The Traditional Method of Auction | Everything Buyer's Need to Know

More and more frequently, we're seeing properties being sold via auction on properties like Rightmove, Zump, and Zoopla. Buying a property through an auction used to be reserved only for cash buyers, investors, and property moguls. Now, auction is becoming an increasingly popular method to purchase a property.Before we start, it's important to note that the information below is relevant only to the Traditional Method of Auction, not the Modern Method.

Traditional Method of Auction Vs. Standard Purchase

The Traditional Method of Auction is a completely different method of buying a property to the standard purchase process. With a standard purchase, a seller enlists the help of an estate agent to market the property and listing it on sites like Zoopla, On the Market, and Rightmove. The estate agent will list the property with a recommended sale price, buyers then arrange viewings, and the property will remain on the market until the seller accepts a buyer's offer. The buyer and seller then instruct a solicitor to progress the transaction, perform checks on the contract and property, exchange contracts, and complete on the purchase.The traditional method of auctions works differently:

1. The seller registers their property to be sold with an auction house
2. The property is listed on property sites with a minimum price. This is the price at which bidding will begin at, the sale price is likely to be much higher
3. Prospective buyers arrange to view the property as many times as they like, often hiring a surveyor to assess the property at the viewing
4. The buyer should instruct a solicitor to review the Auction Pack provided by the auction house and perform any additional searches or checks
5. All prospective buyers then attend the same auction and bid for the property at the same time
6. The property is sold to the highest bidder, and contracts are exchanged once the gavel falls meaning that all parties are legally bound to complete on the transaction

Here's the process of buying a property through the traditional method of auction in more detail:

How the Traditional Auction Process Works

Pre-Auction

The Seller's Side

The seller has the property valued and the property is listed on property sides with a minimum bid price. This bid price is usually particularly low to attract buyers, but could also be due to the fact that a lot of work needs to be done to the property. The seller and auction house will build the auction pack. The auction pack contains largely the same information that a Draft Contract Pack would contain in a standard transaction; TA6 Form, TA10 Form, Guarantees and Warranties, Certificates of work etc.

The Buyer's Side

The seller is not legally required to perform Property Searches, so if the auction pack does not include property searches, your solicitor will recommend that you perform property searches. If you are buying the property with a mortgage, property searches will be required by your lender in order to obtain a mortgage on the property.Before the auction, it’s essential that you and preferably your solicitor review the auction pack. The auction pack will include the property title documentation, a TA6 form, TA10, TA7 (if a leasehold), and certificates of works completed on the property.If you are buying the auction property with a mortgage, your lender will review this pack and deem whether the property is “mortgageable”. This means the lender is confirming whether they are prepared to take the risk of lending on the property. If searches haven’t been provided in the pack, your solicitor will recommend performing property searches before the auction takes place.Cost of Auction Pack Review (Buying with Mortgage)£1,250 for file review£250.00 for completion of matterCost of Auction Pack Review (Buying with cash)£1,500 for whole of matterWe recommend with all auction properties that you have a survey taken out on the property before the auction. Once the gavel falls, you will be legally bound to complete on the purchase of the property.There are three main types of survey:

• Condition Report/Valuation
• Homebuyer Report
• Structural Survey

Condition Report/Valuation

The Condition Report/Valuation is the most basic form of survey and cost anywhere between £200-£400 depending on provider. If the surveyor spots any additional serious issues with the property, they will recommend a secondary additional check.We recommend obtaining a more in depth survey for all auction properties, regardless of how it looks on your viewing.

Homebuyer Report

This survey is more detailed and checks the majority of a building. A homebuyer report usually costs anywhere between £400 - £600. The report will cover a list of actions you may need to take after purchasing such as mould, replacing boilers, or replacing windows.

Structural Survey

We recommend this level of survey for all auction properties. Whilst they are the most expensive, typically up to £1,000, they are also the most detailed level of survey and will give you a full view of the property’s integrity. The structural survey will give you a full view of the property’s integrity, and any major issues that are hiding such as any issues with the roof, foundations, all the way down to the smaller issues.

The Auction Day

The auction house will guide you as to whether the auction is taking place online or in person. The auctioneer will open the proceedings and introduce the property. All prospective buyers will be in attendance of the auction and start placing their bids. The auction will continue until no higher bids are submitted. As soon as the gavel falls, the highest bidder is bound to complete on the purchase, no matter what issues they find with the property after purchasing.The winning bidder will immediately be required to pay the property deposit, usually 5-10% of the property sale value. For example, if the property is listed on Rightmove for £120,000 but the winning bid was £210,000 then the deposit would be 5-10% of £210,000.

Post Auction Day

All parties will be party to a legally binding contract. Typically this will include a completion timeframe (usually 28 days). Exchange of Contracts is the point at which all parties become legally bound to the purchase (in a traditional auction, when the gavel falls), completion is when ownership officially transfers from one party to another.

Mortgage

If you are buying the property with a mortgage, once the gavel falls, you can let your lender know that you will be proceeding with the formal mortgage application.

Insurance

Once the gavel falls, we highly recommend taking out insurance on the property. Your solicitor will be able to help you find the appropriate insurance for your circumstances.

Be Smart About Auctions

When it comes to auctions, it's important to keep your wits about you and make sure you're fully informed about the process. Here are some hints and tips for having a happy auction.

1. Plan ahead financially. Before you go to the auction, have a budget in mind for how much you are willing to spend on the property. Make sure you also consider the deposit costs (prepare for 10% of the sale price) and any admin fees (typically £200-£300).
2. Get a survey. If a property isn't being sold through the standard sake process and is instead being listed for an auction, there's usually a reason. This could be something as simple as the seller having inherited the property and wanting a speedy sale. However, the property could also be 'unmortgagable' which means that no lender will be willing to lend against the property due to the state that the property is in. Additionally, there could be a considerable amount of works that need to be taken out on the property which will incur additional fees further down the line. Getting a survey means you can have a full picture of the integrity of the property and know exactly what you're walking into.
3. There's no turning back. Unlike a standard sale, it's incredibly difficult to back out of an auction purchase, and if you do, you will lose your deposit and any associated fees. Once the gavel falls, everyone's bound to the sale. If the seller pulls out of the sale, then you will get your full deposit back.
4. Keep a cool head. It's easy to get caught up in the excitement of an auction. It's easy to start pushing your budget further and further until suddenly you can't afford the property anymore and you're in hot water. Set a maximum budget and stick to it. Consider leaving the auction entirely once you've been outbid to avoid getting sucked into the process.

Your Auction FAQs

What if I pull out of a traditional auction purchase?

If you want to pull out of an auction property purchase, the impacts carry on the type of auction you made the purchase in. In the traditional method, you exchange contracts when the hammer falls. If you pull out of the purchase at any time, you’ll lose your 10% deposit and may have to pay administration fees. If the seller pulls out of the sale in a traditional auction, you will be able to reclaim your 10% deposit.

How much are the legal fees for a traditional auction purchase?

Cost of Auction Pack Review (Buying with Mortgage)£1,250 for file review£250.00 for completion of matterCost of Auction Pack Review (Buying with cash)£1,500 for whole of matter

What are the pros of buying a property through the traditional method of auction?

• You have full view of what other people are bidding so you are less likely to get gazumped
• The purchase process is much quicker than a standard purchase
• Banks and building societies are increasingly more willing to lend for an auction purchase than they used to be
• Everyone bids at the same time, so you won’t be rushed into making an offer

What are the cons of buying a property through the traditional method of auction?

• You can fall in love with a property, but you may not end up holding the winning bid
• There are significant upfront costs when you purchase the property
• It’s much harder to back out of an auction property than a standard purchase

Can I buy an auction property with a mortgage?

Yes, but this will vary from property to property. Your lender will need to confirm that they’re prepared to lend on the property.It’s unlikely that a lender will accept a 5% mortgage/95% Loan to Value, but this will vary from lender to lender.