Buying a home
By Stephen Maunder
Article 9 of 13
Discover how property auctions work, plus the pros and cons of property auctions for both buyers and sellers.
The popularity of property auctions has steadily increased over the past couple of years, with dozens of auctions taking place across the country every month.
While property auctions used to be dominated by investors and buyers looking for major projects, they're now beginning to attract more mainstream buyers and sellers, too. Whether you're looking for a bargain or want to sell a property quickly, a property auction could be the answer.
Read on if you're thinking about buying at an auction or go straight down to property auctions for sellers.
- Due to the tight timescales involved with property auctions, you should ideally obtain a mortgage in principle before the big day. Call Which? Mortgage Advisers on 0808 252 7987 for impartial advice and to find the best deal for you.
How do property auctions work?
Property auctions are usually planned well in advance, with auction houses publicly releasing a catalogue of 'lots' (properties) to bidders ahead of the auction date. Most auction houses publish their catalogues around a month before the auction, but some leave it until as little as two weeks before.
Each property will be listed with a 'guide price', which is what it's expected to sell for. Sometimes the seller will also set a 'reserve price', which is the lowest price they will accept, but this is usually kept private until the auction has ended.
On the day, potential buyers gather in the auction room to bid. The process is overseen by the auctioneer, who works their way through the catalogue of properties one by one. Immediately after a property auction, successful buyers must sign legal paperwork and pay a deposit, which is usually 10% of the cost of the property.
While auctions can be exciting, they're not for the faint-hearted, and it's possible to get caught up in the moment and bid more than you'd intended. If you're worried about this, consider asking someone else to go along and bid for you.
Video: three things you need to know about property auctions
Watch our two-minute video for three insider tips on buying at auction.
Buying at a property auction: step by step
1. Do your research
Use websites such as propertyauctions.com to find out about upcoming auctions in your area. Our guide on finding the best places to live could also help you locate homes worth bidding on.
2. View the property
Try to see the property more than once and only proceed if you're really sure it's what you want. You can download a checklist of important questions to ask in our guide to viewing a property.
3. Talk to a mortgage adviser
An impartial, whole-of-market broker such as Which? Mortgage Advisers will be able to find the best deal for you and help you get an agreement in principle, so you can be sure you can afford the amount you're bidding. You will need to have a valuation conducted before the day of the auction.
4. Make legal checks
Study the property particulars carefully, reading all of the small print. If you're satisfied, send them to your conveyancer and ask them to carry out the usual searches, enquiries and title checks. Sometimes the seller's solicitor will carry out the searches and send a copy to your solicitor.
5. Arrange a property survey
You should always have a survey done, but this is even more important if you're buying a 'doer-upper' at auction, as the seller may be trying to offload a property with serious structural issues. Check out our guide to house surveys to understand what type to have and how much it will cost.
6. Decide on a price limit before you bid
Find out what other, similar properties in the same area have recently sold for so you can make an informed decision on how much you're willing to pay. Being outbid may mean that you lose the money spent on the survey and solicitor, but that's a small loss compared with paying thousands of pounds more than the house is really worth.
Bidding before the property auction
If you've found your ideal property and done the appropriate research, it's not always necessary to wait until the auction to make an offer. However, early bidding can be a gamble because, if your offer is rejected, you'll have already shown your hand to the auctioneer.
If you do manage to agree a deal before the auction you'll need to work extra fast, as contracts must be exchanged several days before the auction.
Bidding online can be a good way to avoid the stress of an auction, especially if you're new to the game.
To be considered, you'll usually have to send the auctioneer a cheque in advance for 10% of the maximum amount you're willing to bid.
This does mean that you won't be able to make any bids higher than the maximum you decided when writing the cheque. There's also the danger that a sneaky auctioneer might take advantage of knowing what you're willing to offer by bumping up the reserve price.
Find out more: making an offer on a house or flat – work out how much to bid
Pros and cons of property auctions for buyers
- You might find a great deal: whether it's an undervalued home with planning permission or a renovation project, there are plenty of bargains to be found at property auctions.
- You can move quickly: the entire home-buying process should be complete within 28 days of the auction.
- Property auctions can be a more reliable way to buy: you won't have to worry about being gazumped (losing the property to a higher bidder after your offer's been accepted) or things falling through at the last minute, and you'll be able see other bids for yourself rather than having to take an estate agent's word for it.
- Property auctions are risky: if you're outbid, you'll have lost time and money viewing the property and having a survey conducted.
- You need to have the money ready: if you win the auction you'll have to pay a 10% deposit on the day, and the remaining 90% of the purchase price within 28 days.
- Auctions can be hit and miss: some catalogues offer little more than commercial properties and complete wrecks that could be long-term money pits.
Property auctions for sellers
If you're in need of a quick and easy sale, it's worth considering selling your home at a property auction.
However, as with more traditional forms of selling property, you'll need to do plenty of research, and there are fees to factor in.
Selling at a property auction: step by step
1. Find the right auctioneer
Decide whether to use a local or national auction house. Is your home likely to be attractive to investors or owner-occupiers? If the property is a prime candidate for buy-to-let, consider using a London-based auction house to get maximum exposure to a wider range of investors.
2. Consider the cost
Auctioneers charge an entry fee (often around £300-£400) and commission on the sale, which varies depending on the price and size of the lot. Most auction houses charge around 2.5% plus VAT, but if you're selling a particularly low-value lot you may have to pay a flat fee instead.
3. Ensure the catalogue is correct
You should be allowed to check your listing in the catalogue before it goes to print. This is your chance to ensure all of the details are correct – errors could scupper a sale.
4. Instruct a solicitor
Your solicitor should prepare the legal pack and contracts before the auction.
5. Set a guide price and reserve price
The guide price is designed to lure buyers in and provides a general idea of what the house is worth. If you want to set a reserve price (the lowest price for which you're willing to sell), you'll need to get this to the auctioneer at least a few days before the auction.
6. Go to the auction – or wait for the phone to ring
If you're not attending, the auction house will call and tell you the outcome shortly after the auction's been held.
7. Get paid
Completion usually takes place around 21-28 days after the auction, so you'll be able to collect your money, minus fees, within a month of the sale.
- Which? has teamed up with a conveyancing partner to offer a no-move, no-fee service. Click to find out more about Which? Conveyancing.
Pros and cons of property auctions for sellers
- You'll get paid quickly: the contract becomes legally binding when the hammer falls. The buyer will have to pay a 10% deposit on the day and the remaining amount within 28 days.
- Buyers love projects: if you've got a property in need of significant renovation, you could be in luck as auctions tend to attract buyers in search of big projects.
- Property auctions are a great last resort: unique homes or those with legal complications that have hampered previous sales can also be prime candidates for auction – but do bear in mind that you're legally required to be honest about any serious problems that you're aware of.
- Marketing can be difficult: while the auction house should promote your property, it won't be exposed to the same amount of people as it would be if you were marketing through an estate agent and websites such as Rightmove and Zoopla.
- You'll need to move quickly: if you're living in the property, you'll have to vacate it quickly once it's sold.
- The fees can add up: you'll need to pay an entry fee of around £300-£400 (sometimes more) even if the property doesn't sell. And if it does, you'll usually pay around 2.5% plus VAT in commission. This is considerably more than the high street estate-agent average of 1.3%.
Find out more: how much is my house worth? – set a realistic asking price for your property
Correct as of date of publication.
- Last updated: December 2016
- Updated by: Joe Elvin