The Beginner’s Guide to Property Auctions
People decide to sell or buy homes at property auctions for a variety of reasons, but the vast majority do so for the sake of speed and convenience.
There is lots of freedom involved in using a property auction to buy and sell. If you’re a seller, you can bypass the traditional housing market and work to a specific schedule. If you’re a buyer, you can often find a broad range of properties that aren’t usually listed with estate agents, including old schools, Churches, lighthouses and commercial buildings.
However, property auctions work in a different way to traditional transactions. If you don’t appreciate what you’re getting into from the outset, you might hit some major problems during the process. When the auctioneer finally slams down his gavel, you need to know that your interests are well protected.
Before you make your next move, it’s important to understand what buying and selling at property auctions entail.
Why are property auctions becoming so popular?
Homes Under the Hammer is one such TV show which has created a common misconception that property auction rooms are full of investors and property developers in search of a bargain. While the investors regularly attend property auctions, you’re just as likely to find private individuals and people looking for a home at these events.
Searching for a home with the help of traditional estate agents can be a time-consuming process — that can be delayed due to the vast complexities of the open market. But by selling or buying a property at auction, you can give the process a finite timeframe. If you’re buying, you can be reasonably sure that most of the properties for sale are priced to sell. If you’re selling, you know that you’ll be getting a minimum price, and you have the added benefit of being able to instigate a bidding contest for your property.
The UK property market has been subject to huge highs and lows over the last decade or so. Property auctions, on the other hand, have weathered the storm and remained as popular as ever.
A wide variety of property types are sold at house auctions
Owners list their homes for sale at property auctions for a number of reasons. Sometimes it is because the need for a quick and hassle-free sale is the priority. However, a lot of properties are listed at auction because they struggle to find interested buyers on the traditional market. This often means unusual properties such as barn conversions, lighthouses, Churches and old schools are sold at auction.
A lot of auction properties have by repossessed by banks and mortgage lenders. They are sold this way in order to liquidate the assets as quickly as possible and settle the debt secured by them. These properties can provide a real opportunity to grab a bargain, but that’s not always the case. The competitive nature of the average property auction can drive up the sale price to well beyond what the property would achieve on the open market. It is important to be aware of this before you get involved in auctions — whether you’re buying or selling.
What’s reserve and guide pricing?
A reserve price and a guide price is attached to every auction property that goes under the hammer. The guide price is a rough approximation of how much the property is worth in the current market. A reserve price is the lowest price the property can change hands for. If a property fails to attract a bid of at least the reserve price, it will not be sold. Consider carefully setting the correct asking price when selling your home.
Are there any tips for selling a house at auction?
The cost of selling a house at auction is usually around 2.5% of the final sale price — paid directly as a fee to the auctioneer. You may also need to pay certain administrative and advertising costs in advance too.
It’s always best to shop around when selling a house at auction. Check your local area for the most competitively priced auction services. However, cheapest isn’t always best. There are hundreds of auctions in the UK every week, so take your time to select the service that is best placed to maximise your return.
Before you sell a house at a property auction, there are a few things you need to know in order to protect your interests. For example, you might be approached just prior to an auction by someone who wants to make an offer for your property. Someone would only do this if they thought they could get a better deal than the one they’d get through the bidding process. If the person is serious about your property, they will bid just like anyone else.
It is vital that you set a reserve and guide price that reflect current market conditions. Set these prices too high, and there’s a good chance that bidders will be scared off. In addition, you should prepare your home for viewings well in advance of the auction itself. While you won’t necessarily have to make major renovations, this might be a good idea if you’re looking to extract maximum value from a sale. Get directly involved in the marketing and advertising of your upcoming auction by spreading the word in person and online.
What should I consider when buying a house at auction?
Buying a house at auction can become a very emotional experience, and that’s rarely a good thing. You should approach the buying process as a business transaction. Otherwise, you could end up paying a great deal more than you expected. Leave your emotions at home. Set the maximum price for each property of interest to you, and never, ever go beyond it.
Whilst you’re calculating the costs involved in buying your new home at auction, don’t forget to account for the fees required. You will need to pay the auction house an administration fee — usually somewhere in the region of £100 to £300. As well as the legal fees involved, you will also need to pay stamp duty in the usual way.
Before you attend the auction, take the time to study the catalogue thoroughly. Don’t get emotional about a property if you’re investing for the first time. Keep an open mind about the properties you’re going to bid for, and there’s a good chance you’ll land yourself a bargain.
Before buying a house at auction you bid on anything, you should have thoroughly inspected each property with a builder or architect. Factor any renovation or repair costs into your overall budget. To ensure your investment is protected, it’s always a good idea to commission a full survey before bidding on a property.
When the bidding starts, don’t play games. Make your bids clear, and keep them coming until you reach your maximum purchase price. If your highest bid hasn’t made the reserve price, don’t give up until you’ve heard from the vendor — who has a chance to accept the highest unsuccessful bid after the hammer has fallen.
Buying and selling a property at auction has its advantages and its drawbacks. But with the right planning and preparation, there’s no reason why your foray into property auctions shouldn’t be a complete success.