Buying a plot at auction
Could you bag a real bargain in the bidding hall? Land and planning expert Mike Dade looks at the pros and cons of this route to buying property and reveals what you need to know before you get started
Could your ideal self build site be the tap of a hammer away? Mike Dade explores the pros and cons of the auction route
There’s a certain mystique around property auctions. On the one hand they appear to offer the potential to snap up a house or plot of land for less than its true value. On the other, there’s the nagging fear of buying something that later turns out to be a money pit. There’s also a sense that investors and developers tend to dominate property auctions, and that private individuals are likely to be at a disadvantage compared with the seasoned professionals that might be bidding on the same lot.
In practice, as a self builder you’re well-placed to buy successfully at auction – but it’s essential that you understand the process and potential pitfalls before you begin. A lot comes down to careful preparation – this is not at all about gung-ho bidding and speculation. By knowing the market in your area, researching thoroughly and taking professional advice where needed, you can sort the genuine plots from the problem properties. And with a little bit of luck in the auction room, you might well be able to snap up a genuinely good opportunity for a bargain price.
What gets sold at auction?
From conversion opportunities through to rundown bungalows and virgin plots, every kind of property can exchange hands at auction; and the dwelling or land can come onto the market for a wide variety of reasons.
Increasingly, auctioneers promote their services as a quick and certain route to making a sale. This can appeal to mortgage lenders who want to sell off repossessions swiftly, but may also suit private vendors – for instance if they need the money to finance another purchase.
Auctions are a good place to find the quirky and hard-to-value assets, too, such as water towers or public loos. These can make interesting finished homes – and selling them in this way allows the market to determine what they’re worth.
At the other end of the scale, properties suffering from subsidence, contamination, restrictive covenants, legal disputes and other problems can fetch up in the bidding houses. This is the type of lot that gives rise to the suspicion that, if a property is for sale at auction, there must be something wrong with it. In many cases, however, this simply doesn’t hold water. For instance, public bodies, trusts and charities often sell via this medium because it helps to ensure they are seen to be getting the best possible price.
Why buy at auction?
The most obvious answer to this is that the plot you’re interested in happens to have been put on the market in this way. But there are other great reasons, too. You avoid all the delays and uncertainties of a conventional private treaty sale – where you could easily face being gazumped, delayed if the current owners’ purchase falls through, etc.
What’s more, if you’re successful, you’ll know that the figure you’ve paid is only just above the next person’s highest bid. And if you’re lucky, you may well be able to secure the plot or property for less than your maximum ceiling price.
The basics
Property auctions are increasingly advertised online. In fact, some are now conducted entirely in the digital world, with bids placed only via the internet. But the majority are still live events, with an auctioneer taking the bids and wielding the hammer.
The first step in any auction is the publication of a catalogue detailing the available properties. In it you’ll find typical sales particulars, including guide prices, and information on the terms of purchase. There will also be a legal pack, which should set out all the requisite information on the title and any restrictions attached to it, conditions of sale and a copy of any relevant planning permissions.
One key thing to bear in mind is that, during the auction proper, the fall of the hammer represents the exchange of contracts. The sale will then proceed to completion within a predetermined period. Note that if the property doesn’t get purchased, it might still be possible to make a bid after the auction.
Preparing for the day
It’s important to keep a sharp eye out for auctions in your property search area, so you can get hold of the details immediately. You will need as much of the intervening period as possible prior to the sale date to get ready; and it’s vital not to cut corners.
Registering with the auctioneers will ensure you’re notified as soon as the catalogue comes out.
Attend a few auctions if you can, to get a feel for what it will be like when you come to bid, and check online to see whether you can live stream any events. Read some of the companies’ conditions of sale and take a look at some legal packs to get sense of what these things contain, too.
Once you’ve spotted a likely plot, arrange to view it as soon as possible. Ask for details of its current planning permission and any prior applications, and look these up on the council’s website. If you have questions about the site’s history and development potential, find out how quickly you can get pre-application feedback from the local authority. You might also want to bring in a planning consultant to advise on the suitability of the plot for the type of house you want to build.
It’s also vital that you send the legal pack to your solicitor to ensure they’re happy with all aspects of it.
Assuming everything looks positive, your next step is to draw up a budget and consider how much you’d be prepared to offer for the property. Always reality-check the figure you come up with against what you think the market value of the plot might be. Don’t be too influenced by the guide price on the sales particulars, as this might be pitched quite low to draw in bidders. Finally, speak to your lender to ensure your funds are in place to cover the deposit on the auction day and completion shortly after.
Making a bid
You can do this in person, on the telephone or – in some cases – via the internet. You can also get the auctioneers to bid for you (known as a proxy bid) or send someone else along on your behalf. Whichever route you take, you must first register that you intend to bid, and ensure you provide the requisite identification, details of your solicitor and any other information that’s asked for.
If you’re attending the event yourself, sit in a spot where you can get maximum oversight of the room and the auctioneer. Make your bids clearly by raising your hand or waving your numbered paddle, if this is provided. If a lot is subject to a reserve price, when it has been reached the auctioneer will indicate this by saying something like “the property will be sold” or “I am selling now.” Try not to get carried away with the situation; come with a solid ceiling figure in mind and stick to it.
If you make the successful bid and the hammer falls, you’ll need to sign a memorandum of sale and pay the deposit and buyer’s premium. You’ll also have to arrange insurance straight away, as you’ll be liable for the property from the moment you are contracted to buy. Notify your solicitor immediately too, as the deadline for completion may be short.