An auction house can be a mysterious place to someone new. The idea of people bidding for the same thing can even be intimidating, but we're here to help and let you know what to expect. In this blog we cover how property auctions work, and how to prepare for auction whether you're buying or selling.
What to expect at an auction
Catalogues are handed out publicly before the auction goes ahead. The catalogue contains the properties which will be included in the auction, and they're known as lots. It could be just a couple of weeks before the auction or months before the auction that the catalogue is released.
You'll need to know the difference between a guide price and a reserve price as these are set for each lot. A guide price for a lot is like a valuation. It's the price that an auction house or the seller thinks the property is worth. A reserve price on a lot is the minimum payment that the vendor will accept, but this is usually kept private.
Bear in mind that up until the very day of the auction, the reserve or guide prices could change.
What to do if you're buying at auction
Whether you're looking for your next property investment or family home, we've listed some points to take into consideration before going to auction.
- Pick an auction - take a look online for auction houses and find one that's suitable for you.
- View - if you see a property you like the look of in the catalogue, make sure to view it so you know what you're trying to buy.
- Mortgage - winning a property auction gives you a set number of days to exchange and complete, so if you're using a mortgage you'll want to have a mortgage in principle in place.
- Paperwork - be sure to carefully read over the legal pack provided for the property going under the hammer. They usually contain items like conditions of the sale and local authority searches.
- Don't pay too much - it's best to get your own valuation carried out on the property to prevent you from bidding too much when auction day comes. It's also recommended to get a survey so if there are any expensive structural problems you're aware of them.
- Get insurance - from the exchange date, you'd need building insurance on the property.
- Set a price cap - getting involved in a bidding war can result in you paying more than what the property is worth. Set yourself a price cap and stick to it.
What to do if you're selling at auction
If you've decided the open market isn't for you and you want to sell through an auction, take a look at the following points.
- Pick an auction house - research online and choose an auction house that's right for you. Auction houses can work on either a local or national scale. If you think your house could be attractive to someone wanting to buy-to-let, see if an auction house located in London could work for you as it reaches more investors even if the property isn't situated in London.
- Don't get caught out - it's likely you'll be charged to list your property in the catalogue, and this can cost hundreds to thousands of pounds. You'll be liable to pay this whether your property sells or not. If it does sell, there will most often be a commission charge at a percentage of the property sale price. This could be around 2.5% plus VAT.
- Double check - check over your property listing with a fine comb and make sure there are no mistakes. A simple error could have a huge impact on whether your house successfully sells.
- Prepare - ask a solicitor to prepare legal documents and contracts before the auction.
- Pricing - setting a guide price is a must; pick a value which is accurate but also attracts buyers. You may choose to have a reserve price, in which case you'll need to inform the auction house before your lot goes under the hammer.
- On the day - you can either go to the auction in person or wait for a phone call once your lot has finished. Some may also be available to watch online.
- Completion day - this is often 28 days after an auction has finished, and requires you to collect your money for your property (after taking off any fees from the total).