Take the Plunge with Buying at Auction – Getting the Basics Right

By Matthew Tooth, the Chief Commercial Officer of LendInvest

There are many ways of buying an investment property in the UK, from a private sale through to the traditional method of using an estate agent. Among the most popular for property investors, however, is the auction. It’s been a very busy time recently for auctioneers. In April alone, there were over 100 property auctions held across the UK. Dating back to Ancient Greece, it seems nothing beats the adrenaline inducing finality of the fall of the auctioneer’s hammer.

There are several advantages of buying at auction. There’s the opportunity for a bargain, the transparency and level playing field of the bidding process, and the speed of the transaction once the hammer falls. The disadvantages lie in not always getting what you bargained for and paying over the odds by getting caught up in competitive bidding.

The risks, though, can be overcome with some proper preparation and planning.

This article will help those relatively new to the auction process with deciding on the property, preparing to bid, arranging the finance and completing on the deal.

Preparing for buying at auction

If you’ve never experienced an auction before, you should familiarise yourself with the whole process before contemplating making a bid. We suggest you find a couple of auction houses in the area that you are considering purchasing in and get on the mailing list. Their websites are likely to offer previous auction results and the prices being achieved. In this way, you will get a feel for the type of properties that come up and at what frequency.

Go and view a couple of properties that are being auctioned. Get a sense of their condition and how well they match the descriptions. Then go to watch the auction itself: see how the process works and what your test properties sell for on the day. You can repeat this process as many times as you need until you feel entirely at home in the auction environment.

Preparing to bid

Your training completed, you should now feel ready to start preparing to bid for real.

Study the catalogue and be laser focused on the types of property that appeal to you. Do your research on a property before considering bidding on it. Go and view it, get a builder, surveyor or architect to advise on the costs of development and any hidden issues, and read the legal pack. The legal pack is important, because it includes information such as searches, title deeds, leases and any relevant planning permissions. The legal packs are available online and can be downloaded free of charge.

Now would be a good time to line up your solicitor. You’re going to need to complete very quickly if you’re successful on the day, so knowing who you are going to use is one less thing to worry about, but, more importantly at this stage, your solicitor can look over the legal pack for you and point out anything that needs attention.

Also, think about arranging your finance, at least getting an offer in principle. You will have a legal obligation to complete on the purchase, so you need to be very confident that you have the money you need.

At LendInvest, we lend to experienced property professionals, supporting purchases with finance for auction properties from £75,000–£7.5m at a maximum loan-to-value (LTV) of 75%. 

Making an offer before the auction

With the property viewed, its potential and development costs assessed, your legal team lined up and finances arranged, you could consider making an offer before the auction to get it removed from the catalogue. This happens more than you might expect and explains why you see properties listed as “withdrawn by seller” on the day.

On the day

Assuming you decide to let the property go through to auction, hopefully your preparation will now pay off. Remember that you will need a 10% deposit and two forms of ID if you make a winning bid, so make sure you bring these with you. Try and get to the auction house early, and choose a seat where you will be able to see the other bidders and also hear, and be seen by, the auctioneer.

When your chosen property comes up, always keep your budget and maximum bid in mind. If the property goes to another bidder, it goes. There will always be other opportunities. 

If you do miss out, don’t make a snap decision to start bidding on another property. Remember, you did all that preparation for a reason. When you’re bidding, keep in mind that Stamp Duty and possibly VAT will be payable in addition to the bid price, as will the auction house fees.

After the auction

If you win, the property is technically yours when the hammer falls. You will need to pay the 10% deposit immediately and will typically have 28 days to complete the purchase.

You should finalise your finance and instruct your solicitor to get moving on the completion formalities. We also recommend arranging insurance, as it will be your loss if the building is damaged from this point forwards.

You will lose your deposit and the property if you don’t complete the purchase in time, and you could also be liable for the remarketing costs. The commitment you make on the day isn’t just an offer that can be withdrawn; it is binding and cannot be taken lightly.