A question I am sometimes asked is, “If I go to an auction to buy a property, how do I bid?”
The first starting point before you do anything is to sort out your finance, to sort out your survey and to sort out the legal side. That is a given.
Then when you’ve done your basic Due Diligence, you need to decide the maximum amount you are prepared to bid because there is going to be a price beyond which it makes no sense at all to buy that property.
To do this you need to do your research. You need to research values, you need to know how much the property is worth now and what it’ll be worth when you’ve renovated or converted it; you need to inspect it and take into account its condition and the cost of any works needed; you need to take into account what you are going to do with the property when you have bought it. All of that is going to take work on your part, and can’t be skipped.
A great resource we can all use if it’s a residential property is going to be Rightmove Sold Prices and at some stage, especially if you need finance to buy, you are going to need to take professional advice from a valuer.
When you have all of this information you’ll be in a much better position to decide what your maximum bid should be.
How are you actually going to bid in practice?
Firstly, you can go to the auction itself. You will have to register, there will be a registration desk as you go in, and the auctioneer will want to know who you are, and they will want to know crucially that if you are the successful bidder that you can actually pay the deposit.
You will be required to pay a deposit, usually 10% of the purchase price, and they will want to know how you are going to pay that.
In the old days they would want you to produce a bankers draft. In this day and age they may be a little bit more flexible about it, but you will need to check with the auctioneer before you go how they expect you to make payment, because you will need to have that money ready on the day if you are successful.
There is no point bidding if you can’t then pay your 10%, you won’t get the property.
At the auction itself sometimes it is a good old fashioned put your hands up if you are bidding. A lot of people get worried about what will happen if they start scratching their nose, they might end up buying something they don’t want. Auctioneers are used to that kind of thing, it is not really going to happen. Often nowadays the auctioneer will give you a paddle that has a number on it when you register on the way in, and you hold your paddle up when you are bidding.
Going to the room is only one way of doing it and in this day and age you can make telephone bids. With telephone bidding you would tell the auctioneer that you want to bid by telephone and, when your lot comes up, the auctioneer’s clerk or assistant will call you and they will take your bids over the phone.
If you are actually at an auction, watching this can be slightly frustrating. They may be bidders in the room, and a telephone bid, and the auctioneer is waiting and waiting for the clerk on the phone to get their bidder to come up with a figure. It invariably seems to be the case that the person on the phone thinks they’ve got all day to think about it, which leaves the room getting rather inpatient.
Because we are now into the 21st century a lot of auctioneers show their auctions live on stream (on the internet). If you can get live on the internet you can bid, which is ok if the technology works, but if your Wi-Fi cuts out at the wrong moment and you don’t get the property that could be frustrating. So before you decide not to attend in person, make sure your wifi is up to the job.
Or you can have a proxy bid which is where you tell the auctioneer the maximum amount that you are prepared to bid, and they will bid for you up to that amount.
You will sometimes see when you are at an auction that the auctioneer will say that they have proxy bids on a property, and they will be taking bids even though no one is actually bidding. That is because they are basically bidding in their head for a potential buyer. When they get to the maximum amount the bidder is prepared to pay, and they haven’t bought the property at that stage, then they have to drop out. You might think something underhand is happening but in reality you are bidding against someone who is being represented by the auctioneer.
What is the best way? In my opinion I would go to the room and I would bid myself. I would like to see what is happening. I think it is a great way to educate yourself in property, to see what the market is like, to see what is being bid on, to see what is not selling, and to see the prices property is selling for.
You can learn a lot by attending an auction and just watching as an interested spectator.
Here’s to Successful Property investing
(ex) Chartered Surveyor, author and property investor
PS. By the way, I’ve rewritten and updated my best-selling e-book, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same.
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