Buying at auction is an increasingly popular way to pick up a bargain.
Your home sale or purchase will go through much faster than via an agent and you can even buy your dream home or fixer-upper online. But watch out for the pitfalls – and remember, don’t bid unless you’ve done your homework and have your finances sorted.
Think property auctions and the BBC’s Homes Under the Hammer is likely to spring to mind. It’s fascinating to watch individual investors and developers buying fixer-uppers to revamp and resell or rent out.
But there is a change taking place, with many leading auctioneers reporting that more home buyers are making a bid for a place to call their own, tempted by the lower prices listed at property auctions and by how quickly they sell.
How to find an auction
To find out about auctions in your area, check adverts in local and specialist property newspapers. Other good starting points are:
Essential Information Group (EIG) Offers a comprehensive database of property auctions. EIG is offering Moneywise readers a two-week free trial (see below).
IAM Sold Search for properties online throughout the UK. Iamsold.co.uk/auction
NAVA Propertymark The self-regulatory body for valuers and auctioneers, it has a useful ‘Find an Expert’ tool. Nava.org.uk/find-an-expert
Pattinson Holds live auctions in the North East and North West of England and online auctions in London, the Midlands, Scotland, Wales and Yorkshire. Pattinson.co.uk/auction
Rightmove When you search by area, there is a filter to show auction properties only. Rightmove.co.uk
SDL Auctions Search for online and live auctions nationwide, with properties added daily. SDLauctions.co.uk
One advantage for buyers is that you can bid for properties that you won’t necessarily find via an estate agent. For instance, it’s a good place to find a bargain property being sold by mortgage providers looking to offload a repossession or by executors wanting a quick sale.
“We get a lot of properties via executors who want to get a good price in a fixed timescale. They don’t want to be faffing around with estate agents for a long time,” explains Paul Mooney, director at Savills national auctions.
From a seller’s point of view, auctions are attractive because of the speed of the sale – and fees may work out cheaper than paying an estate agent commission.
According to figures from Rightmove for July 2018, it takes 57 days, on average, to get a property marketed on the property portal until it is sold subject to contract – plus you need to allow several weeks more to exchange and complete. In contrast, it takes around 21 days to get a property marketed before auction day and if sold, the completion date is usually 20 working days later.
Auction room bidding
I spoke to Gary Murphy, co-head of auction house Allsop’s residential department, just before he picked up his gavel at its London auction in July.
“Most people of a certain age have a home to sell if they are going to move, so that has always been a bit of a barrier to buying at auction. But for first-time buyers, second-home buyers and amateur buy-to-let investors who may be in rented accommodation, it’s great, because you know you can buy very quickly and efficiently,” Mr Murphy says.
But he stresses the legally binding aspect of a traditional (also known as an unconditional auction). “I always say at the start: ‘Unless you’ve seen the property, unless you have the money in place, don’t bid’ – but they don’t always listen.”
Windmill, Sutton, Norfolk
Guide price: £35k | Sold: £92k | Three bids | IAM Sold
Once the auction got under way, there was a flurry of activity, with bids often escalating by £5,000 at a time and properties selling for well above their reserve price (the minimum price a seller will accept). However, some were occasionally withdrawn because they didn’t reach their reserve price.
Bidding seems quite straightforward, so you needn’t worry about buying a £10 million house because you’ve scratched your head.
Mr Murphy explains: “We get a real mix of regular and novice bidders. Once someone is in the bidding, the first bid is quite obvious and then it could just be a blink… it’s almost subliminal after several bids back and forth.”
When the gavel comes down, the buyer will pay a deposit of 10% and complete the sale 20 working days later.
To give an idea of fees, at Allsop the buyer will pay a £1,000 buyer’s fee, while Allsop’s standard commission fee for sellers is 2% , with a minimum fee of £1,000 plus VAT. Then there is an entry fee for marketing and listing your property, which ranges from £450 to £2,000 plus VAT, depending on the size of the entry in the catalogue.
Surprisingly, remote bidding (by phone and online) only accounts for around 10% of bids at Allsop.
Allsop auctioneer Gary Murphy takes the bids
While some bidders prefer the thrill of a live auction room, there is a growing trend towards online bidding. The main firms leading the online auction revolution are IAM Sold, Pattinson and SDL Auctions. These offer estate agents an online platform for auction sales.
When IAM Sold first introduced online auctions in 2011, around a fifth of its auctions took place this way. By last year, just under two-thirds (62%) were online.
You can bid for homes you won’t find via an estate agent
Jamie Cooke, managing director of IAM Sold, says: “Buyers can benefit from being able to bid from the comfort of their own home 24 hours a day, 365 days a year. Not only that, but it offers greater transparency – a property sold at an online auction will achieve its true market value with huge exposure to the market because the platform never closes.”
Jason Lee, national sales manager at SDL Auctions, adds that homeowners buying at auction are not necessarily cash buyers.
“It’s a huge misconception that you can’t buy at auction with any sort of funding – just over half of all of our sales now are to people with some sort of funding, whether it be mortgages, bridging loans or the Bank of Mum and Dad,” he says.
Whereas live auctions tend to list investment properties, online auctions are more varied.
“What we’re finding is that more people who know their property is highly desirable, and that they can sell it quickly, are going down this route. We’re selling anything from a one-bedroom, run-down apartment to properties well in the millions, where you can move straight in. It’s very similar to what many people use almost every day, and that’s eBay,” Mr Lee adds.
At SDL Auctions, the seller pays a set fee of £199 plus VAT, while the buyer pays 3.5% of the purchase price plus VAT – so it’s very different from a traditional estate agent’s fee, where the seller will pay the agent and the buyer will have no fees to pay.
At Pattinson, the seller pays no fees, while the buyer pays an administration fee of £780 (including VAT).
Two-bedroom semi, Bury, Greater Manchester
Guide price: £132k | Sold: £149k | 16 bids | SDL Auctions
Meanwhile, IAM Sold’s fees for both live and online auctions range from 2.5% to 3.5% of the purchase price, depending on what the agent wants to charge, with a minimum fee of £5,000 plus VAT. It’s up to the seller whether they or the buyer will be liable for the fee. In most cases the seller will opt for the buyer to pay the fees, but sometimes they will pay them – for example, if it’s a property aimed at first-time buyers.
Moneywise trial offer of EIG auction website
Essential Information Group (EIG) is offering Moneywise readers a free two-week trial of its auction website.
EIG’s search facility enables you to find auction properties across the UK. The website includes pictures, guide prices, auction results, lot details, similar properties, location maps, legal documents and more. It is recognised as the industry standard for auction information and includes details on over 750,000 properties for you to browse and search.
Access to the website costs £175 a quarter, £275 for six months or £475 a year, plus VAT.
To take up the trial offer, you need to register by 30 September 2018 and either call 01737 226150 quoting ‘Moneywise trial offer’ or visit Moneywise.co.uk/eig-offer.
Sensible buyers will get a lawyer to check the contract in the weeks before bidding, but some professionals will just look at the legal documents on auction day.
However, Natalie Bradley, head conveyancer at national law firm Stephensons, recommends buyers exercise extreme caution.
“We would not advise any client to buy at auction unless they have had a professional carry out a thorough check of the legal title. Once the deposit has been paid, this is the point of no return and the buyer is contractually obliged to complete the purchase. If they fail to do so, then they will lose their deposit and, potentially, be significantly out of pocket,” she says.
“Even where a professional carries out the legal check it is usually not as thorough as a conventional purchase, as the only information widely available is that which is contained within the auction pack. This could be missing key information that could help in informing the buyer’s decision whether to proceed with the sale. Equally, the auction pack may be missing information which could influence the decision of a lender.
“Drawing on my own experience, I have encountered issues with the purchase of a flat at auction on behalf of a client. The service charge account was massively in arrears and, under such circumstances, we would normally ask for an undertaking from the seller’s solicitors that they would pay all the arrears on completion. However, at auction, it is not possible to obtain such an undertaking before committing to exchange. The buyer would be liable for all arrears if the seller refused to pay.”
“Once the deposit has been paid, this is the point of no return”
Allsop’s team take phone bids at the live auction
Mortgaging your auction home
Unless you’re a cash buyer, one of the biggest hurdles is making sure your finances are in place before you bid.
David Hollingworth, associate director of communications at broker London & Country (L&C) Mortgages, explains: “The time from mortgage application to offer is a process that can take anything from two to four weeks, depending on the circumstances, so starting from a standing start could put severe pressure on timing. If the borrower ultimately finds the amount of borrowing difficult to secure, it could jeopardise meeting the deadline, which could risk losing the property and the deposit.”
You can ask a mortgage provider for a mortgage offer in principle – a shortened application form for the borrower to complete their personal details, income and expenditure, which enables the lender to credit check and score them, so that the lender can indicate they will, in theory, be happy to lend up to a certain amount. But a mortgage in principle can’t be transferred to other properties should your bid be unsuccessful.
Mr Hollingworth says: “An agreement in principle is not fully underwritten and is not a guaranteed offer. When a formal application is made, the lender will need to see evidence of income and ID, etc, as well as undertake a valuation of the property itself. If the breakdown of income is different to that originally indicated on the agreement in principle, it could alter the lending decision.
“In addition, if the property did not meet the requirements or the surveyor finds a problem, then a mortgage may be refused.”
Indeed, Nationwide, for example, urges applicants to have an independent structural survey and valuation and to be aware of the condition of the property before attending an auction. It says that a standard mortgage valuation isn’t detailed enough to identify all defects and is only for lending assessment purposes, “especially in auction properties, which are often unusual”.
Nationwide adds that you must have a mortgage offer before bidding, so there is no doubt over any conditions that will apply to the loan. Buyers will need to source the 10% deposit themselves.
Buyers pay 10% deposit and complete 28 days later
Two-bed detached house, Leicester
Guide price: £137k | Sold: £155.5k | 20 bids | SDLAuctions
Read more: Moneywise Mortgage Awards 2018
If, for example, you are waiting for the sale of your home to go through, a short-term bridging loan could tide you over for a few months – but it will come at a premium and you’ll face exit fees if you want to pay back the loan early.
Mr Hollingworth explains: “Bridging finance will charge higher rates than standard mortgage lending, but may offer an alternative. Specialist bridging lenders may be able to turn things round quickly, and if the property needs substantial refurbishment they could help where traditional lenders could not. That will, therefore, come at a cost and it is designed as a short-term funding solution, but buyers will need to factor in those costs.”
To give an example of what you could pay for bridging finance, Market Financial Solutions has its own funds and panel of surveyors and lawyers, so it can act quickly. Its bridging loans have a loan to value (LTV) of 80%, with rates starting from 0.65%. Buyers can borrow between £200,000 and £10 million with a minimum term of three months and a maximum term of 18 months, with an arrangement fee of up to 2%.
Specialist lender Together, meanwhile, focuses on smaller bridging loans of between £30,000 and £250,000 for residential properties. Interest rates start from 0.49% for six months (1.24% from month seven), with an LTV of up to 75%, plus a 2% arrangement fee (minimum £800).
‘An online auction offers a good chance of selling a house like mine’
Joanna Francis (pictured, left) decided to sell her three-bedroom home in Burton upon Stather, north Lincolnshire, via auction because it is rather unusual. A throwback to the 1940s, it comes complete with Anderson bomb shelter in the back garden, a coal-fired cooking range, a ‘posher’ and dolly tub for washing clothes, and an outdoor toilet.
Joanna says: “The way my house is, the local market wouldn’t have been any good. I need a wider audience where I’d have more chance of a sale.”
The house is being sold with all its furniture and furnishings and Joanna would prefer it to go to someone who would keep it as it is.
The property was auctioned by Pattinson in late August, but there were no bids and it may be auctioned again later this year.