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Buying and Selling Property at Property Auctions

Property auctions are a lesser known alternative to selling properties privately or using estate agents. There are 2 main reasons why properties are sold at auction:

  • The seller wants a quick sale
  • The value of the property is uncertain

Normally when property is sold at an auction, the buyer has to pay the seller a 10% deposit immediately after the sale and complete within 28 days.

It is generally believed that bargains are to be found at auctions. While this has been true for a long time; more recently with greater general interest in property, and greater awareness of auctions has made the price for more standard properties no different from buying privately or at estate agents. Properties can sell significantly above or significantly below their true value - this happens when bidders are not buying rationally.

The main types of properties offered for sale at auction are:

  • Repossessed Property - property repossessed by banks and building societies are presented for a quick sale and for buyers is the greatest source of potential bargain buys. The lenders generally do not want to get involved in owning and managing properties themselves and are only interested in covering the value of the outstanding loan to the people they repossessed the property from.
  • Landlord Disposals - Large property entrepreneurs dispose of property this way to finance new projects or meet other business commitments quickly. Local authorities and major corporations also dispose of property in this way.
  • Private Sales By Property Owners - the main reason private owner's choose to sell at auction rather than at an estate agent is that they must have a quick sale for some reason. This may be because they are moving abroad or moving to a distant part of the country, and need to sell within a fixed period of time to get financing for their relocation and buying a home.
  • Specialist Property - This may be very large or very exclusive luxury property where the true market value is completely unknown. Great bargains can be had or the price may bid beyond all normal expectations. Such properties can include listed buildings or homes previously owned by famous iconic celebrities.
  • Property with Structural Faults - These are best left to developers. The properties are often sold because they are not mortgageable and you will have to be a cash buyer. For developers, great bargains are to be found.

Auctions are more popular with property investors, developers and speculators rather than with private buyers. The typical disciplines for any type of auction apply with property auctions. For the un-initiated, buying or selling at an auction can be an unnerving process.


Selling at An Auction

The main justification for selling at an auction is getting a quick sale and completing in a definite time period. The costs and fees incurred with selling at an auction are not that different from selling using an estate agent in the normal way. To ensure a quick sale is realized, the auction should be properly promoted (in a similar way to how properties are advertised by an estate agent.)

If you find a buyer who is desperate to buy before the date of the auction, you have the option to agree a sale before the auction takes place. If you like the buyers offer, you should insist on the same terms being offered at the auction: exchanging contracts immediately and completion within 28 days. If the buyer will not accept this, tell the buyer to wait for the auction - remember the reason you wanted to sell at auction in the first place was to have a quick sale.

When selling at an auction, you have the option of setting a reserve price - this is the price below which the property will not be sold unless bidders bid above that price. This gives you some measure of safety from selling the property too cheaply. However, if the property does not meet your reserve price at the auction, you still have the option of meeting with interested buyers and doing a deal. This means that you can still dispose of your property albeit at a price lower than you had hoped for.


Buying at An Auction

When buying at an auction, you must be very careful to find out everything about the property beforehand.

If you have the winning bid for the property you are committed to buy, quite unlike putting in an offer in the normal way where you can pull out if surveys show up major problems. Make sure you can afford the property before bidding. If you do win the bidding, you will normally be expected to pay a 10% deposit right after the auction and complete the sale within 28 days. You should have already determined what you can afford and have the appropriate finance arrangements in place before the auction.

With properties at auctions, you should perform a survey beforehand and always view the property yourself. Titles, searches and enquiries should also be performed before the auction. These details will normally be available with the auction particulars or at the vendors solicitors. Appoint your own solicitor to cast an expert eye over the legal details of the auction as well.

If you are desperate to buy the property, you can agree an offer with the vendor before the auction. If the vendor does accept your advance offer before the auction, usually the same terms and conditions of sale as for the auction apply and you will have to exchange contracts and pay a 10% deposit to the seller immediately and also to complete the transaction with 28 days. Alternatively, if you are happy to wait for the auction, it is a good idea to register an interest with the auction house. The purpose of this is that if someone else makes a pre-auction offer, you will be advised of this by the auction house before accepting it, and you are given the opportunity to make a counter bid and complete the sale - all before the actual auction takes place!

The golden rule when buying at auctions is to set your limit and stick to it! Never let your heart rule your head unless the property is your intended dream home and there are absolutely no business considerations involved. It is very easy to become carried away in the bidding process.

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