Buying property at auction is not new, but it’s not the way most people consider buying a property and that may be because it’s a method that has fallen out of favour or it may be because the properties sold at auction are not always conventional. However with 49.8% of all house sales in England and Wales falling through before completion at the end of last year a fast sale by auction will be looking quite attractive to many frustrated buyers and sellers. With an auction, completion usually happens around 30 days after the auction, leaving a shorter time frame for either side to pull out.
Perhaps the lack of favour with property auctions is because they have often been associated with distressed sales, being widely used following the financial crash. However in recent years I have noticed an increase in popularity for ultra-wealthy buyers and sellers of super-prime property. While an auction is often seen a last resort option when conventional methods don’t deliver a sale, for super-luxury or distinctive properties it can be an excellent first choice. This is because it is often difficult to value such a property so the seller can put a reserve price on the property and see how much it will fetch depending on the demand. It also speeds up the likelihood of a sale which is attractive for sellers with properties that have high maintenance costs.
Like many auctions, property auctions have also modernised in recent years. No longer do you need to turn up in person to the auction house. Now, many property auctions are taking place online where you can bid with your phone. However for super-prime properties, I’m aware that many auctioneers still like to hold a live auction, sometimes at the property itself, where they will serve champagne and canapés to amp up the excitement levels and increase the sense of competition.
Such auctions are becoming increasingly popular in America and Australia whereas they are still somewhat unconventional in the UK. However, I think this may be changing and there is already evidence to say so with the number of £1m-plus sales at auction at 58 in 2017, almost double the number in 2014. We’ll all have to wait and see but in the meantime here’s my quick guide on how to buy a property at a live auction:
You’re unlikely to find a low-maintenance, ready-to-go property in an auction. Properties sold at auction are often unconventional (such as a Scottish Castle) or have issues such as structural problems, short-leaseholds or title deed defects. Even with a super-prime property, you may be able to buy it at a reduced price but there will be huge maintenance costs and you may not be able to sell it again quickly. For example last year a property on Lake Como, Villa Passalacqua, that was once on the market for €100m went to auction with a reserve price of just €20m. While the final sale price was undisclosed I believe it was significantly less than the €100m the owners were originally hoping for. While an excellent deal for the new owner the property’s maintenance costs will be vast and they may have to hold it for a long time before they are able to sell for a profit.
Set your limit
Set your upper bid limit and hold to it. Particularly at live auctions it can be very easy to get caught up in the excitement and end up bidding more than you plan to. However it’s also worth noting that the guide price is just that, a guide, so if you see more value in the property don’t be afraid to go over it.
If you’re really set on a property, you don’t have to leave your chances of getting it entirely up to the auction. You can make a pre-auction bid and let the auctioneer know that you are very interested in it so they will keep you informed if a pre-auction sale is likely. Additionally, if the auction doesn’t meet the reserve price the seller may decide to go for the highest bid so it’s worth approaching them after the auction is over.
Before the auction you should be given the chance to view the property but there are often many other interested parties so you could be given a very short time period for your viewing. Therefore taking a surveyor, builder, and/or engineer with you is important. Then getting quotes and an indication of costs will help you calculate your highest bid. Also, when attending a live auction you’ll need to take two forms of ID including your passport and a payment card to pay the deposit. At live auctions contracts are exchanged and a 10% deposit of the final sale amount is usually required. Completion normally happens a month or so later to give time to arrange finance. It’s also worth insuring the property on the day you win it at auction.
At an auction there is no secret to winning, you just have to put in the highest bid. However you do need to bid clearly and promptly or risk being inadvertently overlooked by the auctioneer. Be confident and bid with small increases rather than huge jumps. It also helps to look determined and like you’re not going to give in on the chance it might encourage other bidders to back down.
And finally, be sensible
I have heard stories of people missing out on their preferred property and bidding on another just because they are already in the room. While this can make for a funny anecdote at a dinner party, without having done any of the necessary due diligence you could end up buying a property you end up regretting.