Auction Property - Bargain or Pig in a Poke?

You might be tempted to think that buying a house at auction is very straightforward. You turn up, make your bid, and walk away as the successful owner of a property. In fact, TV programmes like “Homes Under The Hammer” make the entire process appear seamless. They tend to focus on the post auction process of renovating the property in readiness for sale or rent.

However, whilst the process may appear remarkably simple, there are some essential steps you must take to protect yourself. You need to make sure you don’t end up buying a pig in a poke rather than the bargain property you set out to buy!

The positives and negatives of buying at auction

One of the most popular reasons people buy property at auction is the view that you are getting a bargain. Usually, auction properties are priced lower than other properties on the market in the traditional way through an estate agent. Also, unlike the traditional blind bidding at a closing date, not knowing what others are offering, the bidding process at a property auction is completely transparent. Indeed, the auctioneer will actively call out the current top bid an encourage people to offer more.

If you are looking for a quick deal, an auction purchase might be for you. Usually, you need to complete the purchase of the auction property within twenty eight days of the auction. However, you will have to pay a deposit up front as well as an auction fee.

There are pros and cons in every house purchase. However, whilst there is a belief that a property bought at auction is a bargain, there are fundamental risks you need to manage.

Before Auction Day

It is important that you are well prepared before the auction day. This will eliminate any surprises and potential losses should you end up with a property that has problems.

What you need to find out

When you have found a suitable property in the auction catalogue, go and see it. Don’t depend on the description in the catalogue or anything the auctioneer might say. It is very much a “buyer beware” situation when you buy a property at auction.

Check out the condition of the property. Auction properties do not have to have a Home Report or Energy Performance Certificate. That means it is essential to have a survey conducted before the auction. You probably have a finite budget if you intend to renovate and re-sell the property. So, finding out if there are structural or other condition issues before you buy is a fairly clever idea!

Make sure you register with the auction house. They will send you updates in advance of the auction. Sometimes, a property may be withdrawn from the auction when someone makes an offer to buy it. This can be very frustrating, especially if you have spent time and money investigating the property!

What does the title say?

Buyers often overlook title issues when considering buying an auction property. Checking the title should be a critical aspect of the buying process. You don’t want to find out that you don’t have access after you’ve bought it. You need to understand whether there are any problems with the title. Are there any boundary issues or servitudes in favour of others that will prevent you doing what you want to the property?

There may be notices affecting the property that need to be addressed, especially if you are thinking of selling on post renovation.

You should also compare the value of the property with others in the locality. Whilst it may appear to be a bargain, finding out what other properties around it are fetching will help you budget for the purchase. To check out prices, use ScotLIS. This is run by the Registers of Scotland, and you can find out prices and even get a copy of the title (if it’s Land Registered) for just £3.00 (plus VAT).

Making sure your funding is in place

Settlement happens quickly with auction property – usually twenty-eight days from the day of the auction. But that is not the only call on your funding. On the day of the auction, when you are successful, you will need to pay a non-refundable deposit. This is usually 10% of the price and if you don’t complete the purchase, you lose that money. In addition, you will also need to pay the auction house administration fee. This normally amounts to 1% of the price (plus VAT) and can also be subject to a minimum charge.

If you intend to carry out alterations and improvements to the property, make sure you have fully investigated the costs involved. If you are proposing to renovate and sell the property, you don’t want to run out of money!

On Auction Day

Go along to the auction with a clear plan and budget. You will very quickly find out the interest in the property when the bidding starts. This will allow you to gauge when you should enter the bidding. It will also help with your decision to withdraw if the bids exceed the maximum funding you have available.
Being at an auction can be exciting so it pays to make sure you keep within your budget and don’t get carried away.

If you are successful, you will sign the “articles of roup”. These form the contract of sale and purchase of the property and contain the conditions under which your purchase will proceed. You will also have to pay the deposit and the administration fee to the auctioneer.

Inform your solicitor of your success to enable them to get the ball rolling on the conveyancing for you.

Other options

There is nothing to stop you making an offer for a property that’s been listed for auction. If the price you offer is acceptable, the auction house can withdraw the house from the auction right up until the auction day.

However, even if you make a successful offer, the timescales and conditions will apply just as if you had been the successful bidder.

How do I get started?

The first thing you should do is to let your solicitor know that you are thinking about buying a property at auction. Your solicitor will guide you through the process and let you know what you should be doing and when. They will help you with the pre-auction title enquiries and advise you on any legal impediments that could trip you up.

Then register with the auction houses advertising in the areas you are interested in, and they will send you the auction catalogue.

Property Specialists in North Berwick, Dunbar, and East Lothian

Paris Steele specialises in advising clients on all property related matters. We deal with a wide range of residential and commercial conveyancing and are well placed to look after your property needs, from traditional sales and purchases to buying property at auction.

Contact us now to discuss your requirements.