Property News

Why choose an auction?

The Scottish property sales’ system is often lauded for its superiority to the system operating in England and Wales. In particular, it wins fans for:

- A drastically reduced risk of gazumping due (1) to the practice of removing properties from the market as soon as an offer is accepted and (2) to the solicitor’s obligation to refuse to act for a seller who accepts a second or subsequent offer in any circumstances other than where the earlier offer fell through
- A requirement for sellers to provide information up-front
- A practice whereby most properties are advertised as either “offers over” or at a fixed price
- Legally binding “missives”
- A timescale to buy a property that averages at 4 to 8 weeks in Scotland compared to 8 to 12 weeks in England and Wales (pre-Covid)

Given these factors, it’s understandable if prospective buyers and sellers question what additional advantages choosing to go through a property auction could offer.

In short, buying or selling at auction frequently offers few if any advantages. However, from a would-be buyer’s perspective, it’s worth bearing the following points in mind:
- Sold property prices at auctions are usually considerably lower than anything purchased through a selling agent
- The transparency of the bidding process when compared to the usual sealed bids taken by selling agents means there’s little risk of making a higher than necessary bid
- Auction sales usually complete even faster than properties sold through selling agents

For would-be sellers, a property auction can be a great option for properties that:

- Are unusual, quirky or, for some reason, hard to value
- Are likely to attract a great deal of interest and thus have the potential to generate higher sold property prices than if they were sold through an agent
- Require extensive renovation, especially if this means the property is unmortgageable
- Have been empty for some time, for example, following the owner’s death
- Need selling very quickly in order to clear debts or avoid bankruptcy

On the flip side, a prospective buyer should bear in mind that, although their headline purchase price may be low, auction properties often require significant cash investment for renovation and decoration. Obviously, this can also be time-consuming, and so affect ongoing plans for the property. Meanwhile, prospective sellers should not bank on multiple interested buyers entering into a bidding war and driving up the sale price, and so should be very careful to set an appropriate reserve price.

If you’re a potential buyer and are still tempted by the prospect of finding your next property at an auction, you should:

- Ensure your finances are in place. This may mean waiting until a previous property is sold or until you have a mortgage offer. Of course, many auction buyers are cash purchasers, which clearly allows for a degree of flexibility and responsiveness that those reliant on mortgages do not have. More immediately, anyone needing a mortgage may have to work harder to find the right lender and deal, as many institutions are wary of lending on auction properties, even in Scotland where bidders benefit from a very comprehensive seller’s pack of information. As always, a good mortgage broker can often assist in finding the right mortgage deal.
- Understand that a successful bid is legally binding straight away. It obligates the successful bidder to pay a 10 per cent deposit immediately and the balance within 28 days.
- Arrange to view any property you’re interested in before the auction. You’ll need to contact the auction house to arrange this.
- Consider commissioning a full structural survey if a property seems to need considerable work.
- Get quotes for any work you would need or want to do to the property so you can factor the cost in to your bidding
- Appoint a solicitor and remember that you will need to pay them for pre-auction work, regardless of whether or not you eventually make a successful bid on a property.

How much to bid

In Scotland, you can expect help on this question from your solicitor or, if you have one, your surveyor. Factors to take into consideration include:

- The property’s estimated value
- Quotes for any necessary or desirable work to the property
- Whether or not you’re a cash purchaser—and how far that budget goes
- If you’re not a cash purchaser, the size of your deposit and how much you can borrow via a mortgage

Additionally, you’ll need to remember to account for the intrinsic costs of any purchase (including legal fees and any mortgage arrangement, valuation or survey fees; buildings insurance; Land and Building Transaction Tax; any costs associated with selling a previous property; and any moving costs.)

Can you make an offer before the auction?

Yes. This situation is not uncommon, especially where an interested buyer has fallen head-over-heels for a property. Sometimes a seller might accept the offer as it saves them the time, trouble and expense of going to auction. However, they are under no obligation to do so, and may choose not to if they know or suspect that the property is likely to attract considerable interest at auction.

What to take to an auction

- The auction catalogue
- Proof of identity, such as a valid passport
- Details of your solicitor
- A banker’s draft or cheque for 10 per cent of your top price. You’ll need to arrange this with your bank or building society beforehand. If your bid is successful, and that bid is lower than your top price, you can still use the banker’s draft or cheque and the auction house will refund you the difference.
- Self-control. Getting carried away and going over your top bid is almost never a good idea, not least because your banker’s draft or pre-printed cheque will not be for the right amount.

Buying and selling at auctions during Covid-19

It doesn't need saying that we're living through unusual times. However, the Scottish property market is still moving and those who work within it are adapting to the new (and hopefully temporary) normal—and property auctioneers are no exception. Telephone and online bidding have been commonplace for some years and so auctioneers have found it relatively easy to “go virtual.” Your solicitor and the auction house concerned can provide specific up-to-date advice, but you certainly should not rule out buying at auction just because of the pandemic.

Nethouseprice newsletter

You can sign up to our newsletter and join Nethouseprice’s community of over 160,000 members who get regular property tips, relevant offers and news, click here  http://nethouseprices.com/auth/user-register