A beginner’s guide to property auctions.

Learn how auctions work, and why some properties are sold this way.

The success of shows like Homes Under the Hammer have opened up the mysterious world of property auctions to the masses. 

Our simple guide is here to help clear up some of the details you won’t see on the television.

Why are some properties sold at auction?

When the hammer goes down at an auction, the winning bidder is legally obliged to buy the property – so auctions can help the vendor secure a quick sale.

Auctions can be especially helpful if the vendor is in financial difficulty, or the property is not wanted – for instance, owned by a bank or building society after being repossessed.

Some of the properties you may see being sold at auction include:

  • Those deemed ‘unmortgageable’ by some mortgage providers, because of their condition, construction materials, or similar issues.
  • Properties with sitting tenants.
  • Conversion opportunities.
  • Those that could be split into several, smaller units.
  • Mixed-use properties (e.g. flats above retail units, where both are included in the sale).
  • Land.
  • Commercial property.

How does a property auction work?

It works much like any other auction.

An auctioneer will stand at the front of the room and officiate proceedings, with competing bidders raising their hand or paddle to confirm a bid.

There is also likely to be a team from the auction house on the phones, helping people who can’t attend the auction in person to place their bids. The auctioneer may also have a number of pre-made bids ‘on the book’, to counter against bids in the room.

Once the hammer goes down, the winner will be asked to show their number.

Your number will be assigned when you arrive and register at the auction. If you want, you can choose not to register and simply observe instead.

Where can I find auction properties?

Auction houses typically list upcoming lots on their website in advance, and produce a catalogue that’s distributed on the day of the auction itself.

If browsing online, you’ll find a ‘Guide Price’ – which is a good indication of the minimum the lot could reasonably be expected to sell for. You may also find photos, a written description, a floorplan, and a copy of the property’s Legal Pack.

The Legal Pack is an important bundle of documents prepared by the vendor’s conveyancer, and we strongly suggest you read it before bidding.

How do you pay for auction purchases?

On the day of the auction, you’ll need to pay a deposit – typically 10%, plus some additional fees – either by credit or debit card, or, occasionally, by cheque.

You then have 28 days (or possibly less) to pay the balance. If you’ve got the money in the bank, you can do a bank transfer. But if you need to borrow the money, you’ll need to engage a mortgage provider.

There are several options in terms of lending products, from residential mortgages (if you’re buying a property to live in) to short-term bridging loans (ideal if you’re hoping to renovate the property and sell it on quickly). We can point you in the right direction based on your circumstances.

For instance, bridging loans* can often be arranged much more quickly than residential mortgages – so if you’re close to your 28-day deadline, we may suggest a bridging loan to secure the property, and then help you arrange longer-term funding afterwards.

Word of warning: if you don’t pay within 28 days, you’ll lose your deposit and your right to purchase the property. You may also have to cover the costs associated with selling the property again.

*Bridging loans last up to 12 months. Any property used as security may be repossessed if you don't make the repayments.

 

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