How to buy a property at auction

Buying property at auction is an exhilarating experience, even for experienced auction-goers. But there’s lots of things worth considering before you head into the auction room with all guns blazing. Here’s our complete guide to buying property at auction — from planning and research, to budgets and auction finance.

Choose an auction

Find an auction that looks suitable for your requirements and arrange to be there on the day. There’s many ways to find property auctions — they’re often advertised in the property press, and your local estate agent might be able to point you in the right direction too.

Once you’ve chosen which auction to go to, you can get hold of a catalogue and start the next crucial step. Bear in mind that upcoming auctions won’t be advertised further in advance than about a month — so you need to move fast if you see one you’d like to attend.

Find the right property

Just like going through the small ads with a red pen, highlight all the properties in the catalogue that fit your property portfolio plans. You might want a small flat to modernise and refurbish, or a family home to convert into student accommodation — look at properties that fit the bill. Whatever you’ve got planned, make sure the properties you’re looking at are fit-for-purpose, and won’t need more work done than you can afford.

Go to some property viewings

Once you’ve got a shortlist of properties you’re considering bidding on, strike while the iron is hot and book some viewings. This is one of the most crucial parts of the process, and it’s imperative that you also look into things like the legal pack and existing planning permission on the property to make sure it still works for your plans.

One of the common things you’ll find with auctions is that the properties are often in bad shape and not suitable for a traditional residential mortgage. That’s why there are bargains to be found — but it does mean it’s a good idea to check what state the property is in. If you have a contractor, architect, or surveyor you regularly work with, it’s a smart move to invite them to the viewing as well.

Assessing how much work needs to be done will directly impact your profit margins — or losses! — so this is a vital part of the planning process. For example, if you want the property to be a quick modernisation over a few weeks, but discover cracks in the external walls at the viewing, that could be a sign of serious structural damage which might be enough to turn off a savvy developer.

Approach an auction financier

At this stage, you’ll ideally have a shortlist of suitable properties that have passed your scrutiny at the viewing, and don’t have any deal-breakers like refused planning permission or major structural problems. If you need auction finance or another type of property development finance to pay for your plans, this is the ideal time to approach lender.

It’s your opportunity to present your case, so make sure you’ve got a clear idea of how much the works will cost, and what your timeframe will be. It’s also advisable to know the true market value of the property — even if the auction reserve price is low — so you know where the threshold is between bargain and bust.

Get an agreement in principle

With auction finance, once the lender has run the necessary checks on your application, credit rating, and agreed to your proposal, you’ll have a concrete figure to work to. In some cases it might be very specific — for example, £250,000 for a three-bed semi — or if you’ve got a strong track record the lender might give you a range of figures. In some cases, it’s even possible to get auction finance for multiple properties, allowing you to boost your portfolio in one fell swoop.

Win the auction…

If you’ve followed the steps so far, when you walk into the auction house you’ll have a really clear idea of how much you’re willing to pay for your target property. The lender will have given you a maximum figure they’ll let you borrow, and you should also know the market value of the property and what your competition are likely to bid.

…but stick to your budget

This is an absolutely crucial point. If you’ve got an agreement in principle from an auction finance provider, you absolutely must stick to your budget. Bidding past the agreed figure in the heat of the moment might be enough to kill the whole deal — and without finance in place you’d stand to lose your 10% deposit if you can’t get the funds together in 28 days.

If you’re not using auction finance to fund the auction, it’s still advisable to be strict with yourself. Remember, at this point you will have done your market research and calculations, so you should know what a good and bad price looks like.

The fundamental rule of property auctions

Decide on your maximum price for the property — and stick to it.

It really is that simple. One way to decide on your budget is to think about three prices in advance of auction day; one low price that you’d consider a bargain, a medium price that’s a fair representation of the market, and one high price that you wouldn’t be willing to pay. Your maximum budget will be somewhere between the medium and high numbers.

You’ll also need to think about the work you would do to the property if you won the auction, and come up with best- and worst-case scenarios for that cost too. Even the most complex property developments have the same underlying principle — make your return higher than your outlay.

On auction day itself, you’ve got to be tough on yourself. If someone bids higher than your maximum, the auction is effectively over. It’s difficult to restrain yourself if you’ve only been overbid by a small amount, but if you’re tough on price, you won’t need to win first-time — because your impeccable research from earlier in the process means you’ll have many more properties to bid on!

Combine finance types for maximum efficiency

As well as being a flexible product in its own right, auction finance can be combined with other types of alternative finance, so you’ve got the whole property development journey funded.

For example, from auction finance you can exit into a commercial mortgage, which will mean you’re covered for the long-term. There’s a range of flexible property development finance available, and portfolios can often serve as security if there’s enough equity available — so whatever your situation, there’s funding out there that could be perfect for your business.

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