Anyone know about property auctions?

[AbstractThought]

We are really curious about something local to a house my DH has inherited from his dad. He lived in what was once a decent area that has slowly gone downhill. The house next to it has been empty or disused for around 6 years. First it housed an illegal HMO, followed by a cannabis farm, then a long period of dereliction.

Tidy on the outside, the house is a shell within. There are only 2 walls left and no upstairs floors. Ancient electric cables dangling about, no plumbing and crumbling walls that were hacked into once the damage from the cannabis farm was ripped out. As you can imagine, it's an absolute mess.

It was eventually put on auction and quite a few people came to look at it at the weekends. After about 4 months of this it looked like someone had purchased it for around 70K with cash.
Houses in the area that are in decent condition tend to go for around 120K.

Since investors and 'flippers' usually take on stuff like this, we were surprised to find a young family had purchased it and were hoping to move in. Expecting workers to arrive soon, only one man (a jack of all trades) began work on it (he didn't even have a van) and spent about 2 weeks hammering at the old plaster remains. The owner looked perpetually nonplussed and told us that it was an absolute mess and seemed incredibly put out and surprised by it all. We came to the conclusion that he had not bargained on how bad it was and possibly regretted his purchase. The owner said he was struggling to fit a skip in the back area then hasn't returned for over a week now. Initially he and his family had been at the house at least daily, seemingly excited. We are wondering if something went wrong.

Could someone be ripped off via auction? Is it possible the buyers hadn't actually visited the house prior to purchase? My DH feels sorry for them and was going to offer to help in some way if he could, but the family have not been back. Would the buyer have any recourse to compensation or be able to sell it back to auction without much loss?

We were chuffed that a family were going to move in as the area is short of regular families. It seems like there are issues but we can't imagine what, really. Why might someone bid on a house that was gutted if they didn't check it thoroughly? We presume they were possibly struggling and thought they could fix it on a budget, I don't know.

@Another2Cats yes, exactly. That one in Hull, I can't see what's 'wrong' with it, why an auction? It needs a little refreshing but nothing serious. Taking that house as an example let's say the guide price is £60k, you really really want it so you bid £90k and the next bid down from you was £63k. Do you pay £90k or £64k?

I've noticed some houses near me being bought and refurbed in exactly the same style, over and over. I know that it's a group of local builders who've banded together and they are taking the profits (very considerable) and buying the next house and doing the same thing again. Since they all have different trades they are paying for materials only, at trade prices.

well if its ebay you pay £90

@Neveralonewithaclone "I can't see what's 'wrong' with it, why an auction? It needs a little refreshing but nothing serious."

Who knows? Maybe it's been on the market for a long time and even reducing the price hasn't helped?

Maybe a couple are getting divorced and they have to sell quick? Maybe it's a landlord who has got fed up of being a landlord and just wants out? Maybe an elderly person with no family used to live there and has died?

There are really so many different reasons.

"...you really really want it so you bid £90k"

Sorry, I'm really confused here. Did you really mean to say £90k?

"...and the next bid down from you was £63k. Do you pay £90k or £64k?"

How auctions work in the UK (not necessarily these "Modern Method of Auction" but actual, real, auctions) is that they start from a low price and work their way up until just one person is left.

How you describe things sounds a lot more like what in the UK we might call a "Dutch Auction" (where the price starts high and gradually drops).

In the UK it's the other way round and prices start low and increase.

For example, at an auction, if a property has a guide price or a reserve of £60k then that is likely where the auctioneers will start the auction.

Usually (unless it is a very attractive and/or under priced property) there will be no bids.

So the auctioneer will then reduce the opening bid until such a point as somebody makes the first bid. From there they will ask for increasing bids until there is only one person left and nobody will bid more than that person.

Then, as long as that bid is more than the reserve (the minimum price that the seller will accept), the property is sold. In recent property auctions, around 60% of properties are sold and 40% do not reach the reserve.

So, to answer your specific question, if the next bid down was £63k and you offered £64k then, as long as this was above the reserve, you would be the new owner of the property.

but she asked what would happen if she outbid it by 90K not 64K.
I imagine she'd pay 90K.

If anyone has any answers about my OP I would be so happy!

When you buy at auction you buy it 'as is' there is no comeback on anything unless you have been actively misled by the seller or agent.

Buyers at auction are expected to do all their due diligence before the auction date and bid based on that information.

It's really very difficult to be 'ripped off' at auction. They are designed to avoid exactly that.

Your neighbours sound very inexperienced and naively thought they were getting a bargain. People don't realise how much renovations cost in time and money

Thanks, yes they do seem vulnerable and out of their depth.
As far as I am aware, they didn't view or have the place looked over, and no dedicated company or builders have been drafted in. It seems the guy looks stunned tbh.
There are old white goods tumbling about the garden, no removal of large amounts of stuff left from previous owner. Anyone would have removed that by now. It feels as if they don't know what to do or who to ask.

Oh dear. We aren't in the UK and a lot of houses are sold by auction mainly because the sellers need to sell and an auction gets them the 'market price'.

We are FTB and bought at auction. We spent several $k up front getting building inspections, valuations, legal advice etc. we visited it over 4 times (open homes here). You can't buy with conditions attached and once the gavel goes it's yours. You must purchase. 10% deposit put down immediately once the gavel falls.

We got a real bargain but the kicker is you have to do your DD up front and be really comfortable with what you are buying.

Sounds like your neighbours did none of that. Even if they weren't in the country Surely the marketing had pictures of the property and a vague description? I can't see how it's possible they had NO idea.

I don't know why either.
I have seen his wife and children stood in front of it looking so happy and excited. This is even more baffling since the guy looks shellshocked.

We won't be living there ourselves, but DH's dad did, and he witnessed the house in so many dodgy hands over the years. It is such a shame if it fails because they seem so decent.

We last saw him when we were over there last monday, he called and asked information about the residents entrance at the back. He had no key so we offered to let him use ours for the time being but he didn't really say yes or no to it. He wanted to know where to put a skip, but hasn't returned since according to another neighbour. I am wondering if he's given up.

@judgementfail oh its quite possible they had no idea - being gracious it might have come about by them not understanding what the property details said, on the other hand… some people are monumentally stupid/naive/blinkered/obstinate. Delete as you see fit!

@judgementfail "Surely the marketing had pictures of the property and a vague description? I can't see how it's possible they had NO idea."

Yes, there are always pictures. Sometimes only of the outside, but in that case there are always, as you say, "(open homes here)".

For example, here below is a property coming up for auction in about two weeks time. There is only one photo of the exterior. The typical property in that area goes for about £500k and the guide price for this is £175k. So you can guess what the likely state of the home is going to be.

But you don't need to guess, as there are internal viewings arranged on four separate days over the next two weeks. So anyone can just turn up and view the property to see exactly what the internal condition is like.

This house, as you can see from the photo is totally boarded up so it's likely the interior is not so great.

@Neveralonewithaclone asked why homes are auctioned and this is a great example

https://auctions.savills.co.uk/auctions/8--9-may-2024-149/8-limes-road-croydon-surrey-cr0-2he-11042

I've had a look at the legal documents for this property and it's a probate sale. That means that the owner has died and the executors of his will are selling the house.

The owner of the house was a British guy around 70 years old who had been living in Thailand for a number of years, which is where he died in August 2023. His brother, who still lives in the UK, is the executor.

It appears that the owner was out in Thailand for quite a long time and left the property in a very poor state of repair.

Just an example of why homes go to auction.

These are some images of the house in question. It went up to auction at 30K and sold for £70K in this condition. Evidence of the previous drug outfit visible in many parts but ive only selected a few here. No idea what happened with the hole in the chimney breast.

I must say, that looking in the windows it appears way, way worse than these photo's.

Ooo that is bad. I would hazard (a bit like asking how long is a piece of string!) a guess at £100k plus budget to that up. It looks like it would almost be better to demolish and rebuild from scratch. But a guess at rebuild costs depend on so many factors such as can they diy most of it or is it’s going to be trades all the way through?
I really doubt they will have any recourse through the auction house, they might make at least some of their outlay back by putting back up for sale - but I’ve no idea how much. Auction houses do know exactly what they are doing regarding marketing and making buyers aware of their own due diligence responsibilities.

a guess at £100k plus budget to that up.

Can you explain that a bit, I'm not well up on these matters, do you mean it may cost an extra 100K to fix?

it is a mid terrace, so highly unlikely to be demolished - would be great if they did and put up a pretty tree or rewilded the space.
The poor house has suffered such rotten luck. We remember when a lovely old lady lived there, probably for over 50 years. She had so much pride in her home and got the council to plant evergreens in the street. Oh how times have changed.

@AbstractThought yes that they would have to think about spending £100k on getting it put right. On top of the auction price/solicitors fees etc. I’m assuming that they are not experienced diy people and probably aren’t going to even do basic labouring such as clearing rubbish into skips. (Assumptions based on your comments). Also assuming that they will want a finished but not high end home at the end of the process.
Electricians, plumbers, plasterers, builders, associates labourers and carpenters are not cheap to hire, then there are skips to source, possibly scaffolding, materials to buy …. And that’s before you’ve factored in stuff like carpets, windows, boilers, bathroom sets, kitchen units, the list is almost endless.
That property needs ripping back to an absolute skeleton, and there may be expensive things like a new roof, new damp proof course, brickwork, obviously insulation, maybe new supporting beams and rsj work. They may decide to remove it he chimneys - another big ticket item. All big bill stuff. A £20k renovation project it certainly is not.

edit : just realised you’ve said it’s a terrace - so add in costs for party wall surveyors etc etc.

Jeez, that is far more than I had anticipated. If they had purchased a local house refurbished and ready to move into it would have cost much less.

I am wondering if they might not have been able to get a mortgage, although in that area and in stable work, it would be easy by most standards. Almost no one does this, however, due to the area having become very depressed. Most homes go to investors then landlords or HMO's. Only a few elderly are left, hence my DH's deceased dad. We are putting the house next door onto the market, too, albeit in good condition as recently modernised.

I was a renter for most of my life, and never intended to own, but I would never in a million years have lived there for any price. The area is overrun with crime and social issues. At one time it was a different story. Only 20 yrs ago it was populated with happy families, and people really cared.

Perhaps this buyer overestimated his luck.

@AbstractThought i don’t think you can get a mortgage if the house doesn’t have a kitchen? Or they may only do stage payments - so some ready cash might be needed to start renovations before anyone will lend on such a property. Granted that might be an urban myth - so someone might be along who’s much better informed! But if so, they probably have spent all their available funds on the purchase and may have thought they could get further funds or could live in one or two rooms and renovate it themselves. Then, reality kind of hit like a wet fish slap.

To be honest, since they haven't had anyone around to assess it, apart from a tool lender, I am thinking they didn't plan it well. Maybe they thought it could be renovated by themselves. The man who has been doing some work in there appears to know the buyer, so a sort of handyman.
I think they are likely out of their depth. I have no idea why they would have taken that risk. They will have seen the photo's, surely though.

Good lord! Well if they'd looked at the photos (and they were on a public site I'm guessing), surely it would have been clear that state it was in! There's no floor in some places! Some walls are missing! That's not a quick plaster and new kitchen!

I'm surprised they got a mortgage! The lender needs a valuation that sits somewhere close to the final price! We had a valuation done and we knew we couldn't offer more than that as the bank wouldn't lend.

Unless they paid cash?

Apologies if you've already said OP but how much would a normal house (needing cosmetic decorating) cost in that street?

Like most idiots i presume i look at auction houses on Rightmove and think oooo only £20k, £20k for a kitchen, clear the garden smashing. Then thankfully scroll on by 😂

What i meant earlier about figures was with an ebay auction if you bid 90 and the closest one under you is 63, then you pay 64.

I wish everything was 'fixed price' it's all very nerve wracking. And I believe the seller should have an independent survey done otherwise potentially 10 different would be buyers are paying for a survey.

Unsure on the condition of the house or what needs done. But getting building tradesman in can cost £18 to £50 per hour.

Costs really depend on how competent a diy'er you are. We can rewire , plumb , fit kitchens and have done some DPC work.(would need signed off) However we do not have the skills to plaster walls, "some" roof work and structural work . We can splice joist lol

Wish we could plaster full walls. We can patch areas.

Rubbish removal and skips is best done in a one go.

Wait a minute OP, are you saying this house is your neighbour? Can't you offer to buy it off them and then add it onto your own home?

Gosh, definitely overpaid 72k at auction plus auctioneers fees etc. Neighbouring houses in good condition sold for not much more than that. They've definitely got overexcited at auction.

EBay auctions are totally different. You bid your maximum and eBay will 'auto bid' on you behalf as you describe.
Property auctions are old school. You hear a bid, you up it by however much you want. You never disclose your higher bid. Eg
Opening bid £40k
Next bid: £45k
Bidding stops
Auctioneer claims going going gone.
If that bid is above the secret reserve and the owners are good with the price it's sold.
If below the reserve it goes to negotiation.
If they started at £40k and the buyers went in with a bid of £70k and that's above reserve it's sold for that price.