The majority of homes bought and sold in Scotland are done via the traditional means of an estate agent. However every year a minority of homes sell through auction. Check out opascotland.com for example, and you'll see around 50 properties listed every month. But why have their sellers chosen this route, and could it be right for you? And what about the buyers, what makes a buyer decide to buy at auction rather than through an estate agent? Are there any additional risks or specific advantages you need to be aware of?
Property auctions in a nutshell
Potential buyers interested in a property submit bids during the auction. The highest bid secures the property and the winning bidder is legally bound to complete the purchase.
Why sell at auction?
The most frequent reasons why a property comes up for auction are:
1. Bankruptcy or pressing debts that the owner needs to clear.
2. Repossession by a mortgage lender.
3. Speed - the seller needs to sell quickly, perhaps in order to facilitate a relocation.
4. Probate - the owner has died, the property is now empty and the executor is selling the property on behalf of the estate.
5. It's an unusual, quirky or an otherwise atypical property for the area.
Why buy at auction?
The most commonly cited reasons are:
1. Speed - the transaction is speedier than buying through an estate agent as it must be completed within a defined period of time.
2. Transparency - bidders can see the competition and know the bids that they're up against, unlike the sealed bid system that's so common in Scotland.
3. Saving money - while bargain prices are absolutely not a given, the sold property prices achieved via auction tend to be lower than those reached through estate agents.
4. No risk of gazumping - although to be fair, the use of solicitor-estate agents makes gazumping a much lower risk for buyers in Scotland than it is for those buying south of the border in England or Wales.
5. Practicality - especially for investors looking to acquire more properties with the minimum of effort.
When do property auctions take place?
Auction houses hold property auctions throughout the year, frequently on a monthly basis. Registering with individual auction houses is the best way to keep track of them. Buyers and sellers new to auctions may find it helpful to attend one or two before committing themselves to this route. Some auction houses only sell properties in Scotland; others sell across the UK.
Reserve prices, guide prices and property listings
Reputable auction houses will assess properties carefully prior to sale, value them and, in conjunction with the seller, set a reserve price (which may or may not have any relation to current local sold property prices). The reserve price is the lowest price at which the seller is prepared to sell the property. Reserve prices are private and are not shared with bidders.
The auction house will also put together the property listing. This should contain a full description of the property, photographs of it, a floor plan, and all required legal information. It usually also includes a guide price. This is usually somewhat higher than the reserve price but, of course, will not necessarily represent the final selling price as this will be dependent on the number and determination of interested bidders.
Due diligence
Although the auction house does the legwork in terms of putting together the property pack, it's very much a would-be buyer's responsibility to ensure they do their own due diligence. While this means reading the property pack with care, it is likely also to mean contacting the auctioneer to arrange a property viewing, ensuring that a surveyor or other building professional has carried out any necessary checks, and getting a mortgage or other finance in place. Above all, it's important to remember that auction properties are sold on an "as seen" basis. Once the hammer comes down, the winning bidder is legally committed to the purchase even if that purchase turns out to be a damp, subsiding, uninsurable property in the middle of a soon-to-be-built roundabout.
Online auctions
Nowadays property auctions are not just a roomful of interested bidders and an auctioneer. With many auction houses it's long been possible for a bidder or their proxy to make bids over the phone. However in recent years, and especially the last two, online auctions have really taken off.
Anyone who wants to participate in an online auction as a potential bidder will need to register with the auction house and have that registration verified. They'll then need to register for each auction they wish to attend. As with an in-person auction, the registration process will include providing proof of ID. An online auction house may also require a would-be bidder to provide a pre-authorisation instruction on a debit or credit card prior to the auction. This is automatically cancelled in the absence of a winning bid.
Most online auctions work a little like Ebay. This means that there's a set period of time during which bids can be made. Participants are free to make bids, usually in increments of £1000, and will be notified if they are the highest bidder, or if someone is outbidding them. Identifying details of other bidders are kept private both during and after the auction. Again, like Ebay, most online auctions allow bidders to set their maximum bid and then sit back to allow the auction software to make bids on their behalf. This approach has the obvious advantage of reducing the chance of a bidder being tempted to bid beyond their comfortable maximum threshold. Maximum bids cannot be viewed by anyone other than the bidder themselves.
Once bidding has ended, the auction house will immediately exchange contracts of behalf of the seller and the winning bidder. Payment of a deposit, typically of 10 per cent, will usually be required within a couple of days.
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