“The most important thing is to be prepared,” says Nathan Tobin, dual branch manager at James Douglas Sales and Lettings. “Firstly, set your budget. Work out what you feel comfortable with and factor in any additional costs, such as renovations.”
The second vital element is to have your mortgage ready, Tobin says, “You won’t win the auction without having a decision in principle.”
“Your research and due diligence is essential ahead of the auction,” says Chris Norris, director, policy & practice at the National Landlords Association. “Some of this is packaged up as part of the property listing catalogue. This will include property details, any relevant planning permissions or restrictions, and tenure details.” As a purchase at auction is essentially ‘sold as seen’ and not subject to a survey, landlords are advised to carry out any legal searches and checks before making a bid.
“Once the gavel falls, you’ve exchanged contracts. You’ll have to pay a 10% deposit straight away and then you usually have to complete the purchase within 28 days”
Michael Marsh, director, Raine and Co
Study this pack carefully – it’s your bible for buying at auction. “Your solicitor can get hold of it for you,” says Michael Marsh, director of estate agency Raine and Co. “There should be everything you need, including contract searches, local authority searches and water board searches.”
On a practical level, Norris says that potential bidders must register with the auctioneer, proving their identity, before they will be allowed to bid on any lots.
On the day
How does a property auction work? “It’s fast-paced” says Tobin. “You are competing in a room of people for one property and a few people may want it.”
Be prepared to act a lot faster as a buyer. “In a normal residential sale you’d have at least 24 hours or longer to get your documents together. In an auction, you must be ready to proceed there and then.”
Marsh: “Once the gavel falls, you’ve exchanged contracts. You’ll have to pay a 10% deposit straight away and then you usually have to complete the purchase within 28 days.”
What happens if a property doesn’t sell? “There may be the opportunity to buy it privately,” Tobin says, “so approach the auctioneer afterwards."
Why choose auctions?
The list of things to look out for can make the idea of buying property at auction daunting, but if you know what you have to do and are prepared, you could be in a strong position.
As well as speed, the other advantage of buying at auction is the chance to snap up a bargain. “You can still get a deal,” says Marsh, “but it’s not quite what it was 20 years ago; TV shows have made people wiser and you might find yourself bidding against so many other interested buyers that the auction won’t be quite what you hoped.”
The key to success, Marsh says, is to get as much information about the property as you can. Go and look at it; ask local people and local estate agents about it. The more information you can walk into that auction room with, the better.”
Norris offers three key points to consider when going to a property auction:
- Planning restrictions or limitations. Landlords should look into any restrictions on permitted development, particularly if a property might be let to sharers as an HMO (house in multiple occupation). “If this is the case then a change of use may be required, which is usually – but not always – permitted,” he says.
- Local licensing restrictions. “Some local authorities have introduced selective licensing on all privately rented properties. This can be costly – especially if you do not comply and are prosecuted.”
- Permission to let. If purchasing a leasehold property “it’s essential to obtain permission from the freeholder to sublet the unit”.
Remember buy-to-let is an investment – so think long-term. “Landlords rarely consider their exit strategy,” says Norris. “Considering the tax implications of a future sale, or how you may wish to transfer properties to others in the form of an inherited estate, is an important pre-purchase step.”
Capital gains tax, for example, could be a hefty proportion of your ultimate sale value. And BTLs will incur extra stamp duty as a second home.
Finally, isn’t it only problem properties that are sold at auction, and should this make you wary? “From my experience it’s a mixture of properties,” says Tobin. “Sometimes, the owner of the property doesn’t want to go through the process of using an estate agent; or they want the sale done quickly, which can be for any number of reasons. Also, if the property has unfortunately been repossessed, it can end up at auction.”
Another scenario, it is true to say, is where properties have structural problems. But these are the ones to avoid when doing your research: “If it’s serious, they will be unmortgageable and so those properties will be seeking cash buyers.” Find out about any structural issues in a property by having a survey ahead of the auction,” Marsh says. “There are specialist auction surveyors who can do this.”
Buying at auction – top tips
- Think ahead. “Request a viewing of any potential purchases before the day, and go with relevant tradespeople for an assessment of works which may be required,” says Norris.
- Have your finances ready. “You will not secure that property without having your mortgage in place,” says Marsh.
- Check the small print. “For example, if you pull out of the sale it can be costly,” says Tobin. “Read the small print, be sure about what you’re doing and don’t change your mind afterwards.”
Tax reliefs referred to are those applying under current legislation, which may change. The availability and value of any tax reliefs will depend on your individual circumstances.