KIS Bridging Loans
 
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KIS Finance

A property auction guide explaining what you need to know about getting started on bidding, buying and financing property through bridging loans at auctions.

Why do property sellers choose to sell at auction?

Property sellers use auctions when they are looking for a reasonably quick, hassle free sale. This is because property auctions enable a property to be sold on a specific date and once a bid has been one and accepted the buyer can’t change their mind. Sellers who use property auctions often are lenders who frequently use auctions to sell repossessed properties, in addition to investors, builders and developers, who all use property auctions when they are looking for a quick sale.

Why can it be financially advantageous to buy at a property auction?

Simply because bargains can be had! Companies and individuals looking to sell quickly are often prepared to accept a lower price than what could perhaps be achieved for a property if they could allow more time for the sale.

Lenders selling repossesses properties are keen to have their money back and property investors, developers and builders may need to release the money they have tied up in a property so that they can invest in another project. Of course sellers also use property auctions to secure a quick sale because they urgently need the money for some other reason.

An advantage to picking up a bargain from an auction over perhaps making and having accepted a low offer on a property that is for sale through an agent, is that once your bid has won at auction the sale is binding. Therefore you do not have to worry about losing the property because someone else offers a better price before contracts have been exchanged. Being gazumped is obviously annoying, but it can also be very inconvenient and a waste of your time because all the work that you had done so far in order to acquire a property would need to be repeated for another property.

What finance options do I have with regards to buying at auction?

When buying at auction there are many different options for funding the purchase. Buyers may use savings to fund the entire purchase, or may raise enough funds to cover their maximum bid from refinancing existing property or other assets, before bidding at an auction.

If the property being purchased at auction is required as collateral then taking out a bridging loan is a popular option. Bridging loans can be put in place quickly, which makes them useful for auction purchases due to the 28 days, or even less, in which completion needs to take place.

For properties that are in a poor state of repair bridging loans are useful because their flexible lending criteria can facilitate buying properties that are in need of major works.

In addition if just planning to buy the property for the short term then bridging loans can often provide the best finance option.

When buying property at auction that is intended to be rented out, then being able to fund the purchase through a buy to let mortgage is very advantageous. In order to proceed with this option a quick buy to let mortgage facility, together with a speedy completion is required, so that the 28 days agreed in the contract is achieved. Taking out a bridging loan to facilitate a quick completion to later refinance with a buy to let mortgage is more costly due to the extra bridging loan costs, than opting to finance the purchase using a buy to let mortgage in the first place.

Buy to let mortgages will probably not be an option if the property to be bid on is in need of repairs or renovation.

Contact us to find out what finance options are available to you so you know what is achievable before looking at and especially before bidding at a property auction.

How do I find out where property auctions are taking place?

It is not the simplest of tasks finding out where property auctions are being held because they are not usually advertised to the general public, being more specifically aimed at professional property buyers. Local estate agents in the area that you would like to buy in will normally have information about local auctions. Some larger property auction houses may auction properties throughout the whole of the UK, so it may be worth looking at their catalogues.

A property auction will normally occur 3 to 4 weeks after the property catalogue has been made available.

How should I select a property to bid on at auction?

People buy property at auction in order to either live in themselves, to keep as an investment property to rent it out, to develop or improve and then rent it out or sell it for a profit, or to just simply flip it, meaning sell it on for a quick profit.

Decide what sort of property you are looking for, in what area and what you are planning to do with it. Then look for auction houses in your chosen area who sell the type of property that you are looking for. Register with these auction houses and they will send you their catalogues which will contain details of properties that they will be auctioning in the future.

The catalogues contain guide prices which can serve as an indication to the price that the seller is looking to achieve.

If you are looking for a property to live in yourself then select properties that come with vacant possession. If there is a tenant in place they may have certain rights which could mean that you are unable to move them on. Be very careful if buying a property with a sitting tenant who has the right to stay there until they die. This can drastically reduce the value of the property and also usually makes them very difficult to raise finance against.

Once you have identified a property or properties that you are interested in it is a good idea to let the auction house dealing with the sale know about it. This way you can be kept informed about any new information regarding the property that may become available, including being notified if the property is withdrawn from the auction, in the event that it is sold before hand or for some other reason.

Is it important to view properties before bidding on them?

Before bidding on any property at an auction it is very important that you take the time to go and view the property first. Once you have viewed the property you may decide not to bid on it, or you may want to adjust the price that you are willing to pay for the property.

Viewing information will be detailed in the auction catalogue, and quite often group viewings are arranged for all interested parties. This can be interesting because it will give you an idea about how much interest there is in the property.

Should I ask my solicitor to do all the normal searches on a property before I bid on it at auction?

No need to do that because auction houses will have from a property seller’s solicitor copies of the legal mobclr papers that you will require. They usually charge a fee of between £10 and £20 to provide a copy of the legal pack, which will include applicable items such as copies of title deeds, leases, planning permissions, office copy entries and other relevant information.

What is a reserve price at a property auction?

A property seller will set a reserve price for their property prior to the start of the auction. It is not normal for buyers to be given information as to what the reserve price is. Properties will not be sold unless the reserve price is met, however if the highest bid is close to the reserve price the auctioneer will usually suggest that the highest bidder comes and talks to them. This is in order to see if either the bidder or seller can come to a compromise and agree a sale.

What are special conditions?

It is important to know about any special conditions before bidding at a property auction. Special conditions are not always printed in the sale catalogue. Therefore it is important to ask the auctioneer or the seller’s solicitor for information about any special conditions relating to any lot that you are planning to bid on.

Do I need to arrange a survey before the auction for any property I would like to bid on?

You don’t have to, but it is a good idea to organise a survey and even a structural surveyor’s report before bidding at an auction. Neither of these options are without some cost, but if there are potential problems with a property it can often save you a lot of money to know about them before buying.

Can I make a bid before the start of an auction?

Yes you can and if your offer exceeds the amount the seller thinks that they will obtain at auction they may well agree to sell to you. In these circumstances you will need to sign the auction contract before the start of the auction, and you will be bound by the same contractual obligations as if your bid was the winning one made at auction.

Do I have to attend an auction in person in order to bid?

No you do not have to attend an auction in order to bid. There are other ways that you can bid at a property auction. You can make an arrangement with the auctioneer to:

  1. Bid by telephone – in which case on the day of the auction a representative on behalf of the auctioneer will have telephone contact with you. They will relay to you other bids being made and also relay your bids to the auctioneer.
  2. Bid by proxy – which involves registering your maximum bid in writing to the auctioneer. Then the auctioneer will arrange for a representative to bid on your behalf during the auction. If you win the auction it can be for any amount up to your maximum bid.
  3. Ask a friend or solicitor to attend and bid on your behalf – in which case in addition to making the arrangement with the auctioneer, they will also need a letter confirming that they are bidding as your representative.

How do I bid at a property auction?

Before bidding at auction make sure you have funds in place, have done your checks on the property you intend to bid for and know what your maximum bid is going to be. Discipline yourself not to exceed your maximum bid and if you have any concerns about the property or unanswered questions it is best not to bid as you may regret it afterwards.

Arrive in good time for the auction so that you are there to hear the auctioneer’s opening comments and in particular any last minute items with regards to the lot or lots that you are interested in. If you do not like any of the additional comments, or are unsure about them it is probably best not to bid.

Before bidding starts on each lot the full address will be read out, or at least the lot number. Make sure that you bid on the correct lot!

To make a bid clearly raise your hand, auction card or catalogue so that the auctioneer can see it. If you wish to make a bid that is different to what the auctioneer has called simply call it out. The auctioneer will decide whether or not to accept it!

Once the hammer goes down the property lot will be sold to the highest bidder, provided that it has reached the reserve price.

What happens after you make a winning bid at a property auction?

If you make the winning bid at a property auction and your bid is above the reserve price, then you have just entered into a legal contract with the seller of the property. You will need to supply your name and contact information (or that of the buyer’s if you are bidding on behalf of someone else), together with details of the solicitor who will be dealing with the purchase. You will also need to pay a deposit on that day, which is usually 10% of your winning bid. In some auctions you may need to pay the auctioneer’s minimum deposit, so it is best to check out the deposit requirements before making any bids.

Once you have supplied the information required and paid the deposit a contract will be prepared which you must sign before leaving the auction room, and ensure that your solicitor also receives a copy. Completion of the purchase will then need to be achieved within 28 days, although for some lots there may be special conditions imposed which could require a quicker completion.

After making a winning bid and signing contracts, you are then responsible for insuring the property, so it is very important to quickly arrange property insurance.

Can I buy a property that has not reached its reserve at auction?

If you are interested in a property that hasn’t reached its reserve you may still be able to do a deal with the property seller. Before leaving the auction, or as soon as possible after leaving, register your interest and highest bid with the auctioneer. The auctioneer will inform the seller about your interest together with your bid, and let you know if a sale is possible.

Contact us for any help in buying property at auctions.

 

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