What does a first-time buyer need to know about buying a house at auction? There are two important phases - before the auction, and on the day.
The first and most important thing to do is to get loan approval from your financial institution for the specific property you'll be bidding for. On the fall of the hammer in the auction room, an unconditional contract exists which obliges the successful bidder to pay over 10 per cent of the price bid immediately. If you can't then complete the deal, your deposit will be forfeit, and the vendor could pursue you for the balance.
In getting that finance, you must assume that the property will sell for between 10 and 20 per cent over the guide price, says Simon Ensor of Sherry FitzGerald: therefore, if the agent is quoting a guide of £140,000, the anticipated reserve price (that is, the price below which the vendor will not sell) will be a minimum of £154,000. Guide prices, of course, have been a contentious issue in recent years, with many properties selling for well over the guide price, due to the rising market. The IAVI (Irish Auctioneers and Valuers Institute) says that the guide should be within 10 per cent of the anticipated reserve.
However, during an auction campaign selling agents are likely to raise the guide price in line with the interest in the property. The reserve is generally set by the vendors and the auctioneer immediately before the auction and potential bidders may never know exactly what the figure is. However, the point at which the auctioneer declares a house "on the market" in the auction room is usually at or above the reserve price.
This means that you could go ahead and get a survey done, on the basis of, for example, the £140,000 guide quoted - only to find that the goal posts have changed. At any rate, you should certainly check with the estate agent what the up-to-date guide is just before you go the expense of the survey.
This brings us to the second most important thing you should do before auction - and that is getting the survey done, whether by an auctioneer, builder, or surveyor. Fees vary, ranging from £100 to around £250 plus VAT. But no one else is going to tell you if there are serious structural problems with the house; the agent is acting on behalf of the vendor, after all. Even though the brochure might say things like "needs major refurbishment", only an expert can say for sure if there are non-visible problems like dry rot. Don't wait until the last minute to get the job done - architects, surveyors and builders are incredibly busy in this frantic market. It is also worth checking with the planning office for any major development plans that might affect the property, or for any neighbours' expansion plans.
Before the auction, you should also get your solicitor to check out the "conditions of sale" of the property: this can cover everything from the title, to whether or not there is a right of way on the property, an extension built without planning permission, or whether the Aga is included in the sale. It may also specify things like a long closing. If you want to query, or change anything in the conditions, you should do this before the auction.
SHORTLY before auction day, you can try and gauge how many people are interested in "your" house by asking the agent how many people have asked to see the conditions of sale. Bigger agencies will give interested parties a reasonably accurate idea of the level of interest in a house, says Ensor. Playing it too cool, of course, means that you could lose the house if someone puts in a strong bid before auction - a move open to you, too. You should probably let the selling agent know if you are interested in the property, because he/she should let you know if a pre-auction bid is being seriously considered - although it's wise to restrain yourself from looking overeager by visiting it every day, measuring it for carpets and so on.
It is also a good idea to go to one or two auctions before your auction day, especially those conducted by the agent who will be in charge of the auction of the house you'll be bidding for. This will give you a feel for what happens, especially if you've never been to an auction before: an auction can take as little as five minutes, and usually, no more than 20, to complete.
Before finally deciding to bid at auction, you should fix on the maximum price you are willing to pay for the property. A useful exercise, says Ensor, is to write down the guide price, and go up in units of £5,000 until you get to a figure you know you really have to stop at. On the day itself, both Ensor and Cooke recommend that a first-time buyer should get an estate agent or a solicitor to bid for them. Indeed, Cooke says it is probably best to get an expert to hold your hand right from the beginning.
In the auction room, you can always change your instructions to your solicitor/agent: the point is, says Cooke, that he/she will turn to you and say "are you sure" when you tell them to bid another £1,000/£5,000, which may just stop you going over the brink. "He or she will act as an emotional buffer to stop you from succumbing to auction fever - it's very tempting to stretch beyond your limits."
Then the big moment arrives - the five minutes to half an hour that could change your life. There is much mythology and lore about how best you - or the person acting on your behalf - should conduct themselves at the auction. But is is as well to bear Simon Ensor's advice in mind - that in the end of the day, the person with the most money is the one most likely to get the house.
Where do you sit? When should you bid? These are all questions that torment someone who has never bid before at auction. There are games and tactics of all sorts. For example, says Ensor, someone who comes in with a very strong bid very close to the guide price right at the beginning, when everybody else is maintaining a stony silence, might scare some other bidders. But there are those bidders who let everyone else make the running, then move in languidly when it looks as if everything's over, and up the ante dramatically, scaring off the opposition late in the auction.
Some people try the trick of creating anxiety by asking questions about extensions built without planning permission, or even irrelevant questions, says Ensor, like asking the agent "what are you doing about the dry rot?" But your solicitor and surveyor should, of course, have sorted all this out before the auction, and you shouldn't let it throw you off. There are also games people play to wrongfoot the auctioneer himself - perhaps to put themselves in a strong position, for example, if a property is withdrawn at auction.
If the property is withdrawn, the person with the highest bid in is immediately invited to negotiate after auction to buy it. But if you are the underbidder, and are still interested, you should let the agent know so that if the highest bidder doesn't buy it, the agent can contact you.
Be warned - as the article above shows, the emotional cost of trying to buy a house at auction can be the highest price you'll pay.
