For landlords, there are alternative ways to purchase buy-to-let properties besides the traditional approach of trawling through online listings. One such option is to buy a property at auction.
Property auctions have risen in popularity over recent years, but even more so since the inception of Covid-19 encouraged auction houses to adapt to an online model. This made property more accessible to buyers and investors who weren’t deterred by the obstacles of the pandemic.
Despite the risks, purchasing at auction can be a good method of acquiring investment properties for buy-to-let landlords. Many are attracted to the potential of securing an absolute bargain, therefore maximising overall returns.
Pre-auction preparation – research, budgeting and auction rules
It’s beneficial to contact local property auction houses beforehand, as they will be able to advise you on any upcoming auctions and add you to a mailing list to ensure that you receive the latest auction catalogues.
Naturally, you must review and understand all auction rules and do your due diligence on any property you are interested in, such as checking for claims and occupants before bidding.
Properties are usually advertised a month before the auction date, although it can be as little as two weeks before sale day. The guide price will give you an idea of what the property is expected to go for, but it could quickly increase if it attracts a lot of interest.
As well as ensuring you’re registered for bidding, it’s also sensible to have your funding in place before looking for suitable properties being sold via auction, as any hiccups after you’ve agreed to buy the property can be costly.
If you aren’t a cash buyer, speak to a lender or mortgage broker, explaining that you wish to buy a property at auction so they know time is of the essence.
Standard auction rules permit you, the bidder, to pay 10% of the purchase price as soon as the sale ends, with the rest of the balance payable 28 days later. Therefore, the finance must be in place, and the lender is willing to release the funds by the required dates.
Compared to the traditional conveyancing process, which sees the buyer jump through various legal hoops before the exchange, the legal work when purchasing through auction is swift. The buyer has far less room to manoeuvre.
As with any investment, thorough research will put you in the best position to secure the ideal rental property. This involves looking into the lot you’re interested in and the area surrounding it.
You will also need to ensure sufficient demand from tenants for the type of property you’re looking to buy before placing any bids.
Run-up to auction day – viewing the property and legal pack
Catalogues of properties to feature in the auction will be available before the event – usually in print and online. This is where you’ll find all the information you need about the upcoming lots.
That includes the property description, accommodation details, planning details, energy efficiency rating, type of tenure, and whether the property is vacant or let.
While most properties will be vacant upon purchase, some come with live-in tenants on short-hold tenancy agreements. Landlords will see how much they can expect to receive per annum in line with these current rents.
Once you have carefully studied the information provided in the catalogue and decided on potential properties, it is incredibly vital to arrange viewings to give a thorough inspection.
If possible, you should take trusted tradespeople, such as electricians or surveyors, with you to ascertain if the property will need any substantial work.
Ensure your budget covers the work needed in addition to the cost of purchasing the property. After all, there is hardly any point in buying a cheap property at auction if you won’t make a profit once essential work has been carried out.
The surrounding locale is just as important as the condition of the property. Often, properties end up in an auction because they haven’t sold the traditional way. This could be because the owner is in a huge hurry to liquidate their asset, but equally, it could be because nobody wished to buy it.
Before bidding, it’s advised to visit the property at various times of the day, ensuring the local area will complement the tenants of your new property and vice versa. Keep an eye out for anything which could make it difficult to let the property later.
Auctions will also have a legal pack available to download so that you can thoroughly review the seller’s terms and conditions before placing a legally binding, winning bid.
However, no bidding can take place until you are registered. Registration can take place either before the auction or on the day itself.
All would-be buyers must provide both proof of identity and address to receive their bidding card. These documents must be original, with photocopies not accepted.
Auction day – bidding, contracts and payment
On the auction day, bids can be taken in-person, via telephone, by proxy or online. Ensure that you have both proof of ID and the 10% deposit on hand.
During in-person bidding, potential investors are usually given a paddle with a unique number and can raise this to show their interest in the property. Online bidding, meanwhile, permits you to click on the appropriate property as and when it appears on the screen.
All bidders are subject to the terms and conditions outlined in the Common Auction Conditions of Sale, usually printed in the catalogue.
Should you submit the highest bid on a property and hear the gavel fall, then you have successfully agreed to a deal on a property, and contracts have been exchanged.
Those successfully bidding in person will have their paddle number taken, and an auction negotiator will then take them to the contracts area. At the same time, those online would have their legal pack and paperwork sent to the solicitors.
Successful bidders will be required to complete a purchaser’s slip. In turn, the information provided on this form will be used to draw up a Memorandum of Sale.
The buyer must sign and exchange copies of the Memorandum of Sale and provide a deposit of 10%. Deposits for a lot bought at auction must be made in the form of either a personal cheque, company cheque, debit/credit card or a banker’s draft. Cash deposits are not permitted.
In addition, a buyer’s fee must be paid to the auctioneers for each lot successfully purchased.
Some lots may be left unsold on the day of the auction. This usually occurs when bids are submitted that do not meet the reserve price of the lot and therefore cannot be sold.
However, people interested in the property or plot can still negotiate a suitable price by talking to the auctioneers privately.
The benefits of buying at auction include expanding your options and possibly purchasing a home below market value. You may face less competition than buying traditionally, but you will also be dealing with a different pool of potential buyers – often other experienced investors.
Luckily, most auctions are still taking place online, with no plans to return to the ballroom in the future, while others are starting to consider a return to in-room but still with a hybrid model on offer.
Once you’ve secured your investment property through auction, working closely with an experienced, knowledgeable letting agent can help you run a smooth, hassle-free tenancy throughout.