Early in 2000 I remember going to auctions and sitting in a near empty rooms, seeing the same old faces again and again. These days (2006) things are a bit different, and lots of new property investors are queuing to get in, and the few professionals scattered around the room are easily picked out by the auctioneers who can tell the serious buyers by their actions.
Some investors sit in the property auction with their catalogue written all over - looking like they are serious or know what they are doing - but are just observing and learning - very wise to do before you get into it properly. There are lots of bidding tricks the auctioneers use, and they are all different. By watching you can learn little tricks.
The term property auction is the third most searched property term on the search engines after investment property and the word property on its own. This is hardly surprising when the media is flooded with property programs about making money by doing property up. What lots of people probably don't hear about is that property auctions are usually full of property that has problems - like severe structural damage that can't be mortgaged, bad sitting tenants or very poor yields in seriously declining areas. You can also get unusual properties that would not normally sell well through agents like old barns, old churches, windmills, odd pieces of trapped land with no access and ground rents.
The best way to find out where Property Auctions are is to register with EIG. They are a specialist Property Auction information service that can register you for catalogues or you can set yourself up with them for email alerts on certain areas or types of property you are interested in. They also show auction results online and have an online search facility. I love them!
I attending a property auction involves a lot of preparation. Let's go through the order of what you need to do:
1 - Finances. Make sure you have a deposit of 10% available. You have to place a deposit right away as the gavel falls. If you can not get 10% together, you can't buy in auction. You may also want to get pre- approval in principal with a lender that can complete within 28 days (if they are the auction terms). You may be able to get bridging finance for auction purchases for around 75% LTV.
2 - Viewing. View the property if possible (some property has sitting tenants and you may have viewing restrictions). If you can't view it officially, try unofficially, drop a note through the door saying you would like to discuss improvements to the property and would like to see what they need, works most times.
3 - Survey. Instruct your surveyor. Usually your lender will do this - but you need to act VERY fast with auction property. It may be in your interest, if the valuer is busy to slip him a bit of pocket money to do your property sooner.
4 - Solicitor. Get hold of the pre-auction pack / solicitor pack ASAP and get it to your solicitor to be checked over.
5 - Terms. Read all the auction terms and conditions - this is a serious must!!!!! You don't want to have the gavel fall and have to complete in 7 days ..
5 - Finance. Tie up loose ends in your finance. If you are taking a bankers draft for the deposit, get it ready. Check with your lender that everything is in, like accountant letters, valuer report and that things are ready to go.
6 - Auction Day. Get to the auction after setting a firm bidding ceiling, and happy bidding.
So you've done everything you need to do to prepare your property for sale at a property auction, but how does the process of accepting offers work? You may not believe it, but there is quite a lot to know about accepting offers and the several ways that an offer can be accepted, even at a property auction sale. You may be informed about the ways of accepting an offer for a regular property transaction without having any clue about how it works in an auction. In fact, some of the basic elements of selling a house through the housing market are present in the auction selling process, so you may already know more about selling your property through an auction than you previously believed. Many people already know the tremendous advantages of selling at an auction, which is why the business is growing and more people are choosing both to sell and buy their home through this method. You may have thought that only certain types of homes could be sold through an auction, such as repossessed homes that are in need of a quick sale in order to meet the former owner's debts. This type of sale is what most people think of when they think of an auction sale, as sometimes you can get a good deal because the bank or lender simply wants to get rid of the property as quickly as possible in order to recoup their money. The owner of the house in this case is usually forced to sell to pay off their debts, and as a result these houses tend to sell at a price that will ensure that the lender gets the money that is owed to them as fast as possible. But nowadays you might consider selling at auction if you have a unique property that can't be sold through the traditional route, or a property that is in high demand and is sure to get multiple offers that will drive up the price significantly.
Whatever your reason for selling at auction, you should know about your options for accepting one of the many offers you're sure to receive. If you choose to accept an offer subject to a contract, an offer will be accepted as long as the contract that is drawn up is adhered to. Essentially, this means that the terms decided upon in the contract must be followed in order for the sale to legitimately go through. You can also accept offers conditionally, which means the offer or bid is legitimate as long as certain conditions are followed after the sale is made official at the property auction.
Accepting Offer Subject to Contract
Once you are lucky enough to have many offers and bids coming in on your property at the property auction house all you have to worry about is accepting the highest offer. The wonderful thing about an auction is the chance that your property will become a hot commodity, and will generate a lot of interest among homebuyers. If there are a lot of potential buyers out there who want your property you might be witness to a bidding war on the day of the auction. Sometimes two or more parties decide that they desperately want to purchase your property, which causes a price battle that is sure to drive the bids up on your property. Often this can end in a winning bid that gets you more money for your property than you ever expected. Also, on the auction day the potential to get a price war going is much higher than for other types of property transactions, as emotions can run high in such a situation and people are more willing to up the price in order to obtain a property they really want to purchase. And unlike in the property market, you can be accepting an offer very quickly, and definitely much faster than if you put your house up for sale the traditional way. So what do you do when the offers start rolling in?
If you opt for accepting an offer subject to contract, you are essentially allowing that the highest bidder obtain ownership rights to the property before you set up the contract you will eventually draw up in regards to the sale of your property at auction. A contract can be crucial to getting what you want in a sale, as it provides a legal guarantee that the buyer will abide by the conditions you determine for the sale. You might want to set a date for the closing of the sale, which says when the new owner can move in, just as you might include in a normal property contract, or negotiate to leave appliances and furniture in the house, as a way to entice someone to buy the property. This is sometimes put in a contract almost as a way to attract a higher bid or more interested buyers. A contract can be drawn up with the aid of a solicitor so that all the details are finely tuned and laid out for potential buyers who might bid at the auction. If you prepare a contract then the winning bidder is subject to the contract after it is drawn up and you can refuse an offer if the details in the contract are not abided by.
Offer Accepted Conditionally
If you are lucky enough to have multiple offers and bids on your property or house when it is up on the auction block, then all you have to worry about is how you want to accept the offer, depending on your particular circumstances and requirements. For instance, just like in the property market, an offer can be accepted subject to contract, which is a bit risky in the sense that you trust someone's word for a short period of time until the actual contract for the sale of the property is officially drawn up by a solicitor. This means that when the final offer is made and accepted, on the auction day, the bid goes through before a contract of sale is written to make it official on paper. When you go to put together the contract at a later date all the minute details are figured out and a valid and binding contract is put together to the satisfaction of both parties involved. This can be a convenient way to accept an offer as you can accept it quickly, right when the auction is occurring, so that you don't waste time wondering whether or not to accept an offer. In the auction business things move at a rapid pace, so it pays to keep up with that pace as much as you can in order to be successful. If you simply accept an offer and work out the details at a later date you can move the process along a lot more smoothly.
But with an offer that is accepted conditionally the process is slightly different. This is a way to accept an offer that is used in the property market as well as in the auction process, as it is a good way to ensure that the buyer and seller follow through on certain key promises on which the sale depends. For example, you might want to attach certain conditions to the sale that ensure you sell only if the conditions are met by the buyer. You might want to specify that the closing date be set for a particular date, or that the potential buyer prove that they have been approved for a mortgage on the property. You may not be able to leave the house until you find a new place to live yourself, or want to ensure that the people who have won the bid are able to pay for the house they want. Or the buyer might want to conduct a more thorough survey on the property before going through with the sale fully. As long as all the conditions are satisfactorily met by both sides, the sale will go through. If the conditions are not met, however, the sale can fall through.
Before you begin the auction process, to sell your property, you need to prepare several things so that everything will run smoothly and without problems once the house auction gets underway. Just like with the housing market, or any other type of business transaction, you must prepare beforehand - you can't just jump into the process without first making sure to get all the pre-auction duties carried out. So what exactly does properly preparing for a house auction sale involve? Well, the first thing you should do, before putting your property up for auction, is to discuss the property with an estate agent or a qualified property auctioneer in order to determine beforehand the approximate market value of your property. They can give you advice on where it is prudent to set the reserve price, so you can be knowledgeable about your property before you enter the game.
It is important to be informed about the current market and know about other properties, comparable to yours, that have recently sold and are currently for sale. If you are able to set a reserve price for the auction that is both reasonable and competitive, you will be guaranteed a sale. If you set the price too high, it might not sell, and if you set the price too low, you won't get your money's worth. You can see why setting the right price is key to making a good sale.
Before the house auction you must also get your solicitor or conveyancer to prepare a contract that includes details regarding any special conditions of the sale. These conditions and details are included in the agent's brochure, so that buyer's are aware of the terms that come with a sale. Having these details prepared for buyers will make it much easier to sell your property, as all the conditions will be set out beforehand, leaving no room for confusion further down the road. You also have to prepare your home for open viewings, so that prospective buyers can follow up on what they have seen in the catalogue. If you do some minor renovations, clean the property thoroughly, and make the house look its best, you'll be able to sell the place much faster. You must also be prepared to allow access to surveyors who might be sent by interested buyers to further investigate the property. This is a common procedure, as potential buyers will surely need to ensure that the property is in a decent condition, in order to make an offer at the auction with any confidence that what they are bidding on is worth their while.
Information Pack
Selling your home though an auction house, with the expertise, knowledge, and experience of a professional auctioneer, has many benefits. It is an alternative to the housing market that can be very successful if done properly. But it is important to know a few things about auction houses and selling property through an auction before you begin the process or consider such a route. These days more is expected from the property auction house, as buyers require more and more pertinent information at their fingertips before they consider buying your property. And in order to remain competitive in the vibrant housing and auction market, you have to have everything prepared for potential buyers, otherwise you'll lose a sale to someone else who is more fully prepared.
That is why most property auction houses now require that you put together an information pack. The government is considering making these packages a requirement when selling a property through an auction, so that potential buyers are more fully informed about a property before they make the big decision to purchase it. It avoids future problems with buyers who might be dissatisfied with their purchase, and also makes your property more enticing to buyers, as all the information is given to them up front. In order to make auction sales as viable and convenient as possible, an information pack is a necessary and important thing to have. If you want your sale to be successful, you should include as much information in the package as possible, so that buyers are able to know about the property without having to ask too many questions. In the housing market these information packs are used all the time, and they are now becoming the norm for estate auctions. When you put together a seller's information pack, several things are usually included. There is an independent survey, property details and other background information. Sometimes you are even required to obtain advance land registry information and local authority searches.
Essentially, selling your property through a property auction house is a team effort, between you and the auctioneer who will be selling your property. If you prepare enough information to be included in an information pack, by putting a little effort into collecting information on your property, the auctioneer will then have an easier time attracting potential buyers. If more buyers are interested in purchasing the property from the start it will sell much faster and more easily.
Addendum
The addendum is the document that is printed on the actual day of the auction, which contains all the corrections, changes and additions made to the details of the catalogue up to that point. It is handed out to all the people in the auction room before the auction commences. This document is very important to peruse before you begin bidding, as you ought to be informed of any significant changes that could have been made to your property. These amendments are usually compiled right up until the auction day, so the document is entirely up-to-date when it reaches your hands. Of course, the most recent copy is available from the auction house office before the auction begins, but it is called the Erratum before the auction day. In addition, the addendum forms part of the contract of sale, as all the final conditions of sale are included in the document.
Completion
This refers to the point at which the property becomes officially yours and you can have access to the keys to the property. Usually this occurs 28 days after the transaction was completed at the auction house and there was an exchange of contracts. This tends to be arranged between the vendor's solicitor and your own solicitor. At this point in the process you will be asked to supply any outstanding funds for the property, which is usually the remaining 90% of the purchase price. If there are any variations or changes to these terms the auctioneer will make an announcement.
Erratum
The erratum is a document that contains a list of the changes and corrections to the catalogue that occur up to the actual auction day. On the day of the auction though, this document, with the most up-to-date changes, is called the addendum. Copies of the addendum are always available in the auction room for participants to pick up a copy of. If you want a copy of the erratum you can pick up a copy any day before the auction from the auction house office.
Exchange of Contracts
At the fall of the hammer the purchaser is in contract and they are legally required to buy the property they bid on. This is when a non-refundable deposit is required to initiate the purchase, and although the property is not yours at this point you do have a legal obligation to purchase the property, and for the vendor to sell. This is also when you should arrange for property insurance.
Guide Price
Guide prices indicate the vendor's minimum expectations of a property and are published in the auction house catalogue. They are not reserve prices and are to be used only for guidance - they can also change as the marketing period goes along. Guide prices are often exceeded once bidding begins.
Legal Enquiries
If you have any legal questions or queries you can contact the vendor's solicitor, whose name, address and telephone number can be found in the catalogue.
Legal Pack
A legal pack is prepared by the vendor's solicitor, and contains all the legal papers that you and your solicitor are in need of in order to make an informed decision regarding the property. Usually the pack includes: special conditions of sale, title deeds, leases, office copy entries, searches, and replies to pre contract enquiries. You can usually get a copy of a legal pack from the auction house's office for a small fee. Not all the papers may be available right away, but you will probably be able to get any of the papers that have already been provided by the vendor's solicitor. If you can't get the information you need through this avenue you have the opportunity to contact the vendor's solicitor directly to get the information you need. If the legal pack is not received until a later time, the auction house can take your request for one and will send it to you as soon as it becomes available. You can also peruse the legal pack in the auction room.
Memorandum of Sale
When you purchase a property at auction the memorandum of sale is the contract that is exchanged between you and the auction house, which is acting on the vendor's behalf. This contract is governed by the standard conditions of sale, as well as the general and special conditions of sale, along with any other amendments attached to it. Usually you can find an example of the memorandum of sale by looking at the back of most catalogues.
Proxy Bidding/Telephone Bidding
You can bid on an auction by telephone or though writing if you are unable to attend the auction, but this needs to be arranged in advance. Also, you must have your deposit cheque ready. You can get a proxy bidding form at the back of the catalogue so you can register to bid.
Reserve Price
The reserve price is the minimum price that the vendor has set as an acceptable sale price for his or her lot. Reserve prices tend not to be published and are not set by the vendor until a few days before the auction anyway.
Special Conditions of Sale
When a lot is up for auction it is subject to the Notices and General Conditions of Sale that you can find in the catalogue. These are general conditions that are attached to the lot, but in addition there are usually extra terms drafted by the vendor's solicitor that apply to that particular lot. These are called the Special Conditions. You can't find these printed in the catalogue but you can get a copy for free from the auction house or the vendor's solicitor if you request it, and it forms part of the Contract of Sale. Ensure that you make all your legal enquiries and are up-to-date on any conditions, including those listed in the addendum, before you bid on a property.
Valuations and Surveys
When you obtain a valuation, there are different reports you can receive. For example, the valuation report is different from the house buyer's report because it is usually used to advise the lender about the value of the property. The report will probably reveal any drastic faults on the premises, but it is not the same as a structural report. A full structural survey goes into detail about the fabric and structure of a property. It can report on amenities as well as structural defects such as settlements, dampness, and general condition. When the report is made, it is put together after easily accessible parts of the property are surveyed. Note that the surveyor will not move furniture, lift floorboards, check plumbing or electrics unless they are asked to do so. The house buyer's report gives you both a valuation and a structural assessment of the property. It does not contain as many details as a structural report, but it can alert you to potential as well as actual problems.