Buying Property at Auction
View the property!
Never go to an auction without viewing the property in advance. Sounds obvious right?
Packs provided for auction properties vary drastically and many won’t have internal photographs, so if you want to know its condition get down there on viewing day and have a proper look, there is no substitute. Have a walk around the area, even check in with the neighbours. Auction properties often have batch viewings or open house viewings which can tell you a lot. If you are fighting through crowds to get into the property on viewing day then you can expect the property to reach it’s open market value or even more. If on the other hand, you are the only person wondering around the property, you know you stand a good chance of picking up a bargain. It’s impossible to make a truly informed decision without viewing and people have lost lots of money by presuming things will be right. Don’t make a rookie error- always view before you buy at auction.
Get the legal pack as early as possible and read it in detail. If you are happy with what you see and are interested in bidding at auction then get an experienced property lawyer to look through it and highlight any concerns they have. Most legal packs will have ‘Special conditions of sale’ which will highlight any contractual terms specific to that particular lot including the completion period, which could be shorter than the standard 28 days. The pack may disclose a seller premium essentially stating that you will have to cover the sellers auction costs or other fees. It should cover any ‘Covenants’ such as rights of way, or restrictions of age on retirement flats. It should also contain any lease information. It is not compulsory for a vendor to compile a legal pack and they are often incomplete, so if you think you are missing any important information and you are not fully comfortable with the information you have received, do not bid.
Do your research
There is a lot of work you can do before an auction to ensure that you make the most of your investment.
Make sure you have finance in place in advance of the big day. Get a Decision In Principal (DIP) from a Mortgage Lender or Bridging Lender, also called and Agreement In principal or Indicative Terms. Remember you normally have a maximum of 28 days to complete the purchase once the hammer has fallen and you will have to pay a 10% deposit on the day. Once the hammer falls you exchange and that 10% deposit is non-refundable- so never bid at auction if you do not have your finance lined up. You can get credit backed terms from a bridging lender by supplying some basic personal information, your assets and liabilities statement, your Experian (or similar) credit file and some forms of ID. If you are using bridging finance do make sure the terms you are offered are credit backed, as some lenders will only go to credit after the full application which increases risk of delays and loss.
It is a good idea to go along to an auction or two when you are not bidding. Getting a feel of the setup, the atmosphere and the processes. This will make it much less daunting when you actually go to bid. There’s no harm in doing a dummy run at all, it can be a fun day out. There’s often a bar too. Go along and spectate, take it all in. Watch how the experienced bidders do it, speak to people and strengthen your network. Also speak to the professional services who will be supporting the auction day such as solicitors, insurers and financiers. There are normally numerous partner organisations on site offering free information.
The Big Day
Make sure by the time the auction day arrives, you have done your homework, you know which properties you are bidding on, you have your finance lined up and your deposit in the bank and you have a fixed upper limit for each property. Get there nice and early so that you can get in a good position to hear and see what is going on, and so that the auctioneer can see you. Get the addendum sheet which will show any last minute changes such as properties which have been pulled from the auction. You have to be in it to win it, but don’t bid for the sake of bidding. If you start quickly it could push the price up fast and you 100% have to stick to your limit. And don’t get drunk! Although you may be nervous, refrain… You do not want THAT hangover to deal with.