Increasing numbers of savvy buyers are snapping up property at auction but it’s important people should do their homework first or risk a costly mistake, a leading property solicitor is warning.
The number of auction properties sold early this year rose by almost 50%compared to the same period of 2023 according to research by the Essential Information Group.
But while the rewards can be great, with properties sometimes selling for thousands of pounds less than the market price, there are risks to be aware of too, Simon Nosworthy, head of residential conveyancing at Osbornes Law explains.
“The popularity of shows like ‘Homes Under the Hammer’ have fuelled interest in auctions in recent years, with buyers and developers keen to bag a bargain,” he says.
“Technology has also transformed the process and made it much more accessible. For example, since the Covid pandemic most auction houses now offer online as well as physical auctions where people can bid from the comfort of their sofa.
“This may sound appealing but there are potential pitfalls and it’s important to do your homework first.”
Understanding the auction process is vital. There are two main formats: traditional and modern auctions.
Traditional auctions are held at specific times and locations, with bids exchanged rapidly among participants on the day. Modern auctions, on the other hand, take place online and allow bids until a predetermined cutoff. In both cases, sellers set a reserve price—the minimum amount they are willing to accept. The highest bidder above this reserve price wins the property, with buyers usually required to pay a deposit or reservation fee on the auction day.
For buyers relying on mortgage financing, modern auctions are often preferred. These auctions offer greater flexibility, typically running online for 30 days, followed by a 56-day window for completion. On the other hand, traditional auctions require completion within just 28 days.
If you have your eye on a property, ensure you read the auction pack beforehand, which should be readily available from the auctioneer or with any online listing.
This pack contains crucial details such as proof of ownership, copies of lease or tenancy agreements, conditions of sale, including any additional fees and thing you may be responsible for on completion, and results of any searches. It is also advisable to ask your conveyancer to review this before the auction if possible.
Nosworthy adds: “Before you bid on a house in an auction, you should ensure finances are in place. As you won’t be able to conduct a survey prior to the auction, you need to be aware of the risk of structural or repair problems that homes could require. That means it is wise to have a financial buffer for such contingencies. If you place a winning bid, your immediate priorities should be navigating valuation requirements and securing insurance.
“I have seen people try to sell properties that are problematic, such as those hard to mortgage or with defective leases. Being aware of these issues beforehand can save you from significant headaches later on.
“The most important advice, however, is to set a budget and stick to it. Guide prices are often set low to drum up interest and may well be driven up during the auction, but if it’s low then there’s usually a reason for that. If something sounds too good to be true, it probably is, and so careful preparation is crucial to ensure that you don’t make a costly mistake.”
