Martin Roberts: What kind of properties are sold at auction?

They are sometimes unusual or quirky properties that will not normally sell through estate agents and that are difficult to value or compare and really need to attract property investors, cash buyers or people looking for special deals.

However, there are also perfectly standard properties that are being sold via this route – and you’ll also find a large proportion of mid range and first time buyer development projects in the pages of the auction catalogues.

• More recently, I’ve seen new build properties coming into the auction rooms as well, as developers are ‘off loading’ some of their unsold stock – and as an unfortunate result of the credit crunch, banks and lending institutions also put properties that they have had to repossess from the owners into auctions to realise some value against them quickly. This mix of stock can be regular semi detached, detached and terraced houses, flats and maisonettes.

What makes auctions so interesting is that there is a great breadth of property and land deals ranging from;

• Properties that are requiring renovation – from completely derelict properties and properties that are in poor decorative state, to those where the work has been partially done.
• Properties that are really dated now (very often Probate sales) and that need complete modernisation.
• Properties with structural problems that may require serious rebuilding to restore.
• Properties that have tenants already in-situ.
• Leasehold properties on very short leases.
• Properties which are subject to restrictions or covenants. It is always advisable to thoroughly check out the Legal Pack because these restrictions may not be obvious in the catalogue description.
• Properties which are not able to be mortgaged (or at least it will require specialist financing to get a mortgage secured on them).
• Properties owned by local authorities, mortgage companies and other public bodies such as water boards. These can include repossessions.
• Properties that are of a ‘non-standard construction’ i.e. concrete or timber houses.
• Properties which are going to require Change of Use Planning Permission to be turned into housing such as Ambulance stations, public lavatories and railway buildings.
• Lock up garages and other ‘storage’ dwellings.
• Properties that have part commercial use i.e. shops with flats above.
• Smaller plots of land suitable for individuals to buy (some of which may have outline planning permission for development, others may have full planning in place).

So, there really is ‘something for everyone’!

The certainty and convenience of auction is attracting more and more vendors to use this route to sell and so standard bungalows, flats, houses and land development opportunities are all regularly available.

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Martin Roberts

The intention for properties that are being put up for auction is that they are sold on the day of the auction. That’s one of the great things about buying (or selling) a property at auction – there’s no long, drawn out sales process – instead the property is sold to the person offering the highest bid on the day.

However, not all properties are sold in this way – and it is very common that during an auction where any number of properties may be up for grabs that a percentage of them do not get sold. There are a number of different reasons for this:

1. The property is withdrawn from the auction after the catalogue has been printed (there could be any number of reasons for this including the vendor accepting a pre-auction offer – see below)

2. The bidding on a property doesn’t reach its reserve price. This is a limit set by the vendor to say what is the absolute minimum amount that he would sell the property for. The auctioneer is unable to sell the property for less than the Reserve Price, irrespective of the level of interest and number of bids.

If you have set your sights on a property that is destined for the auction, then the most obvious thing to do is to go along to the auction itself and bid on it. However, you may also want to consider other ways to buy.

Pre-auction offers

On the basis that you do want to buy the property, you may want to see if the vendor will accept a pre-auction offer from you. This would mean you putting in an offer on the property, just like you would if the property were advertised for sale through an Estate Agent in the conventional way. The vendor will be able to consider your offer and if he decides to accept it, you would proceed with the purchase and sale just as if you had placed the highest bid at the auction i.e. you will still need to complete within the normal 28 days. The result would be that the property would be withdrawn from the Auction itself.

Be aware, however, that many vendors will not want to go down this route – and the closer you are to the auction day, the greater the chances of them  preferring to wait and see what happens at auction – and who can blame them? If there is more than one person interested in the property, they stand the chance of the property being subject to a bidding war and achieving a far higher price than the guide price. Of course, it could go the other way and you could end up paying more than you would if you attended the auction. It’s a gamble.

Whether or not a vendor will accept a pre-auction offer depend very much on their situation and circumstances. Local authorities, housing associations, mortgage lenders and other government bodies won’t accept pre-auction offers. Neither will certain individuals or businesses by receivers or trustees. They are usually bound to demonstrate that they are aiming to achieve the highest possible price in a fair and open way – and taking the property to auction allows them to do this.

You are more likely to have a pre-auction offer accepted if the vendor is a private individual, a small to medium sized landlord or a small developer.

Post-auction offers

If a property does not sell at the auction, it is worth approaching the auctioneer directly afterwards to make an offer. If the seller is an individual in the room and the property failed to reach the reserve price, the vendor will have had their expectations of the property’s value re-adjusted. They may now be more open to accept a lower offer. Alternatively, if there are properties that do not sell that you haven’t particularly researched, you could ask for a list of unsold lots from the auctioneer and then carry out the necessary checks and put in an offer a few days later. Once again, the vendor will be in weaker position following the auction and may be more receptive to your approach.

Be aware that like Pre-Auction offers, if your offer is accepted you would be expected to proceed with the sale as if you had placed the winning bid i.e. you would need to pay the deposit immediately and complete within the normal 28 days.

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Prior to the Auction

Find the property from the Auction catalogue or online. Once you have identified property that you would like to bid on, you should check it out legally. The vendor’s solicitors will have prepared legal packs containing (where applicable) special conditions of sale, title deeds, leases and searches to help you make an informed decision. If you need further legal information you should contact the vendor’s solicitor – the details of which are usually provided in the catalogue or on the auctioneer’s website.

Check what methods of payment the auctioneer will accept for the deposit. If you are the successful purchaser, you will usually be required to pay a 10% deposit subject to a minimum specified in the catalogue immediately after the sale and you should therefore have sufficient funds to cover this.

Don’t only rely on the information in the auction catalogue. The auctioneer acts as an agent for the seller. They prepare the catalogue from information supplied by or on behalf of the seller. This will usually include a photograph of the property, a brief description and a guide price. You should not assume that the catalogue details are accurate or that the picture is a realistic representation of the property. The only way to really know the property is to go and take a look at it – not just a drive by viewing, but a proper inspection. Buying ‘Blind’ i.e. not seeing the property before the auction is a very high risk approach.

The Guide Price and the Reserve Price. Most properties are subject to a reserve price, below which the auctioneer cannot sell the property at the auction. It will be made clear whether the property is being sold subject to a reserve in the catalogue or conditions of the sale – although the reserve price will not usually be disclosed. What will be listed is a ‘guide price’ – which may be set deliberately low in order to attract interest amongst potential buyers.

Pre-auction Offer. If you want to put in an offer prior to the auction, you can usually do this in writing, (by letter, fax or by email) at any time up to the date of the auction, but if your offer is accepted you will have to be in a position to exchange contracts and pay your deposit immediately – as if you had bought at the auction.

Telephone or Proxy bid Arrangements. If you are intending to bid by telephone or proxy, you will need to make arrangements for this with the auction house prior to the event. Usually the auction catalogue will contain instructions on what to do if you want to bid but can’t actually attend the event in person. You will need to complete a registration form and a cheque to cover your deposit relevant to your maximum bid will need to be provided to the auctioneer in the event that you are successful. This does rather ‘show your hand’ somewhat, and in my experience there is no substitute for attending the auction in person.

On the day itself

Arrival at the auction. If possible, arrive early and familiarise yourself with the empty auction room. On arrival, you will need to register with the auction house. In order to bid you will be given a unique bidder number prior to the start of the auction.

On arrival, get a copy of any addendum sheet. These are distributed around the auction room and contain late information or alterations.

The Legal Pack. If you haven’t already done so prior to the auction, check out the legal pack in respect of any properties that you intend to bid on. This is another good reason to arrive early – sometimes the legal pack can take quite a bit of time to read through and depending on the level of interest in the property, could be in great demand on the day. If you have any queries on the day of the sale ask the auctioneer or his staff. They are approachable and knowledgeable about the properties they sell.

Once the auction has started. Take a seat or stand somewhere in the room where the auctioneer will able to see you bidding clearly. Listen carefully to the opening remarks of the auctioneer. Amendments may be announced which directly affect the property in which you are interested.

It is a popular myth that auctioneers mistake any casual movement such as a nose scratch for a bid. Don’t worry – auctioneers are able to distinguish between someone scratching their head and bidding but, make sure you gesture clearly at the auctioneer. The auctioneer will warn the room when he is concluding a sale and invite anyone still wanting to bid to make themselves known. If for some reason a mistake is made, tell the auctioneer straight away; do not wait until the end of the sale.

Tell Tale Signs. The Auctioneer may give an indication when the property has reached its reserve price. Phrases like ‘It’s in the room to sell…’ or ‘this ones selling today’ are clues that the reserve price has been reached and the property will be sold to the highest bidder from that point.

Once the bidding slows down, the auctioneer will say ‘Going once…going twice…’ This is the point at which some people choose to join the bidding so the bidding will recommence. Eventually, the auctioneer will say ‘Going for a third and final time…’ and if there are no more bids they will either bring down the gavel and say ‘sold’ or say ‘I’m sorry, that property didn’t reach its reserve price’.

Post Auction Offers. If a property fails to reach its reserve price, don’t give up! The vendor may decide to accept your bid immediately following the auction. So if the property you were interested in wasn’t sold, leave your details with the auctioneer since you may be able to come to a private arrangement with the vendor.

If You Are Successful

Identification. You will need to take two forms of identification with you, such as a Driving License or passport and a bank statement or utility bill as proof of address. You will also need your cheque book or debit card, details of your solicitor and all your banking details.

Deposit. If your bid is successful you are legally bound to buy the property and will need to put a down payment deposit there and then of 10% of the property’s price. You will also be required to sign the purchase contract in the sale room. The seller is legally bound to complete on the specified day (usually within the next 28 days). You would then pay them the rest of the purchase price (i.e. 90%).

Other things to be aware of. Don’t forget that the property becomes the buyer’s insurable risk as soon as the hammer falls. If any damage is done to the property between exchange and completion it is your responsibility and loss.

The auction terms and conditions assume that the buyer has acted like a prudent buyer. If you choose to buy a lot without taking these normal precautions you do so at your own risk. The expression ‘Buyer Beware’ cannot be overemphasised.

Did You Know?

Until the bidding reaches the reserve price, the Auctioneer may take bids ‘off the wall’. This is the crafty (but entirely legal) practise of the Auctioneer pretending that someone has bid when they haven’t. This is used to entice would-be bidders to join in the bidding and can help kick start the bidding on a property if it is slow to begin.

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