How to buy a property at auction: expert advice on fees, when to go over budget… and even where to sit

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If you are buying a property at auction, you will need to prepare seriously to avoid tripping up when bidding.

This includes deciding before the auction what your highest bid will be.

If you enter an auction without doing this work, you risk getting caught up in the momentum of the day and bidding far more than you can afford.

This preparation certainly helped me hold on and not bid above the maximum amount I had set for myself when I recently registered for an online auction.

What is being offered at auction?  This leasehold caretaker's cottage in Dover is being sold by Pugh Auctions on January 31 with a guide price of £120,000.

What is being offered at auction? This leasehold caretaker’s cottage in Dover is being sold by Pugh Auctions on January 31 with a guide price of £120,000.

As I detail below in the second in a series of articles on auctions, this meant that I went into the bidding process with confidence and did not strain myself financially .

In the first item in the auction seriesI looked at what happened when I signed up to buy a wreck at a property auction, while the final installment will look at what happens once the hammer falls.

What is an auction guide price?

A property sold at auction will have a ‘guide price’, which indicates where the seller’s reserve price – the minimum amount they are willing to accept – is set and where bidding could begin.

However, it is important to know that the seller has the right to change the reserve price at any time before the auction.

At the same time, while it is an indication of where bidding might begin, it is not an indication of what the auctioneer thinks the property will ultimately sell for.

In many cases, the final sale price of a property can significantly exceed the guide price.

Andy Thompson of Pugh Auctions advises on the best way to go about buying at auction

Andy Thompson of Pugh Auctions advises on the best way to go about buying at auction

Andy Thompson, of Pugh Auctions, says this guide price should not be the starting point for someone new to auctioning.

Instead of starting with the guide price and working north from there to see how far your budget can stretch, he recommends “working backwards.”

Decide what you think the property would be worth when completed, then work back to what you can afford.

Mr. Thompson says: “You have to start by going backwards. This is less about the guide price and more about the final price and value of the property when completed, taking into account renovation costs and fees.

“If you’re going to live in a property, you don’t need to make an immediate profit, but you don’t want to pay too much for it. »

Mr. Thompson outlined several fees that you will also need to factor into your calculations. These may include:

Auctioneers’ fees

Most auctioneers will charge an administrative fee or a buyer’s premium. These can be as little as £1,000, but can also reach into the tens of thousands depending on the price of the property.

Sometimes auction houses charge a percentage of 4 percent.

Legal fees

Some lawyers will charge you for checking the legal file before the auction.

The legal file will include a multitude of documents, including the auctioneer’s general conditions of sale and special conditions.

These are additional terms added by the seller and can often include additional fees that the buyer must pay at the end.

Application fees

You will also need to consider any possible arrangement fees if you plan to use a mortgage or bridging finance to pay for the property.

This three-bedroom semi-detached property in the market town of Halesowen, West Midlands, is being sold by Pugh Auctions on January 30 with a guide price of £220,000.

This three-bedroom semi-detached property in the market town of Halesowen, West Midlands, is being sold by Pugh Auctions on January 30 with a guide price of £220,000.

Seller’s fees

The seller may sometimes pass on all or part of its costs to the buyer. All this will be documented in the special conditions of the auction.

When calculating the cost of fees, Mr. Thompson explained that this must be taken into account during retrospective tracking.

For example, if you thought a property would be worth £200,000 once developed, then you could subtract £10,000 in costs and £40,000 in renovation costs.

This will give you an idea of ​​your maximum budget for the property.

“If you pay more than £150,000 for the property, you won’t get all that back if you had to sell for any reason,” says Mr Thompson.

However, he added that for those buying property to live in, it may be worth considering going over budget for the right home.

“Some people will take that on the chin and say: this is my forever home, I’m going to live here for the next 30 or 40 years. It’s unique to this location and so it’s worth me paying more than ‘today,’ he said.

“While it’s a huge financial commitment and investment, it’s also a home.”

Some people set up what is called a “proxy bidding,” in which an interested party gives their maximum bid to the auctioneer to bid on their behalf.

Some people set up what is called a “proxy bidding,” in which an interested party gives their maximum bid to the auctioneer to bid on their behalf.

Should we consider a proxy offer?

Thompson advises making your decision about your highest offer in advance and sticking to it.

Some people will set up what is called a “proxy offering”. This is where an interested party gives their maximum bid to the auctioneer to bid on their behalf.

For example, you could set a proxy bid of £100,000, and the auctioneer will then bid for you against everyone else in the room up to – but never beyond – that price.

Using this example, if bidding in the room exceeded £100,000, your agent would cease and you would be excluded from the bidding process.

Mr Thompson says: “Sometimes people don’t trust themselves to stick to their highest bid once the tender process has started. »

However, he added that most people will want to maintain control and therefore will not use proxy offerings.

He says: “Most people do not feel comfortable showing their hand before the auction and therefore will not use the proxy bidding system. »

There is also the risk that the property will sell for a slightly higher price than your proxy bid, and you would know that if you had been in the room you would have raised it and won.

“You might blame yourself because you were so close to succeeding,” he says.

This Victorian end of terrace located in the market town of Worksop, Nottinghamshire, is being sold by Pugh Auctions on January 30 with a guide price of £110,000.

This Victorian end of terrace located in the market town of Worksop, Nottinghamshire, is being sold by Pugh Auctions on January 30 with a guide price of £110,000.

Savvy bidders sit in the back…

The savviest bidders tend to only show up in the last half hour. This practice stems from auctions that were held in rooms, with naive new bidders sitting at the front while more sophisticated investors sat in the back and surveyed the room to see who was bidding.

Legally, an auctioneer can do what is called “out of the ordinary bidding” up to the reserve price.

For example, if an auction price has a reserve price of £100,000 and the auctioneer starts at £90,000 and no one bids, the auctioneer is allowed to bid at 91,000 £, then to £92,000 and above. This is to help stimulate the auction room so that a real offer is made.

Ultimately, a successful bid may mean you don’t bid at all.

Mr Thompson explains: “A savvy investor at the back of the room would have a full view of the room to see if there are real bidders or if the auctioneer is bidding off the wall. He will then know who his competitors are.

“The wise investor can even sit back and leave the property unsold so that he can then approach the auctioneer with a cheaper price.”

Ultimately, a successful bid may mean you don’t bid at all. It’s much better to walk away from a property that isn’t right for you than to overpay for a property that is quickly turning into a money pit that you can’t afford.

This is what happened when I entered the online auction room. I exercised restraint and did not bid above my maximum bid, which took into account purchase fees and renovation costs.

Mr Thompson concluded: “It’s very easy to get caught up in the romance of buying your dream home at auction and it’s a great feeling when you get that winning bid.

“But ultimately it’s also a huge financial commitment and, in some cases, there will come a point where, no matter how much you love the property, it just doesn’t suit you financially.”

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