What to expect at your first property auction
Why go to a property auction?
Looking for your next property investment?
There are a lot of advantages to buying a property at auction. As well as the chance to acquire a property below its market value, you don’t have to worry about the uncertainty of an under-offer period or the danger of last-minute renegotiation.
Contracts are typically exchanged within 28 days, so auctions can also appeal to those wanting to buy or sell in a hurry.
Not sure when is the best time to buy property at auction, check out this Q&A where I answer questions from property investors like you about what phase of the market cycle you should buy.
Before the auction
So what do you need to do before you’re ready for your first auction?
The first step is of course to find some properties up for auction that you are interested in.
Search online for auctions in your area and subscribe to their mailing lists to get information on the properties they have at each auction.
Once you have this, you can do all of your usual due diligence researching the property. Visit the property, get a feel for the neighbourhood and crunch the numbers to make sure the property will work for you.
Take additional costs like the auction fees and a 10% deposit into account, you will need these on the day if you win the bidding. If there are substantial extra costs from legal fees or auction fees, adjust your maximum bid to account for that.
If you don’t include these in your calculations, you could be in for a nasty surprise later on!
The guide price can help here, but bear in mind the guide price may be set low in order to entice you, or high to drive up the price, so do your own research on its market value, decide your maximum bid and stick to it!
It may be worth getting the property professionally valued if you are unsure, and you will have to do this if you will need a mortgage to buy.
Look for these types of property at auction for a great deal:
- Out of area.
A property in a location far from the auction it is listed at might not interest a lot of people, reducing the bidding on it.
- Out of character.
If, for example, most of the properties at an auction are 2 bedroom flats, it is probably safe to assume that is what most of your fellow bidders are interested in.
Look for properties that are out of character with the other listings, and you may face less competition at auction.
- Withdrawn from auction.
There are many reasons why a property might be withdrawn from auction but still be for sale, for example the seller might have received an offer and cancelled the listing, but the offer later fell through.
If the property you want is removed the auction listing, make sure you chase it up and find out why; you might still be able to buy it!
- Guide price too high.
If you do your research you should be able to tell when a property’s guide price is overly optimistic. This could put off other bidders and give you a better chance of acquiring the property, but it could also indicate a high reserve price.
Next, you want to build up some auction experience before you start bidding for real.
Too many property investors get carried away at auction and end up making investments they will never recover!
Attend two or three auctions with no intention to bid, just to observe the proceedings and get acclimatised to the atmosphere. This is going to help you keep a cool head and make smart decisions when the time comes to actually bid.
Listen to how the auctioneers run the auction, and ideally research a few properties beforehand even though you are not bidding. Test your predictions about how those properties perform at auction, and you will have better judgement when it comes to getting the property you want at the right price.
Try to get in conversation with the auctioneers before or after the auction in order to understand how their auctions usually go, and get any other useful tips about the auction or the properties that can get from them.
Looking for some more quick tips from auctioneers themselves? Watch this video where I talk to John Stockley of Clive Emson Auctions to get his take on the current market.
Now that you have found a property you want and you have decided to go to auction and bid for it, it’s time to do some last-minute checks:
- Check the property you are interested in is still for sale.
Some properties may be sold before auction, so call ahead to confirm and avoid disappointment.
- Bring your ID.
You will need 2 forms of ID, photo ID like a driver’s license or passport, and a recent utility bill, will do the job.
- Bring you solicitor’s details.
You will need to exchange details with the vendor to start the process of getting a contract written and signed.
At the auction
The most important point to remember about the auction is…
Don’t get carried away!
There is always another auction and another property.
That doesn’t mean you should hesitate forever, but if you have done your homework and know how much you can spend on a property for a successful investment, don’t keep bidding past that point!
Too many people get tunnel vision at the stage and end up trying to ‘win’ the auction, rather than make a sensible investment.
Don’t get emotionally invested in bidding!
While it is possible to exit a bid after the auction, it will be difficult and expensive and could damage your reputation with the seller or auction house.
There is no good reason to put yourself in this situation!
Watch this quick video for some more tips on keeping a level head at auctions.
When it comes to the bidding process itself, everything should be fairly simple – just keep bidding up to the maximum you calculated beforehand.
Some investors prefer to sit at the front to be close to the auctioneer or at the back in order to see who is bidding on what, I always recommend sitting at the back in order to gauge the room.
Finally, remember that if your target property’s reserve price was not met, there is nothing stopping you from approaching the seller after the auction.
You already know they are shooting for a quick sale, and someone else might have the same idea, so talk to them at the earliest opportunity!
What happens next?
Once your bid has won the property you are in a legally binding contract, and the seller’s solicitor and yours will usually be required to sort out all of the payment and paperwork within 28 days.
You will also be asked to pay the buyer’s premium or admin fee at this stage, which could be a lump sum or a percentage of the sale, as well as any contribution to legal fees you are required to make.
Now that you’ve got your new property, it is time to start maximising your returns on investment. Read my recent article on maximising the value you add to your property for everything you need to know on this.
If you have any questions about your first property auction, or tips to share with your fellow investors, join the discussion in the comments section below!