial or residential property from an auction.
Before deciding whether to seriously bid on a property, it is essential to put the time in before attending the auction and deciding whether you have the money, whether the property is worth the price, whether you can arrange funding in such a quick turnover time, and whether you can make the profit on the building you are looking for.
As with any kind of property investment, knowledge is power.
Auctions can be a great way to buy and sell property. Many perceive that this route involves extra risk, is complicated or requires specialist knowledge. But for many it can be a great way to access property ripe for development to which value can be added provided you know the rules and understand how the process works.
Why do people buy property at Auction?
Lots of people buy at auction because they are looking for a repossession, a plot to build a house on or are fed up of being gazumpted such can be the experience of buying through an estate agent, especially in a hot or crowded market. It can be a good location for investors to find properties with tenants already in situ and auctions usually offer a good choice of stock meaning lots of properties are available to look at in 1 place reducing time on viewings and on the road.
Often properties which are not mortgageable, are unusual, have issues (which can usually be fixed) sell through auction. This offers the informed an opportunity to buy something cheap, fix the problems and increase the value of the property meaning it could be sold for a profit or remortgaged and rented out to return equity to the buyer for more purchases. Lots of people looking for individual properties which are out of the ordinary like ex windmills or lighthouses buy at auction as properties like this often arn’t offered through estate agents.
How to find properties at auction
Prior to visiting the auction it is usually best to go and visit the property and if you are inexperienced to get a survey done. If no viewings are allowed I usually try and pay the tenant a viewing fee to have a look around, this means you will get to see the internal condition of the property when others may have not meaning you may get a bargain. Work out what type of property it is and look on Rightmove sold prices to work out the value of it compared to other properties in the area. A great place to use to search all of the auctions is EIG Property Auctions It will collate all auction property in all areas onto an email which you receive regularly so you won’t miss any of the properties coming up in the auctions for sale.
You will need to pay a solicitor to go through the legal pack and dig out any issues, they will often do this for a few hundred pounds for you.
Lots of institutions will look to sell through auction such as local authorities and banks to prove that they offered the property publicly and in a transparent way to get full market value for it so that they can’t be criticised later.
Here are some of the UK’s top auction houses:
Selling your property via auction
Lots of people like selling their properties through auction as there is no chain, it is quick, there is much less chance of a buyer messing you around as you get a 10% deposit on the auction day which the buyer will loose if they pull out.
The best way to choose an auctioneer is the one which will market your property best. Usually the sale commission isn’t the ideal thing to focus on, another £10k sale price will make it worth going to the best auctioneer who pushes your property the hardest.
Make sure you enter the property at least 6 weeks before the sale to allow time for the pictures to be done and auction catalogue to be prepared correctly.
Get your solicitor instructed at this point to prepare a legal pack, you will need to pay for this regardless of whether the property sells. You may get offers before the sale, respond quickly to these and dont be afraid to accept if you think they are as much as you will get. However, most wont be and therefore many people will look to let the lot run to the room as more interest is likely to generate more bids and a higher price. Keep the property in the auction until contracts have been exchanged as some buyers will pull out.
You need to set a reserve which is the lowest price you will accept for the property. Buyers wont be told this reserve but may become more interested if they see the auctioneer say “I can sell the property” when bidding is going if the bids go over the reserve in the auction so its an idea not to set it too high.
In the last decade, buying properties at auction has surged in popularity as an alternative to the traditional property buying process. And it’s no surprise why. If you do it right, there is ample potential to grab a bargain and, as a result, turn a significant profit.
Unlike going through a real estate agent, buying at auction allows property shoppers to avoid long and arduous purchasing procedures that often fall through at the last moment. In auctions, once the hammer strikes, that’s it. The property is yours.
On top of expediting the whole process, auctions are also the perfect place to find unique and unusual properties that your agent wouldn’t typically be looking for, an exceptional way of discovering diamonds in the rough.
But, don’t get a false impression, property auctions aren’t just rainbows and unicorns. There are significant downsides and lots of potential roadblocks to making money. For one, like we already mentioned, once you win the final bid, there is no turning back. So you better have your finances and budget down to a tee.
Second, finding a bargain at an auction requires a lot of due diligence. If you think you can go into an auction without putting in the necessary research and other legwork, you’re in for a rude awakening and will most likely be in over your head, footing the bill for a property that you can’t afford.
And finally, piggybacking off the above point, it’s totally possible in auction property hunting to spend valuable time and money only to come up short in a bidding war, or to have someone swoop in and buy the property before it even gets to auction. The rewards are high but if you aren’t smart about it, the risks can be too.
Can you make money buying property at auction?
The potential to make money is undoubtedly real, if you know what you are doing, that is. This means taking the time to educate yourself on every aspect of the process, from the legal considerations to the auction and bidding itself. Solid preparation is your greatest ally in property auctions. Don’t get lazy, it will only lead to costly hiccups.
If you are going to make money, it’s important to understand all the costs involved. And most prospective buyers only ever take into account the price of the property. But the truth is, buying property at auction has a ton of other fees to be wary of, including registration fees, auction commissions, property debts and transfer costs, among others. In order to budget correctly, you should factor in every cost involved.
On top of that, it’s vitally important for property shoppers to not take the guide price at face value because, in reality, that number almost never reflects the final sale price. Instead, be prepared to pay 10%-30% more than the listed price in the catalogue just to be safe.
If you stick to your budget, craft a solid game plan and stay aware of the many moving parts of property auctions, there’s no reason you can’t find a great property for a bargain price. It just takes time, patience, research and a little know-how.
What Does Offers Prior Mean?
It can be a good idea to put bid in prior to the auction day. You often get deals this way. If the auction house wont put the bid forward (lots wont as they want to sell the property in the auction room to generate more interest in the room, put the offer to the sellers solicitor who is much more likely to pass the offer on.
What To Expect On Auction Day
Lots of people will go to the auction in person due to the excitement in the room and ability to see who else is bidding. You will need to register with the auction prior to going along and supply ID/meet their requirements.
Some people bid via telephone or proxy bid via post or internet. This can be a good timesaving trick but its important to make sure all of your paperwork is in order beforehand so contact the auction at least a week before to satisfy their registration/bidding requirements. You will also need your solicitors details and a 10% deposit which can usually be supplied via bankers draft, cheque or bank transfer. Remember that if you win the lot and the hammer comes down you will exchange contracts that day so cant pull out!
Some also ask other people to go along and bid on their behalf which is possible as long as the correct forms have been completed with written consent and ID.
It is important to insure the property from the point when the hammer goes down on the property/exchange to avoid unnecessary risk. Its also a good idea to read the addendum to make sure you havent missed anything as the auction catalogue is likely to be out of date as new information becomes available.
You can usually tell if the bidding has reached the reserve price as the auctioneer will sometimes say “on sale” or “I can sell it” and will look more interested. If the property dosent meet the reserve it wont sell.
If the property is about to be sold you may hear “going, going, gone’” at which point the auctioneer will bang the hammer to close the sale.
What To Do After The Auction
If the property dosent reach the reserve price this can be a great time to bid after the auction as this may be the sellers last chance to get rid of the property and therefore may be negotiable. It is a good opportunity to offer low as lots of bids are accepted at this point.
Completion of the Sale
The sale is usually completed 28 days after the auction day. Mortgage lending usually wont be quick enough so bringing can be the only option. Even then it can be tight so cash is defiantly better for an easier purchase.
Finding the right property
Before commencing your search for the right property to fit your needs, it’s important to create a checklist of what you are looking for. To do this, you should determine the exact criteria for your search. The five main factors to consider are:
1. Budget: What can you afford?
2. Location: Where do you want to own a property?
3. Size: How big does your property need to be?
4. Style: What kind of building are you looking for?
5. Features: What does your property need to have?
How to buy a property at auction?
There are few places as ripe for finding a profitable commercial or residential property bargain than at an auction. Auctions come with a massive list of advantages for property investors, such as the certainty of your purchase(s), the speed with which a purchase is put through, and the relatively straightforward buying process.
Whereas once upon a time most bidders at a property auction might have been regular investors, we now often see first-time buyers and entrepreneurs considering property investment in attendance, hungry to know what the fuss is all about. The excitement of a property auction is palpable, and not just because of the opportunity of picking up a property that will make you a fortune in profit. There is the tension of bidding, the chance of failure or success, and the thrill of going head-to-head with another investor.