Property Auctions
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So, what does he do?
He puts the property up for auction under the assumption that someone will bid on it and the sale will be concluded in a matter of weeks.
Another reason for putting a property up for sale through an auction is that an auction is supposedly a transparent selling forum. The sales value of a property should be equal to what it sells for under free market conditions.
Property auctions are also used by third parties, such as mortgage companies (repossessions), court orders (divorce settlements, bankruptcies, or probate disposals), or simply trustees.
When a property is repossessed, an agent may have the property on the books for a long time. If there is a problem selling the property, the repossession will be advertised in the local paper for a couple of weeks. If that doesn’t result in a sales price that’s acceptable to the lender, the property will be put up in for sale in an auction. That let’s the lender receive the full value of the property in a way that satisfies the law.
Most people erroneously think that properties selling at a property auction in the UK are generally sold at a "discount" to the general public.
This is complete rubbish!
Common sense tells you that this can't be true. If it were, why would anyone in his or her right mind sell through an auction house? In reality, in the heated atmosphere of an auction room, properties often sell for much more than they would outside of an auction.
I admit that on some occasions properties can be bought for a song, but most of the time, the room is full of fools who have brought their wallets and left their heads at home.
How many people mentally set a maximum price and then get excited during the auction and over-bid? It happens all the time.
Obviously, there is always the possibility that you can pick up something at a property auction in the UK very cheaply. Many repossessions have come to auction precisely because they haven't achieved the seller’s desired price in the high street.
However, this does not necessarily mean that the seller is acting out of desperation. The seller may hope to get a better price in the auction room than in the real estate agent's high street office. There is nothing like the cut and thrust of keen bidders trying to outdo each other to get a bargain.
When these overexcited bidders get home and look at things in the cold light of dawn, they may well realize that they have gone overboard and bid too high.
Let's have a quick look at how property auctions work in the UK.
Put your skates on… because property auctions are fast-track mechanisms for buying and selling properties. You don't have time to mess about. As soon as you receive the auction catalogue, generally speaking, you will have about three weeks' notice to research the properties that are up for sale.
During that time, you will need to get out to see the properties that interest you. This is when you should arrange for any surveys to be done, and get an in-principle mortgage offer. Once you have selected the property you want, get it assessed, and get your mortgage in place. At the same time, do your research on the property.
Check with the sellers’ solicitors, whose name and address will be listed in the auction catalogue. Ask them to send you a copy of the reports, and confirm that all is well (no motorways going through the property in five years’ time, no footpaths across your backyard, proper access rights, all planning consents are in order, etc).
You will find that a complete information packet is available from the solicitors. They should have copies of all the available reports.
Decide how much you are going to bid. This amount will probably be determined by the amount of your mortgage. It is almost impossible to refrain from bidding higher than this amount on the day of the property auction, but beware. If you have determined that you can afford £210,000, and another fellow bids that same amount, by all means raise one more time, but don't get overexcited and try to bid him out.
If your bid is successful, you must pay your 10% deposit at the table in front of the auctioneers and sign the contract. Make a copy of this contract and give it to your solicitor the following day. Tell your mortgage company that you were successful. Give your lender the date of the sale and the name and address of your solicitor, and ask the mortgage company to get the paperwork in order.
A few points to note:
Auction catalogues for property auctions in the UK are very fluid. It is not unusual for several of the lots to sell before the event, and for others to be withdrawn from the auction.
Some auctioneers use the guide price as their estimate of the property’s value. Other auctioneers use the expected auction selling price, a minimum-to-maximum selling range, or the lowest expected selling price. All these numbers can represent wide variation. Estimating a probable selling price is tricky, as there are very many variables beyond your control.
Looking at the auctioneer's previous guide prices and comparing these to the properties’ actual selling prices should reveal the auction house's ability to make accurate predictions, and may enable you to estimate the hammer price with a broad degree of accuracy.
All you have to do now is find a bargain They are out there, but you need to hunt for them and be very patient.
Below are links to information about the four most popular auctioneers in the UK.
Also if you're interested in finding properties paying below market value I sometimes get offered deals where you don’t have to pay a deposit for a property.
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