Introduction to Property Auctions

Property auctions are some of the best places to find and purchase property below market value, which is a good strategy for any investor. At first, these auctions may appear intimidating to those new to them, but armed with knowledge of the process, you can use property auctions to your advantage, whatever your property goals.

Before you Buy

Our first piece of advice is very important. Don’t go to an action without carrying out your preparatory work first.

Think of the auction as the final step in the process, one that only takes place if you are happy with every step carried out to that point. Remember, you are buying property. Even if you get a below market price, you are still investing a substantial sum, so you should make this step armed with as much knowledge as you are able.

1. View The Property

You would not buy a property from an estate agent without viewing it. Why would buying via an auction be any different?

Auction properties will have viewing days. Take advantage of these days. If you have time, view any property that you are interested in multiple times. The more you see it, the more likely you are to spot things that may need repair or refurbishment.

Identifying work required might turn you off buying a particular property, or it may lead you to adjust the price you would accept paying.

2. Examine the Legal Pack

The legal pack will list any fees involved in the sale that you may be responsible for. Knowing these fees is vital, as they will affect your bid price.

The last thing you want is to have your maximum bid accepted, and then find out there are additional fees on top of that value that you have not accounted for.

How Does A Property Auction Work?

There are three main phases to a property auction.

1. Preparation

The preparation period will cover a few weeks before the actual auction. The auction catalogue is usually released around three weeks before, and that is when your work begins. Examine the catalogue, view your chosen properties and their legal packs as we have already discussed.

2. Auction Day

As with any auction for any goods, this is where you bid for your chosen property against other investors. If you win the auction, you enter a legally binding contract and the sale must proceed. Neither the buyer or the seller can back out at this point.

3. Completion Period

The completion period is the time you have after the auction to transfer the finances and sign the documents. Generally speaking, it is around 28 days, but it may specify a longer – or shorter – period in the legal pack. Another reason to have read the legal pack beforehand.

If you’ve prepared correctly and you’ve read the legal pack, you will have bid within your means and be aware of any fees you may need to pay. Your solicitor will be ready to handle the transfer of the property and, at the end of the completion period, you will have the keys and you will own the property.

Additional Information

Some more useful tips for purchasing property via auction.

Reserve Price and Guide Price

The reserve price and the guide price are set by the seller.

The guide price is the price listed in the auction catalogue. This is an approximate value to give buyers a rough idea of an acceptable figure. It may be a price range, or a lower limit, or a banded price.

The reserve price is kept confidential. This is the minimum price that the property can be sold for. Prospective buyers will not see the reserve price, but if no bids match or exceed it, the property will not be sold. This prevents a £100,000 property exchanging hands if the highest bid is, say, £20,000.

Off the Wall Bidding

One auctioneer tactic you should be aware of is “off the wall” bidding. This is where the auctioneer themselves makes a bid on the property.

That might sound a little odd, but there is a good reason for this to happen.

The only time an auctioneer is allowed to do this off-the-wall bid is if the buyer bidding has stopped below the reserve price.

As we’ve discussed in the previous section, buyers are not permitted to see the reserve price, so they do not know if the highest bid is enough to complete the sale. And the auctioneer is not permitted to tell them.

Instead, the auctioneer will make a bid themselves, encouraging other bidders to raise their own bids, with the objective of clearing that reserve price.

It must be stressed that auctioneers cannot bid above the reserve price themselves. They cannot inflate the sale price by involving themselves in the bidding process, they can only seek to push genuine bidders to that reserve price.

If no buyer outbids the auctioneer, the auctioneer is not required to purchase the property. Their bid would be below the reserve price, and so no sale can take place.

Auctioneers are experienced at this type of bidding, so you may not notice it even occurs (the auctioneer will refer to a non-existant crowd member as the bidder) but learning to spot it will give you an indication of the reserve price, if you pay attention.

Investing in property, similar to any other form of investment, involves inherent risks. Our website, services, or products do not constitute financial, tax, or legal advice, and should not be relied upon as such. Before making any investment decision based on the content provided on our website, products or services, we strongly advise seeking independent specialist advice from appropriate professional advisors.
Your capital is at risk. The value of your investment can go down as well as up. Historic performance and forecasts are not a reliable indicator of future performance.

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