Buying a home at auction
This page explains how the auction process works.
What homes are sold at auction?
Any kind of property can be sold at auction, and most auction properties are on the market because:
- of repossession, bankruptcy, or because the seller needs to clear their debts
- the owner has died and the property has been left empty
- they are in need of some or a lot of renovation work - it's rare that properties in 'move in' condition come up for sale through auction
- they are very unusual and difficult to value
- they are likely to generate a great deal of interest.
What are the advantages of buying a home at auction?
- The main advantage of buying at auction is the price: auction property is generally much cheaper than property bought through a selling agent.
- The bidding system is transparent: you know what the other buyers are offering, so you won't end up putting in a higher bid than necessary in order to secure the sale.
- Sales at auction go through very quickly - you'll usually be able to move in just 28 days after the sale.
What are the disadvantages of buying a home at auction?
- they often need a lot of expensive renovation work
- they usually require a large upfront investment.
How do I find out about property auctions?
To find out about auction properties, you need to get on the mailing lists of auctioneers in your area. You can find auctioneers listed in the Yellow Pages.
There are several sites you can use to find out about auctions and view details of properties for sale:
- The Property Auction Action Directory has a property search feature as well as auction guides and a discussion forum.
- The Big Property List is another site where you can search for property and read auction guides.
- You could also consider subscribing to a site such as Property Auction or Property Auction News.
Getting a mortgage
Unless you are buying a very cheap property, you will probably need to get a mortgage. When you are approaching different mortgage lenders, you must let them know that you are intending to buy at auction, as some lenders are reluctant to offer mortgages for auction properties.
If the property needs a lot of work done, the mortgage lender may be able to lend you money to help cover the costs. Discuss this with your lender.
Buying at auction differs from buying through a selling agent in three important ways. If your bid is successful:
- the sale becomes legally binding straight away
- you'll need to pay a 10 per cent deposit on the day of the auction
- you'll then need to pay the balance within 28 days.
Therefore it's vitally important that you have the money ready in advance. You shouldn't bid for a property at auction if:
- you don't have a firm offer of a mortgage
- the sale of your old home has not yet gone through.
I've seen a property I'm interested in
First of all, call the auction house to arrange a viewing. You can use the Shelter Scotland home buyer's checklist to make notes about the property. You should also request a home report if you're interested in buying the property.
If you then decide to bid for the property, there are several things you need to do before the auction:
- Speak to your mortgage lender - before they will agree to lend you any money, your mortgage lender may require a valuation or survey of the property stating how much it is worth. However, they may accept the information in the home report.
- Have a survey carried out - the property's home report will contain a survey and other information about the property. However, if the building is in need of a lot of renovation, you should consider getting a full structural survey. Read the page on valuations and surveys to find out more about appointing a surveyor and what surveys cost and cover.
- Get estimates - if the property needs a lot of work done, you'll need to get an estimate from a builder and any other relevant tradesmen, such as an electrician or plumber, to find out how much it is likely to cost. The cost will be an important factor to bear in mind when deciding how much you're prepared to bid.
What does my solicitor need to do?
If you are interested in buying a property at auction, your solicitor will need to carry out some legal work before you bid. Usually when you buy a home, this work (called conveyancing) is carried out after your offer has been accepted.
Your solicitor will need to:
- check that the property and its owner are registered properly in the relevant Land Register
- check that the local council is not planning any repair or development work that will affect the property (for example, a road widening scheme)
- check that there are no other legal restrictions or conditions to ownership.
The page on finding a solicitor has more information on how to appoint a solicitor and how they can help you. Remember to find out how much they will charge for carrying out the pre-auction conveyancing work, as you will have to pay for it whether or not you actually buy the property.
In addition, the auctioneer should produce a pack containing information about the title deeds to the property and any conditions of sale, which your solicitor will need to see. You will probably have to pay a small fee for a copy.
How do I decide how much to bid?
When you are deciding on your maximum bid, you need to take into account all the costs involved with buying the property. These may include:
- solicitor's fees and outlays
- an arrangement fee to the mortgage broker or lender,
- a mortgage indemnity guarantee
- a valuation fee
- a survey fee
- buildings insurance
- Land and Building Transaction Tax
- moving costs
- costs involved with selling your previous home.
You also need to consider:
- how much you can afford to borrow from your mortgage lender
- how big a deposit you can afford
- what the property is valued at
- how much any repairs or decoration work will cost.
Speak to your solicitor and/or your surveyor, who should be able to advise you on a reasonable price to pay.
Remember, the purchase of a property at auction proceeds very quickly. If you are waiting for a previous home to sell in order to afford a new home, you shouldn't bid for another property at auction.
Putting an offer before the auction
It's definitely worth contacting the auctioneer and putting in an offer before the date of the sale, especially if the property is listed in the catalogue as up for auction 'unless previously sold'. The seller may accept your offer in order to save themselves the trouble and expense of going to auction. Speak to your solicitor before making an offer.
How do I go about buying a home at auction?
Auctions may be held at an auction house, or at another venue such as a hotel, a community centre or even a pub. It's a good idea to attend a few auctions to see how they work before bidding yourself. Property auctions can attract large crowds, and the bidding may seem fast and a little daunting. If you're used to the proceedings, you'll feel more comfortable bidding.
What happens on the day of the auction?
Before setting off, phone the auctioneer to check that the property you are interested in hasn't been withdrawn. This may be the case if the seller has accepted an offer prior to the auction.
When you go to the auction, you'll need to bring with you:
- the auctioneer's catalogue
- proof of your identity, such as your passport or driving licence
- your solicitor's details
- a banker's draft or bank or building society cheque for 10 per cent of your top price. If you are successful, you'll need this to pay the deposit. Speak to your bank beforehand to arrange this. If the property goes for less than your top price, the auction house will refund you the difference.
Make sure you arrive at the venue in plenty of time, as you'll need to register in order to bid. You may be given a number to hold up when you bid, or you can use your hand or catalogue.
The different properties up for auction that day will be sold one after the other, in lots, in the order listed in the catalogue or on a sheet you can pick up on the day. It's a good idea to watch some of the other lots before the property you are bidding for comes up, so you can see how fast the bidding is going and what kind of prices the properties are reaching.
I can't attend the auction
If you can't attend, you may be able to bid by telephone or even online - ask the auction house about this in advance. If you're not confident bidding yourself, you could ask your solicitor to bid for you, although of course you'll have to pay for this.
How does bidding work?
The bidding will start lower than the guide price printed in the auctioneer's catalogue, and will probably go up in multiples of £5,000, or £1,000 once bidding slows down. Read the MoveChannels's bidding tips if you're unsure of how to go about bidding.
Whatever you do, don't get carried away and go over your top price, or, worse, bid for another property on a whim. Once the sale is over, you will be legally committed to paying for that property.
The seller will have fixed a reserve price with the auctioneer. This is the lowest price they are prepared to accept, and if this price isn't reached, the property will not be sold.
If the reserve price isn't met, you could try contacting the seller afterwards and attempting to negotiate a sale.
What happens if I'm successful?
If you are the highest bidder, the property becomes yours as soon as the auctioneer's hammer falls. Now you'll need to:
- give your details and your solicitor's details to the auction clerk
- show proof of your identity
- pay a 10 per cent deposit.
You will then be given a contract, which you should sign and give to your solicitor. The contract will state when the balance of payment is due - this will usually be within 28 days. This contract is legally binding, so it will be difficult and expensive for you to back out of the sale.
You are now responsible for the property, so you'll need to get buildings insurance straight away.
What if I want to back out of the sale?
If you back out of the sale at this point, not only will you lose your deposit, but the seller will be able to take you to court. The court can make you:
- pay the seller's expenses, and
- pay the seller the difference if they eventually sell the property for less than the price you originally offered.
I've bought a repossessed home - will this cause me problems?
If the property you buy has been auctioned because it was repossessed or because the previous owner got into problems with debt, you may find that their creditors contact you in person or by post, looking for the previous owner. You may even have problems getting credit yourself. This is because the previous owner's details may appear on credit reference agency records (such as Experian, Equifax and Callcredit).
If this happens, you can check if the information these organisations hold is correct, and you should be able to change it if it isn't. Contact the credit reference agency asking for a copy of the information they hold on you. You normally have to pay a £2 fee for this. The agency should send you a copy of the information within seven working days, and information about how you can change the information if it is not correct.