How to buy property at an auction

Tips on how to buy commercial property at auctions

Auctions are a great way to see what exactly is available on the buy-to-let market without the drawn-out and uncertain buying process. 

But, buyers beware, as soon as that hammer hits you're locked into a payment - so make sure you're prepared to pay for what you bid on.

To an outsider, they may seem like a place where gavels are slammed and it's all a case of nods and winks, but interested individuals should try and actually sit in on one to know exactly how one works.

Why buy a property at auction?

Auctions are often favoured by people looking for properties at the more unusual end of the spectrum or properties that estate agents wouldn't necessarily know how to sell.

However, they aren't just popular with people who have an eye for a bargain and expert auction-goers. Over the last ten years, they have become increasingly popular with regular buyers looking to speed up the process or avoid chains. 

It's quick

The sale is finalised within a matter of minutes rather than the usual long, lengthy process.

This, of course, will mean that you need to prepare in advance. A few weeks before the auction, you should order a brochure from the auctioneer to see what is being sold and any early targets can be identified.

During this time, you can arrange a viewing and carry out further research if any of the properties takes your fancy.

It's a transparent sales process

With auctions, there are no last minute deal-breakers. As mentioned earlier, the sale is agreed the minute the hammer hits the table, so there's no risk of the sale falling through in the final stages. 

You can also see and hear the other bidders - so you can outbid them immediately if you wish to do so.

Finding an auction

Once you have decided on a location you're interested in, contact the auction houses that operate in that area and ask for a catalogue. They might also have a mailing list that you can sign up to, this way you'll get a list of properties as soon as they are advertised. 

It's worth keeping in mind that there is usually a four week time frame between the publication of the catalogue and the auction itself - so get your viewings in sharpish!

Do your research 

Study the catalogue and shortlist the properties that you are interested in. 

Then contact the auction houses and make arrangements to view the properties. 

Be open-minded. Auction properties can be in a considerably different state to those advertised on real estate portals and estate agent websites.

Consider getting an expert opinion. An architect or a builder could give you a good idea of how much would need doing to the property and how much it could cost you.

Don't trust the guide price. The advertised price is not a set price and it is usually set low to entice buyers and draw interest to the auctions.

Be prepared to pay more. In order to get a good estimate of what the property is worth, ask a local estate agent, compare it with similar properties in the same area and set a realisitic price.

Finances

The finances have to be prepared, so be sure to have a mortgage in principle sorted before the auction, so that you are ready to complete the application should the sale go through.

Note that this can take up to three weeks to process, with the risk of also losing a deposit, if you don't get the property or choose to change your mind.

When the sale is agreed you will be asked to pay 10%, you will then have a month to pay the remaining 90%. If you cannot pay you will lose your 10% deposit. You may also be liable to cover the costs of the resale.

Decide your final price (and stick to it)

As exciting as it may be, try and avoid getting into a bidding war - or you could end up paying more than the property is worth.

When the bidding begins, strike the right balance. Put yourself out there and avoid hesitating, but at the same time don't get carried away.

If you have a top price established for yourself, make sure you do not go beyond it as accessing the funds for it may be tricky, and a bank will more likely lose their trust and confidence in you if you go asking for more money.

On the other hand, your desired property may sell at a lower price than originally requested so always be ready to negotiate the asking price.

Consider getting a survey

Make sure you know what you're bidding on. The last thing you want is to invest in a property that isn't structurally sound, is considered a health hazard or get it condemned by the council after the sale. Not only will you loose your deposit, but you'll also be out of pocket, paying for the demolition of your newly bought property. 

Go through the legal pack with a fine toothed comb

Auctioneers will provide you with a legal pack for the properties that you have registered interest in. This will include details of the deeds, local authority, fixtures and fittings, seller's information, leasehold informtation and environmental searches. 

Consider getting your solicitor to look through it for you. They may discover loopholes that could end up costing you more than you bargained for. 

Potential risks 

If you've already invested money into researching the property and carrying out a survey and you happen to lose the auction, you will subsequently loose this money too.

There's also a risk that the property you have spent time and money looking into, may have been bought before the property has even gone to auction. 

How much does it cost?

While buying a property at auction is usually cheaper than going through an estate agent, you will also incur some additional fees. 

You will also have to pay your solicitor or conveyancer to survey the property before you decide to bid on it. They will make sure the property is in good enough shape to buy and could save you thousands of pounds in the long run.

Like any property purchase, you will have to pay stamp duty. 

You will also be responsible for insuring the property.

The auction house will take an administration fee - this is typically between £200 and £300.

Even though auctions can be a bit daunting, they are a great way to nab commercial property quick.