House auctions – what do you need to know?

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Hi all :) Looking at potentially buying via a property auction but have no experience in this area. Any pointers or things to be aware of for a beginner?

Many TIA for any responses! 🙏

Avoid houses that are being sold by Modern Method of Auction, particularly by the auctioneer iamsold.co.uk in conjunction usually with a high street agent listing the house and doing viewings. If you want to make an offer it will take the form of a bid, and the winning bid will get the option to buy the house at the bid price provided it exceeds the reserve. But if you make the bid, you will also have to pay a buyers fee of 4.2% of the bid price (minimum of £6000 but potentially much more of course) and this is over and above the cost of the house - not a deposit that gets deducted - purely in exchange for the honour of being allowed to make an offer on the house. You will also be tied into an agreement to complete within 56 days (just you; the seller is under no such obligation and might make you wait a year while they get probate, for instance) and if you pull out for any reason (dodgy survey, legal issues etc) or miss the 56-day deadline for any reason including dawdling on the part of the seller, you forfeit the house and the buyers fee - so there's not much of an incentive to the agent/auctioneer to get the transaction through, as they get the money after 56 days anyway.

Never has caveat emptor been more apt.

So my advice is to stick to traditional auctions and give the so-called Modern Method of Auction a wide berth.

With a traditional auction, you get a sellers pack ahead of auction day which your solicitor can check out (though that would be a speculative upfront cost to you ofc) and in my experience they're very comprehensive. You can view at a viewing day but are unlikely to have the time or opportunity to get a survey - perhaps take a builder if you have a tame one? You have to register and prove your identity ahead of registration, and will then be in a position to bid, usually online, though some auction houses also accommodate in-person and phone bidding. If you win the lot, you're committed to buying - in effect have exchanged - and will usually have a timeframe of 4-6 weeks to complete (the auction house will have made the timeframe clear). You'll have to pay a percentage at the time the hammer falls or within however many hours/days - the details will vary but be made clear in advance.

It's quite exciting being registered and watching lots go by, knowing you could bid if you want. Sometimes you have to state which lots you're interested in and can only bid on those ones. I recommend getting registered for a sale prior to the one you actually have an interest in, so you can enjoy that adrenalin rush while staying well away from clicking on anything, and then you'll be nice and calm when it matters and mindful of your upper limit. Houses often go for much more than you'd expect, so don't get too excited about a low guide price.

Read the small print. I don't doubt some auctioneers are more reputable than others. I'm registered with Savills who were very professional (but I didn't get the house I wanted). There are others I've felt I'd rather swerve but I'm hardly an expert.

hth

@DepartureLounge THANK YOU! Incredibly helpful, very much appreciated!

A lot of houses that are for sale at auction are unmortgagable so watch out for that. Also they are sold as seen to no option for negotiations or getting surveys done so make sure you know what to looks for in terms of things which are expensive to fix. Also when if the property is mortgable , you need to pay the full amount within a month of the auction, which is not enough time to organise a mortgage so you will probably need a bridging loan.

Thank you@Geneticsbunny !!

Do you know what type of issues might be expensive to fix / better to avoid vs those which can be brought up to spec fairly easily? Just wondering if there are any types of issues which are notorious red flags.

What makes a property unmortgageable?

All due respect, if you need these questions answering you should not be buying at auction
There's usually a reason the house is at an auction, and it's not usually positive for the buyer

I totally agree with @Alexalee

However for the sake of completeness. A house needs a working toilet and a "kitchen" to be mortgagable. The kitchen can just be a sink with taps and some sort of worktop and a Microwave.

If you want to try to avoid a house with expensive repair jobs then make sure there are no signs of serious movement to the structure, check the building is weather tight and there is no evidence of damp inside the building. Particularly check the ceilings and tops of walls in all upstairs rooms and the bottoms or any downstairs rooms. Discount anything with springy floors if you think the joists could be rotten.

Tbh renovations are really expensive at the moment. If you look at other threads on here they are generally £100,000 plus so you won't make a profit from doing a renovation now. But if you have some DIY skills and are planning on staying in the house long term then it is still worth doing.

It would still be interesting to understand more about the process so if you feel able to elaborate that would be useful!

I understand that there may be structural issues, landslip, etc etc, but an interested in any insight others might be able to share.

I don’t need a mortgage, however would likewise be interesting to understand better what might prevent mortgaging if someone has more experience of this.

Thanks @Geneticsbunny !

Watch out for Japanese knotweed too. This could have a detrimental affect on your property and will affect price if and when you sell on.

Agree about the working bathroom/kitchen aspect. Also pre fab construction properties are sometimes not mortgaged.

be mindful of the realistic sale prices. Auction guide prices are deliberately there to provoke attention, and rarely reflect the reality of the sold price. Set your maximum realistic budget for the value of the property including repairs and fees, and do not exceed it. Ever. It’s very easy to get swept up in the adrenaline of the bidding. You’ll be competing against experienced, cash rich investors who have pre-existing building and financing connections.

Do you have trades skills or close connections with tradies who are signed on to carry out the work for you?

Tbf, some sellers via auction are just looking for a transaction that they know will go through without hitch once the hammer falls. In my (limited) experience that often means sellers that are organisations rather than individuals, because the throughput of cashflow is more important than squeezing every last ten thousand out of the buyer, which is why you might be able to get a bargain.

For example, I was wanting to buy a cottage being sold by a railway authority, which was one of a Victorian terrace that had been built to house railway workers. I know the area well and had been in other houses in the terrace, and knew they were really solidly built and that there were no damp or subsidence issues, for example. I viewed it with a friend who had recently done their own refurb so I could get a sense of costs. I'd also gone through the legal pack with a fine-tooth comb, and I knew the ceiling price on the road. The guide price was very attractive (£115K), the ceiling price once done to a good standard about £265K. It probably needed £40-50K spending on it. Unfortunately, lots of other people had made the same calculations and it went for about £230 iirc - so about double the guide price and almost exactly what the numbers suggested was the upper limit. It was bought by a developer, slurped up, and is now tenanted (grrr). So you can get a decent house that's not a money pit, but you have to do your homework, and even then you may not get it on the day.

But pp are right, a lot of auction houses are shitholes, and while you may think it's just about cleaning them up and applying some tlc, the fact is that houses that get into that state are often harbouring large, expensive problems and/or need expensive reconfiguration after being HMOs, for example.

If you are buying an unmortgageable property, you need to consider whether it will ever be mortgageable, as that would affect your resale prospects. Lack of a kitchen is reversible, documented subsidence or dorran prefabs not so much.

We're going through the process of buying a house via auction at the moment. We'd been to view it and it was in a bit of a state as had lain empty for at least 4 years. The previous owner had passed away and the person who inherited it just did nothing with it. It's a modern house approx 30 years old so we assumed it would go for much higher than the guide price and more than we were prepared to pay so we never registered to bid with the auction house. On the morning of the auction an email was sent out to all those who had viewed it saying the seller was open to agreeing a sale before the auction started that evening. We got our solicitor to review the legal pack at short notice and decided to put in a cheeky offer £10k under the guide price which was accepted, we were very surprised! We had to pay the 10% deposit that day along with the auctioneers fees and completion set for 28 days. We're cash buyers so no finance needed to be arranged. Contracts were exchanged on the day and we're just waiting for the sols to get everything else sorted. We should have the keys by the end of the month.

i have just bought in auction too. also paid below guide price. its like a normal sale process. we made an offer (below guide) and once the offer was accepted, we instructed the solicitor and surveyor. renegotiated the price a bit after survey. then made the bid at auction.

i dont understand why people say to avoid auction. you can carry out the same level of inspection in many cases.

in our case, i think the seller had been badly advised by EA and started with very unrealistic valuation, leaving the property on the market too long. theres so many times they could cut prices to generate interest before people became suspicious of more fundamental problems. at the end the same EA told them to try auction.

do not discount properties sold at auction. but do insist on viewing (multiple times certainly possible) and survey (unless the price already reflects the absence of such possibility). if you are the only bidder, they will accomodate. the auction date is not a deadline. the property will just get moved to the next auction if it doesnt get sold.