Buying a property through auction offers buyers an alternative means of investing in property compared with the conventional process of purchasing a home, with many who buy at auction picking up a great bargain in the process. While it can be a rewarding experience, there are risks involved and many of the properties available for auction will require a seasoned hand to transform them into a profitable asset. In this guide, we’re taking a deeper dive into the world of property auctions and looking at the pros and cons for investors.
What kind of properties end up available for auction?
Any property can be sold at an auction, though some types are more common and popular than others. If a home is listed on the sales market and generates plenty of demand, there isn’t much need for an auction as potential buyers will eagerly make offers.
Consequently, the types of homes that end up at property auctions may have previously struggled to find a buyer. However, some properties just sell better at auction than they do via more traditional means, like with an estate agent.
- Properties with potential for improvement, development or general modernisation.
- Niche property types.
- Non-standard construction properties with features like concrete walls or steel frames.
- Properties in poor condition.
- Properties with structural issues.
- Short-lease properties.
- Ex-local authority homes, especially high-rise flats that struggle to obtain a mortgage.
- Probate/inherited properties.
- Tenanted properties.
- Commercial and mixed-use properties.
- Unmortgageable properties only available to cash buyers.
- Land and building plots.
Many of the above properties are usually placed on the sales market via an estate agent but may be moved to auction if they’re slow to produce offers. Some, however, go straight to auction – especially if a mortgage lender deems them unmortgageable.
How much does it cost compared with a conventional sale?
Auctions do tend to offer investors a chance to snag a bargain, especially if the property is a ‘fixer-upper’. But that doesn’t mean you’ll definitely get a good deal at auction, and there are many variables to consider.
The type of property, location and starting price may all play a role in demand – much like a house on sale via an estate agent. Auctions can also become highly competitive, and it’s not unheard of for investors to go over their initial budget as they get caught up in the competitive drama of bidding to win a house.
That’s why your budget is so important. Think about the maximum price you’re willing to pay for the home, especially if it needs renovation. You’ll need to keep some money aside to make the changes needed to bring it up to scratch. Having a clear idea about your budget limit and sticking to it religiously can help you get a better deal and ensure you don’t overpay for a property.
What are the potential risks?
Though the potential financial rewards of buying an investment property at auction are significant, the corresponding risk is also much greater than with a conventional purchase. Here are some of the key issues to contend with when buying at auction.
You can get outbid
If someone outbids you, then you’ll have lost time and money viewing the property and conducting the survey, two things highly recommended before buying at auction. The offer process is more of a gamble with property auctions.
You’ll need finances in place beforehand
As soon as you win the property via auction, you’ll need to pay the deposit for the house. After that, you usually have 29 days before completion. For many, this is actually a positive thing (see below), but if your finances aren’t in place or you’re still waiting for the mortgage to come through, you could find yourself running into problems.
Auctions can be a gamble
Some auctions can unearth a gem for sale; others are mostly filled with commercial properties or houses so far gone that they’ll cost an arm and a leg to restore. Most properties go on sale at auction because they don’t sell on the conventional market, and you should bear that in mind before participating.
What are the potential rewards?
As with any higher risk investment endeavour, the potential pay-off is generally much greater than the safer, conventional alternative. Furthermore, for those with the right financing in place, buying at auction offers a far more streamlined process for acquiring new investment assets than a traditional sale.
You could find a great deal
Auctions do throw up the possibility of getting a house for a great deal, especially if it needs work or has restrictions against it that make it hard to sell conventionally. You should research the properties up for auction beforehand, arrange a viewing if possible and conduct a survey.
The sales process is faster
Buying a home can often take anywhere between three and six months. With a property auction, however, you can expect a faster process and completion within 28 days of the auction. It’s a much quicker way to buy a property.
Sales are less likely to fall through
There’s no need to worry about a gazumping if you win a property auction or anything falling through at the last minute. Unlike the conventional sales market, where a deal can fall through at any time up until completion, a property auction offers a more robust way to invest in bricks and mortar. Plus, you can see other bids in real-time rather than having to take the estate agent's word for it.
Where can you buy properties at auction in London?
There are plenty of ways to buy properties at an auction in London. You can start on a property portal like Rightmove and search for homes listed at auction. Alternatively, Auction House has many properties for sale via auction.
Your best bet involves doing a handy Google search for ‘London property auctions’ to see the best options available. Overall, there are 13 residential London property auctioneers and two commercial auctioneers that regularly hold auctions at London locations, usually between six and ten times per year. It’s also possible to take part in online auctions, which have increased in popularity since the onset of the pandemic.
Summary: buying at auction
Buying a property at auction can be a smart way to secure your next buy-to-let investment, as long as you do the research beforehand and understand how they work. As with any kind of investment, there’s risk and reward with property auctions. With due diligence, however, you can mitigate the risks and increase your chances of finding an investment property at a good price.
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