My heart raced and my palms sweated as I gazed longingly at the man in front of me. Frivolous thoughts of ‘the one’ flitted in and out of my head.
A first date, you ask? No – my first property auction.
Having had my hopes dashed a number of times this year while looking for a bargain property, after seeing the perfect flat up for auction, I decided to have a go.
Despite being a MoneySaver who prides myself on looking into the detail of any purchase, let alone one as gut-wrenchingly large as this, I was still very wary.
So I consulted many people (thanks for your help, ma) before taking the plunge. I must stress buying at auction is NOT for the faint-hearted, and I really did do a lot of research (using our Free House Price Valuations & House-buying MoneySaving guides). Even then, I was uncertain if I would bid.
The guide price looked a bargain
The property in question was a lovely three–bedroomed, ex–council, period flat in south–west London. I know the area well, the streets are lined with smart cars and awash with boutique cafes.
The guide price was a bargainous £325,000. Anywhere around that mark would be an absolute steal, though I was sceptical it would go for this. Having checked past sales on Rightmove and Zoopla, I knew flats on that street were selling for £500,000. The flat was a wreck and needed work, but it was nothing insurmountable. Most importantly, it had no structural issues.
On the morning of the auction, I didn’t know what to expect. As my lot was up first, I got there early, ready to exchange my two forms of ID for a bidding card. The auction was held in a big conference room in a London hotel. The set–up included a stage at the front with a big screen to show the property up for sale, and the current bid. To the left of the stage was a table ready for telephone bidders to monitor the proceedings.
I picked a seat near the back so I could slyly check out my competition. I was surprised at the mix of people in the room. Of course, you had suited–and–booted property developers and builders ready to pounce, but there were also lots of people just like me – looking for a home to live in.
As we got closer to kick–off, the excitement in the room was palpable. The auctioneer started by reiterating the rules of the auction, the big one being:
"As soon as the gavel hits, you’re in a legally binding contract."
Not scary at all.
The bids kept on rising…
For the avoidance of doubt, he also informed us that failure to pay the deposit (10%, due immediately) could result in being sued by the vendor, something that happened a few times a year and the vendor had never been unsuccessful.
These were all things I knew in advance, but it was still daunting to hear.
Just before the auction started, I stood up so the auctioneer and his three or four spotters at the front of the room would be able to clearly see me.
He opened the bidding at £350,000, £25,000 over the guide price. Instantly, I knew I didn’t stand a chance. The bids shot past my budget and kept on rising – culminating in a bidding war between two stubborn ladies.
In a matter of minutes the gavel banged down and the flat was gone – for a mammoth £514,000!
Don’t be taken in by auction guide prices
I stuck around for the next few lots. From the table below, you can see the huge difference between guide prices and sold prices. Setting a low guide price is a common tactic to get bums on seats. It certainly seems to do the trick.
|Guide price||Starting bid||Final bid||% increase||Property description|
|£325,000+||£350,000||£514,000||58%||3–bedroom flat, south–west London|
|£250,000+||£250,000||£268,000||7% (reserve not met)||2–bedroom flat, south–west London|
|£80,000||£75,000||£86,500||8%||1–bedroom flat, east London|
|£360,000||£350,000||£518,000||44%||2–bedroom flat, south–west London|
|£225,000||£225,000||£302,000||34%||2–bedroom flat, west London|
|£285,000||£300,000||£456,000||60%||2/3–bedroom flat, west London|
|£590,000||£585,000||£625,000||6% (reserve not met)||1x 1 bedroom flat, 1x 2 bedroom flat, west London|
|£400,000+||£440,000||£486,000||22%||2–bedroom flat, south–west London|
|£300,000+||£300,000||£350,000||17% (reserve not met)||1–bedroom flat, south–west London|
|£500,000||£460,000||£491,000||–2% (reserve not met)||3–bedroom flat, south–west London|
|£375,000+||£480,000||£521,000||39% (reserve not met)||3–bedroom flat, south–west London|
|£500,000||£450,000||£501,000||0% (reserve not met)||2–bedroom flat, south–west London|
Is buying at auction right for you?
Property auctions have a reputation for being exciting and profitable. But they are fraught with risk, so you must have your wits about you. You also need to be in good financial shape so you don’t fall foul of the strict payment rules. If you fit this bill, can stick to a strict budget and are prepared to do the the vital research, then it’s worth considering.
How to find auction properties
Online property search site Rightmove allows you to filter properties by auction. Select your search criteria, then once you’ve got your results, use the filter on the left–hand side to show auction properties only.
Before the auction
Watch other auctions online. It’s a good idea to get an understanding of how auctions work before you bid at one. If you can’t make it in person, you can watch auctions online via EI Group (thanks to Maas on the forum for this tip).
Add 10%+ to the guide price. It’s easy to get excited about a property when the advertised price is so low – but that’s exactly what the auction house wants. Remember the listed price is a guide price only and it’s likely it will go for more.
Read the legal pack, then read it again. Many auction houses will provide the legal pack for you for free, so there’s really no excuse not to read it. Carefully comb through it to make sure there are no catches. Even better, get your conveyancing lawyer to have a look if you can. I was lucky that I had a solicitor friend look over the pack for me.
Have nerves of steel and stick to your budget. Make sure you decide in advance what your bidding strategy will be, and how much you can afford to spend. Stick to it rigidly. If you don’t think you’ll be able to, take someone with you that can keep you in check or admit an auction may not be for you!
Get a survey and take a builder to the viewing. A basic survey will show any major structural issues. Sometimes properties are sold at auction because they can’t be sold on the open market, so it’s extremely important to get a survey done, unless you’ve got bags of money to do major works, potentially at a loss. It will cost you £300–£500, but if you decide you want to buy at auction, you’ll have to accept this as a sunk cost.
Line up your solicitor – you have days to finalise the sale. Once you’ve paid the 10% deposit on the day, you’ll usually only have 20–28 days to cough up the balance. This is no time at all, so get your solicitor lined up in advance. They won’t just need to be on the ball, they’ll need to be scoring goals before the day’s out.
You can put in an offer before the auction. Not many are aware of this, but auction houses will sometimes take offers in advance. There’s no harm in asking if it’s a property you’re really keen on.
Your finances MUST be ready in advance. Once the gavel hits you’re in a legally binding contract and you are liable for the full amount of the winning bid. You must be able to pay within the set timeframe, or risk losing a lot of money, so make sure you have an agreement in principle if you’ll be getting a mortgage. If you’re in the enviable position of being a cash buyer, this is irrelevant.
You will need to ensure you have cash cleared for the 10% deposit. Some auction houses let you pay by cheque, but even then they may ring the bank to ensure funds are available. Update: Forumite and conveyancing solicitor Richard W says that an agreement in principle is not enough and a full valuation should be carried out by the lender before you bid.
Know the market value. Really do your research before you go to the auction, so you’re fully armed with the knowledge of what a good price is. It’s easy to get carried away in an auction setting and often, houses go for over–inflated prices thanks to a bidding war. If you know the market well, you can avoid paying over the odds.
Beware of extra fees. There’s usually a fee to pay to the auction house, which can be around £1,000. In some instances (particularly with councils) you’ll be asked to pay the vendor’s costs as well. On the flat I was interested in, that was 2.7% of £514,000. It’s a huge sum, which you need to factor into your budget.
- Sort insurance quickly. The property immediately becomes your responsibility once you win the auction, so it’s your risk as soon as the gavel hits. Consider getting building insurance in place urgently.
Have you been to a property auction? Please share your thoughts below or in the forum discussion.