A guide on buying a property at auction step by step

Home » Welcome to Cozee » Resources » buying property » What is the process of buying a house? » A guide on buying a property at auction step by step

picking-the-right-estate-agent

Buying property at auction is something that can go very well for you or you can also lose a lot of money if you don’t know what you’re doing or you buy a property without doing your research.

In this article, we go over how to find the right property at auction so you can begin looking at below market deals.

Before the property auction

Before you do anything, you should ensure you’re prepared for the day and also prepared to confidently make and offer. Other than that, you should also find out if buying at auction is something you even want to do in the first place.

So, without further ado, let’s begin with the article.

Consider if buying at auction is right for you

Buying a property at auction can be a quick and affordable way to purchase real estate, but it also comes with risks. Before bidding at an auction, carefully consider if it aligns with your goals and budget.

considering-if-buying-at-auction-is-right

Buying your own home

If you’re buying for your own home, be sure you thoroughly view the property beforehand and are comfortable taking on any needed repairs. Auction houses sell properties as-is, so you’ll be responsible for any issues after purchase.

Make sure to arrange financing beforehand and have funds available for immediate deposit payment. Consider if you’ll be able to obtain a mortgage for an auction property.

Buying for an investment

Auctions can be a way to get discounted investment properties, but analyse the local rental market first to determine if there is demand and solid rental income potential. Be conservative in your calculations, as extensive repairs may be needed.

Looking for your next investment property?

See what properties Cozee have for sale without going to auction

Also factor in expenses like insurance, taxes, maintenance and property management. Thoroughly research the neighbourhood and similar property sales. An auctioned investment property has higher risk, so ensure you have the expertise or support to properly manage it.   

Visit the property

It’s imperative that you thoroughly view the property inside and out before placing a bid. Most auction houses offer viewings on set days. Take detailed notes and photographs documenting any damage, required repairs, layout and condition.

If possible, bring a professional such as a builder to inspect. Gauge any risks that could substantially impact time and budgets for repairs. Understanding the property’s true condition informs how much you should bid.

visiting-a-property-you-will-bid-on

Hiring a surveyor

Strongly consider hiring an RICS certified surveyor to identify defects and estimated repair costs, preventing surprise costs later. They can advise if the property is structurally sound and worth purchasing at auction prices. There are two main types:

Difference between a chartered surveyor and surveyor

Chartered surveyors are highly trained professionals accredited by the RICS that provide detailed reports on a property’s condition. General surveyors conduct more basic surveys that may miss critical issues. Chartered surveys are recommended for auction properties.

Hiring a conveyancing solicitor

Instruct a conveyancer or real estate solicitor to review the legal pack and handle the transaction. This ensures you meet all deadlines for payment and paperwork. They can also advise if there are any issues with the title or existing tenancy agreements.

Reading the legal pack

The auction house provides a legal pack containing important documents like title deeds, surveys, leases and searches. Read thoroughly to uncover any restrictions, access rights or planning issues that could impact the property’s use and value. Flag concerns for your solicitor.

A-person-at-auction-who-is-reading-the-legal-pack

Decide on what finance to use to buy your property

When buying at auction, it’s crucial to have your financing in order beforehand so you can move quickly. Explore mortgage lenders and auction finance specialists to understand your options and have funds secured before bidding.

Need help with choosing the right type of finance?

Cozee estate agents guide you through the selling process ensuring your journey is seamless

Using a mortgage

Mortgages allow you to spread out payments over many years, but standard lenders may not be able to process financing fast enough for auction timelines.

Make sure the lender is able to act quickly

Research lenders experienced in auction purchases that can process mortgage approvals within 28 days. Auction mortgage specialists streamline approvals, valuations and paperwork.

Could borrow against a property you own?

If struggling to get a mortgage, consider remortgaging or securing a second charge on a property you already own to access funds for the auction deposit and completion.

Using auction finance

Auction finance like bridging loans can provide the quick access to funds needed to secure a property at auction. Short-term financing covers the purchase until longer term mortgages are arranged. Be aware of higher interest rates and the need to repay on time.

A-woman-deciding-on-the-right-auction-finance-for-a-property

Deciding on your budget

Through your talks with your legal team and through visiting the property, you should have a good idea on what your budget is and what you’ll be bidding with on the day of the auction.

During your due diligence process, you should be able to compare the properties in the area as well as the overall quality of the house and then consider if there are any renovation costs involved too. Read more about how to plot renovation costs accurately below.

Considering renovation costs

Auctions are often held because the properties at stake are often in need of renovation. As a result, estimating renovation costs is where most people go wrong.

To ensure you don’t make a mistake, consider the following things when coming up with a renovation cost and include this renovation cost as part of your calculation for deciding on a budget at the auction. The below list give you a good idea of what to look for:

  • Condition of roof, chimney, gutters
  • State of plumbing, heating, electrics
  • Structural issues – cracks, damp, subsidence
  • Rotting floors, walls, doors, windows
  • Kitchens and bathrooms to be replaced?
  • Removal of any hazardous materials
  • Garden landscaping needs
  • Planning permission required?

Typical Renovation Costs

Repair type Small costs Medium costs Large costs
Repair < £2,000 £2,000 – £10,000 > £10,000
Replacing roof X
Rewiring electrics X
New central heating system X
New kitchen X
Structural repairs X
New bathroom X
Removing asbestos X
Replacing windows X
Small damp repairs X

On the day of the property auction

Arrive early and take time to review the auction catalogue and your property notes one last time. Locate the auctioneer and register your name and bidding number. Survey the auction room to observe other bidders. Identify any final questions you need answered before bidding begins.

What documents should you bring to the auction?

To bid at auction, bring valid identification, proof of your 10% deposit funds, agreement in principle from your lender, and signed contracts from your solicitor. These documents show you are a serious buyer able to complete the purchase. Also, bring a copy of the auction catalogue and your thorough property notes.

A-woman-with-documents-shes-bringing-to-auction

Familiarise yourself with all the terms

Knowing key auction terms helps you bid strategically and avoid surprises.

Guide price

The guide price indicates the seller’s estimate of a property’s market value. However, the final sale price could be above or below this. Do your own research to determine your maximum bid.

Reserve price

The reserve price is the minimum amount the seller will accept, which is kept confidential. If bidding doesn’t reach the reserve price, the property is withdrawn from sale.

How to place a bid

Once bidding opens, raise your hand, bidding card, or catalogue to make your bid. Nodding is not sufficient. The auctioneer will acknowledge you and announce your bid amount. Don’t jump in too quickly – let others drive up the price first. Stick to your budget and don’t get caught up in bidding emotions.

What happens after you are successful at an auction?

If your bid wins, the fall of the gavel legally seals the contract. You must immediately pay your 10% deposit and sign the memorandum of sale. 

Your conveyancer will then finalise the remaining contracts and paperwork. Complete the purchase within the 28 day deadline to avoid penalties.

Once the property is yours, you can begin renovations or prepare it to rent as an investment property. This may involve dealing with tenants and managing your property’s maintenance.

Want to stop managing tenants?

For just an 8% fee, Cozee manage your tenants so you can focus on bidding and auctioneering

How to bid

Bidding at a property auction, whether in a traditional auction house or online, requires a strategic approach and a clear understanding of the process.

Make sure you’re always sticking to you maximum bid

Successfully navigating a property auction begins with setting a clear maximum bid. In this section, we’ll delve into the importance of establishing a budget, understanding additional costs, and the significance of discipline in adhering to your predetermined limit.

Understand the bidding language

Auctions come with their own set of terminology and bidding rules. Here, we’ll unravel the language used in property auctions, ensuring you’re well-versed in the auctioneer’s remarks and able to interpret the nuances of bidding to your advantage.

Position yourself strategically

Your physical location in the auction room or your online presence can significantly impact your bidding success.

if you are able to see everyone else you can understand where people may bid or not and allow you to remain calm so you can confidently place a bid without the fear of someone else outbidding you if you can see hands being raised.

positioning-yourself-strategically-in-the-auctioin-room

Monitor the room

Vigilance is key in a dynamic auction environment. We’ll discuss the importance of actively monitoring the room, understanding the behaviours of other bidders, and being ready to adapt your bidding strategy based on the evolving dynamics.

Remain calm

Bidding can be an intense experience, but maintaining composure is crucial. In this section, we’ll explore strategies to stay calm under pressure, make rational decisions, and avoid succumbing to the excitement of the auction atmosphere.

What are the disadvantages of buying a property at auction?

Buying a property at auction can offer several advantages, but it also comes with its share of risks.

Limited due diligence

Buyers typically have limited time for due diligence before the auction as auctions have a date that is often a few weeks after the property first gets listed. 

This may lead to insufficient inspection of the property, and buyers might discover issues only after the purchase, having to swallow these financial costs.

Property condition and legal issues

Even if you do your research on a property, there may be things that are hidden about the property legally that even the seller isn’t aware of. Hidden structural problems or legal complications as a result of land ownership may emerge after the purchase. But this is often rare.

a-woman-in-a-property-with-poor-conditions-she-bought-at-auction

Overbidding

The competitive nature of auctions can lead to overbidding, resulting in the buyer paying more for the property than its market value. This is why it’s important to find your budget and stick to it no matter what, no matter how close you think you are to winning the bid.

Gazumping

After winning the auction, another buyer may make a higher offer to the seller privately (gazumping), leading you to lose the property despite winning the auction.

This depends on the type of auction you are in as a traditional auction is more likely to have gazumping. In a traditional auction, the winning bidder must exchange contracts and pay a 10% deposit immediately. 

This means they are legally committed to completing the purchase. If they try to pull out or renegotiate the price (gazump), they lose their deposit and may face further legal consequences.

Modern auctions are more transparent with online bidding vs in-person traditional auctions. This makes it harder for sellers to manipulate the sale process and gazump.

Looking to buy or sell your property? Go with Cozee

  • Trusted estate agent
  • More than 25 years of experience combined
  • We help you focus on your objective (investment, 1st time buy)
Skyscrapers of London