How does buying a house at auction work?

Traditional and modern method auctions work very differently, and the difference decides when you are committed. What to do before bidding, what the legal pack contains, and why auction finance is the usual failure point.

Difficulty: advanced
Time: 15 min
Read: 5 min
Safety: warning

Short answer

In a traditional auction, the hammer falling is exchange of contracts: you pay a deposit there and then and complete within a short period set in the conditions, commonly around twenty-eight days. In the modern method, you pay a non-refundable reservation fee and get a longer exclusivity period to exchange and complete. Read the legal pack and get your survey and your finance done before the auction, because afterwards there is no route back.

Auction is the one route into property where the ordinary protections of the process are reversed. Normally you investigate and then commit; at auction you commit and then live with whatever the investigation would have found. Properties reach auction for a reason — a short lease, a title defect, a structural problem, a probate sale needing speed — and the discount usually reflects the risk rather than a bargain nobody noticed.

Safety

In a traditional auction the fall of the hammer forms a binding contract. You pay a deposit immediately and must complete, usually within a short fixed period, whatever the survey or the searches would have said. Do all your legal and survey work, and have your finance in place, before you bid — not after.

Step by step

Establish which kind of auction it is.Traditional auction: the hammer forms the contract. Modern method, also called conditional auction: you pay a reservation fee for an exclusivity period, usually of some weeks, in which to exchange and complete. The commitment and the risk are quite different, so ask before you register.
Download the legal pack and have a solicitor read it.Title, searches, leases, special conditions, and anything the seller is disclosing. The special conditions are where the traps are: liability for the seller's costs, an obligation to pay outstanding service charges, or a shortened completion period. This is money well spent on a property you may not buy.
Get a survey before the auction.Auction lots are often vacant, neglected, or of non-standard construction. A survey afterwards is worthless because you are already committed. Where access is refused, treat that as information about the risk.
Sort finance before you register to bid.A standard mortgage generally cannot complete in the traditional auction timescale, and many auction lots are unmortgageable — no kitchen or bathroom, a very short lease, structural movement. Cash, a bridging facility or a specialist auction lender are the realistic routes, and bridging is expensive.
Understand the guide price and the reserve.The guide price is an indication and is not the reserve. The reserve is the confidential minimum the seller will accept, and it can be above the guide. A guide price is a marketing figure, not a valuation.
Budget for the extras.Buyer's premium or administration fee to the auctioneer, the seller's legal costs where the special conditions impose them, search fees, and the land tax. These can add a significant amount over the hammer price and are often not obvious until the legal pack is read.
Set a maximum and stay under it.Write it down before the auction with the extras deducted. Auction rooms and live online auctions are designed to make you bid one more increment, and the discipline has to be decided in advance.
Know what happens the moment the hammer falls.In a traditional auction you sign the memorandum of sale and pay the deposit — commonly ten per cent, subject to a minimum — immediately. Completion follows within the period in the conditions. Failing to complete means losing the deposit and being liable for the seller's losses.
Insure from the moment you are committed.Risk normally passes at exchange, which at a traditional auction is the fall of the hammer. Have cover ready to start that day.

Tips

Attend an auction as an observer before you bid at one. The pace is the thing people are unprepared for.
Ask the auctioneer directly whether there are addenda and whether the seller will consider a pre-auction offer. Both answers are useful and free.
Add the buyer's premium, the seller's costs and the land tax to your maximum bid on paper before the day.

Common mistakes

Bidding without a solicitor having read the legal pack — The special conditions routinely shift costs and obligations onto the buyer, and they are binding from the fall of the hammer with no negotiation available.
Assuming the guide price is close to the sale price — Guide prices are set to attract interest. The reserve is confidential and can be higher, and competitive lots regularly sell well above the guide.

If it doesn't work

You won a lot and your mortgage will not complete in time

Cause: Standard mortgage timescales do not fit a traditional auction — Fix: Speak to a bridging lender and to your solicitor immediately. Failing to complete forfeits the deposit and exposes you to the seller's losses, so short-term finance is usually the cheaper of two bad outcomes.

The legal pack was updated the day before the auction

Cause: Addenda are common and are binding on the buyer — Fix: Check for addenda on the morning of the auction and have your solicitor read them. A late special condition can change the deal materially.

The property is unmortgageable

Cause: No kitchen or bathroom, short lease, or non-standard construction — Fix: Establish this before bidding by asking a broker, not after. Plan to buy with cash or bridging and to refinance once the property meets lending criteria.

Questions people ask

Can I change my mind after a winning bid?

In a traditional auction, no. You have exchanged contracts. In a modern method auction, withdrawing means losing the reservation fee, which is generally non-refundable and can be substantial.

Can I buy a lot before the auction?

Often, yes. Sellers frequently accept pre-auction offers. The contract terms are the auction terms, so you must be ready to exchange immediately — all the same preparation applies.

Are auction properties cheaper?

Sometimes, and the discount usually pays for a defect, a legal problem or a need for speed. The realistic way to think about it is that you are buying without the usual protections and being paid something for that.

Does the modern method count as an auction?

It is marketed as one but works more like a reservation agreement with a deadline. The fee is non-refundable and is usually paid by the buyer on top of the price. Read what triggers forfeiture before you bid.