How do property auctions work?
You may think that property auctions are just for investors looking to buy property to do up and sell, but they’re becoming increasingly popular with the everyday buyer and seller.
Property auctions are normally planned months in advance and hosted by auction houses. They will release a catalogue of properties (also known as ‘lots’) to those who have registered interest (potential bidders) ahead of the auction date.
Each property listing has a guide price. This is what the auction house or seller thinks it could be worth, similar to how estate agents list properties.
How do you buy a property at auction?
One of the things to remember before considering buying at a property auction, is that doing your research and being realistic about what you can afford may seem boring when you just want to attend an auction and bid until you secure your dream property, but it really pays off.
If you’re successful at auction, you’ll need to provide a 10% deposit. Winning that perfect property only to realise you don’t have enough of a deposit will not only set you back but cause frustration amongst the auction house, seller and other bidders.
It’s also important to instruct a specialist conveyancing solicitor who knows how the auction process works and understands the complexities of legal packs. They are also likely to have good relationships with local auction houses.
The buying process
The buying process does differ slightly between auction and the more mainstream way. Here’s a quick overview of the buying process at auction:
- The seller’s conveyancing solicitor prepares a legal pack and submits it to the auction house. The buyer should carry out due diligence prior to the auction and their solicitor will then review the legal pack. The legal pack will specify a completion date.
- As a buyer, you should also visit the property and commission any surveys before the auction date.
- During the auction, you raise your hand to bid, and on the fall of the hammer, a contract is formed. You are then committed to buy that property and must pay the deposit then and there. Your solicitor will collect the funds to send to the seller’s solicitor on the completion date.
Auction transactions tend to proceed much quicker as there’s less scope for the buyer to raise due diligence. Once you ‘win’ the property, you’ve exchanged contracts and paid a deposit. You risk losing the deposit if you don’t complete by the date specified in the legal pack.
Take a look at our blog on buying a property at auction for more information on the buying process and important things to consider.
How do you sell a property at auction?
The seller’s solicitor prepares the legal pack, which is reviewed by potential bidders in advance of the auction. Bidders can ask the seller and their solicitor questions right up until the auction. Once the auction has happened and the successful bidder exchanges, they will instruct their solicitor to transfer funds to your solicitor on the completion date.
What’s the difference between a guide price and a reserve price?
The guide price is what the auction house and seller think the property is worth. The reserve price is the minimum price or bid the seller will actually accept. The reserve price is usually kept confidential, much like in a conventional selling process when the seller and estate agent discuss what they will and won’t accept from offers.
As if property auctions aren’t as fast paced and exciting enough, the guide and reserve prices can change up to, and on the day of, an auction. Auctions aren’t for the faint hearted and it’s essential that you do your research and know what you can afford before bidding.
What happens if a property doesn’t sell at auction?
If the property doesn’t meet the reserve price, the seller either puts the property into the next auction, accepts the highest bid or decides not to sell.
Thinking of buying or selling a property at auction? Get in touch with our specialist conveyancing solicitors
If you’re a bidder, our specialist auction solicitors in Bristol and South Gloucestershire can review the legal pack before bidding. Once you have put your deposit down, our conveyancing team can help you to finalise the purchase.
If you’re considering selling at auction, we can help prepare your legal pack and be on hand to assist with the conveyancing transaction once that hammer goes down on the best bid.