Considering buying at auction, but feeling daunted by the process? Help is at hand. James Emson, managing director and auctioneer at Clive Emson Auctioneers, and vice president of the National Association of Valuers and Auctioneers, explains what is involved
Click here to download EG’s Property Auction Buyers’ Guide
Whether you are a seasoned property professional or a first-time investor looking for a project or an investment purchase, buying at auction may seem daunting. It does not need to be. Buying is a relatively simple process and will open up a wider market of investments, developments, improvements and unusual opportunities.
The process is a swift one and the key to making a successful purchase is homework and preparation. This is vital to make sure all your research and due diligence is completed in advance of attending the auction to bid. If it is your first time looking to purchase by auction, it is strongly recommended that you attend a few land and property auctions first to understand the process within the auction room. Then, when you are there to bid, you will have a good understanding of how an auction room works.
Auctioneers are always more than happy for people to come along as spectators in order to understand the process better. It will give you a much clearer idea of what is needed on the day and the auctioneer will normally commence with an introduction that will explain the process for that particular auction. They will also give you an insight into bidding patterns and you will learn from others who are there bidding.
Finding auction properties
Gone are the days when property auctions would be held in the evenings in a room above a pub or village hall. With modern technology and portals, obtaining property details for auction has become a lot easier. Auction properties are quite often advertised within local papers in the property or auction section and most are now available on property portals for you to search. On some, you can select just auction properties – as opposed to private treaty properties.
Alternatively, the Essential Information Group has every property available by public auction on its website (www.eigroup.co.uk). If you register with the site, you will not miss anything that is being offered in the area you are looking. It is also worth registering with any local auction houses as they will normally send out a catalogue by post, or email when the new catalogue is available. Depending on which auction house you go to, the details are usually available any time between two and four weeks prior to a sale date. It is essential to make sure that you are on the mailing lists and registered to receive information on any auction properties as soon as they are available so you have plenty of time to go through all your due diligence, prior to bidding.
The catalogue will show the basic details of the property, including any income it produces and whether it is being offered with vacant possession or subject to existing tenancies. In most cases, there will be a guide price: this is not a valuation – it is purely an indication as to the seller’s minimum expectation on the day and not necessarily what the property will sell for. It is up to you as the prospective purchaser to decide what you think the property is worth, taking into consideration the local market and the investment in order to work out your maximum bid.
Once you have found a property or properties you are interested in, what is the next step?
Once you have found a property or properties that you want to bid on, the next step is to view the lot. This can usually be done either direct with the auctioneer or through their local representative. The details of where to view the property can be found within the catalogue and quite often, especially if it is tenanted property, visits will be carried out as block viewings on set days and times.
Again, it is advisable to get in contact as soon as possible in order to make sure you have multiple opportunities to look at the individual lots. The viewing is a good time to see the condition of the asset and whether or not it is tenanted – and, on some occasions, to meet the tenant as you may very well become their landlord in the future.
Legal documentation
Once you have seen the property – and assuming you are still interested – the next step is to obtain any legal documentation, which will be available from either the auctioneers or, on some occasions, the solicitors acting for the seller. This can include special conditions of sale, which may contain extra fees or costs in addition to the bid price, which all needs to be taken into account when you are setting your maximum limit. In most cases, the legal documents also include local authority searches, title documentation and, if it is a let asset, tenancy agreements and information on whether the rent is up to date. Having all the documentation will help you make an informed decision on whether or not to bid. It is important to remember that if you are not fully familiar with property law, you should seek independent legal advice from a solicitor or licensed conveyancer in case there is anything you do not understand within the documents.
Finance?
If you require finance to complete the purchase, it is imperative that you arrange this prior to bidding. There are specialist finance companies who provide auction finance – or, if your own broker is arranging it, it is worth checking with them what is required prior to entering into a legally binding contract. If a survey or valuation is required, all the surveyor needs to do is get in touch with the auctioneers in order to arrange access to prepare a report so that a mortgage offer can be finalised prior to bidding.
Preparing for auction day
Quite a few auctioneers have a registration process, which takes place in the auction room where a bidding number is allocated to you. There is normally no charge for registration and all bidders will need to bring along proof of payment for the deposit and any administration fee. In order to comply with money-laundering regulations, you will need two forms of identification – such as a passport or driving licence, plus a utility bill or similar issued within the past three months, which provides evidence of residency (this will be required for all names going on the auction memorandum). If you are buying in a company name, a certificate of incorporation is also to be provided.
What if I cannot attend the auction?
There are a few options available if you are unable to attend. You can send a friend, agent or solicitor to bid on your behalf – however, you will need to provide a letter of authority for them and also copies of their identification documents, as well as yours.
Alternatively, most auction houses will offer a remote service where you can bid by telephone, internet or by proxy (this is where one of the auction staff will bid on your behalf against the room up to a maximum price set by you in advance). You would need to check with the auction house to make sure that you can provide any information they require beforehand, and quite often they will need the deposit, which is held to your order, before they will facilitate the bid.
Arriving at the auction
It is always advisable to arrive at the auction in plenty of time to allow for the registration process and also to look through the addendum. This is a document that will be made available the night before or on the morning of the sale, which shows any last-minute alterations or corrected information on the lots being offered. If the lot you are interested in is on the addendum, you must read through the details. The legal documentation should be available within the room to show what has changed.
Bidding
As auction rooms can be busy places, you must ensure that the auctioneer has seen your bid, as once the property is sold it cannot be re-offered. Use your catalogue or bidding number to attract the auctioneer’s attention when you wish to bid, and if you think the auctioneer has missed your bid, stand up and attract their attention. Make sure you stick to your limit as you know how much you can afford and what you think the investment property is worth to you. Do not get carried away and bid above what you have set as your maximum limit. The auctioneer will announce it is going to be sold for the first time, second time and third time before selling it, which gives a fair warning that it is about to be sold.
You are the winning bidder – what next?
You will be approached by one of the auction staff or requested to go to the clerk’s desk to sign the memorandum of sale. The memorandum of sale records the contract that was exchanged on the sale of the lot: this is when you will need to confirm the exact names the property is going into and also pay the deposit, which is normally 10% of the purchase price, together with the administration fee. Once you have signed the memorandum, you will be given a copy to pass on to your solicitor to get ready for the completion process.
Insurance
It is at this point that you will need to get the lot insured, if it is an insurable asset. The special conditions of sale should state whether it is the seller’s or the purchaser’s responsibility to make sure the lot is covered up to completion. It is always recommended that, if there is any doubt as to whose liability it is, you make sure you have it covered on a policy as you are still liable for the purchase.
What happens next?
Once you have left the room and given the memorandum of sale to your solicitor, they will commence the process to complete the purchase of the property on your behalf. Hopefully, after carrying out your due diligence, it will be a straightforward process and all they will need to do is sort out apportionment of rent and provide you with a completion statement in order to provide them with funds in plenty of time ahead of completion.
It is also a good time to locate any keys there may be for the property, arrange meter readings and inform the local authority of the new ownership. If it is tenanted, make sure the tenant has the correct details for paying in future, in order that rent is not missed.
