Key Post Guide to buying a house at auction

Discussion in 'Mortgages and buying and selling homes' started by Brendan Burgess, Mar 23, 2011.

  1. Brendan Burgess

    Brendan Burgess Founder

    Disclaimer: I am not a solicitor so this is my understanding of the law and practice of auctions.

    Once the auctioneer announces that it is sold, you are in a legally binding contract.
    So you have to be guaranteed that you can complete the sale.

    This is different from a normal purchase where you can pull out at any time before you sign the contracts.

    Before you go to the auction
    Your solicitor must check the title deeds. See here for what might happen if you don't.
    Your lender must have approved you for a mortgage for that particular property.
    You should have a cheque for 10% of the property price available on the day.
    Your engineer should have inspected the property

    Some houses are sold by auction because they are defective
    Don’t discover afterwards that there is serious dry rot or a problem with the title.

    Typical procedure
    The auctioneer will introduce the house and will have the solicitor for the vendor sitting beside him. He will ask if there are any questions. Sometimes you have people in the audience who try to put off other bidders by asking questions about the title e.g. “Do they have planning permission for the driveway or is it an unauthorised development?” or “Has the dry rot in the roof been treated?”

    Let’s say that the AMV is €280k. (This means absolutely nothing by the way)

    When the discussion is done, the auctioneer will say
    “who will start me off at €300k?”
    “Ok, who will start me off at €290k?”
    Long wait.
    The auctioneer will usually then say, “Where we start doesn’t matter, it’s where we finish is what is important. Who will offer me €280k?”

    Eventually, someone will come in at €250k and then others will get involved.
    If the bidding goes high enough, the auctioneer may announce “The property is now on the market and we are selling here today”. After that, the highest bid gets it.

    If they are not happy with the final bid, the auctioneer may announce a short break while he talks to the vendor. He will come back and may announce that the property is on the market or that they will not be selling unless they get a higher offer. Then someone else might bid again.

    When they withdraw the property, they will announce that they will enter into negotiations with the highest bidder for 24 hours. They will then take you into a side room and try to press you to make a higher bid.

    What happens if it does not sell at auction?
    Then it becomes a private treaty sale.

    If you are the highest bidder, the auctioneer will bring you into a room and pressurise you to raise your bid. You may raise the bid a little and the auctioneer will go out and speak to the vendor to see if it's acceptable. The auctioneer will be putting pressure on them to sell as well.

    If you feel under pressure, just leave the building. Under no circumstances should you allow the auctioneer to pressure you into paying a price you don't want.

    If you do agree to buy after the auction, make sure that you and the vendor(s) sign the contract and you leave with a copy of the contract. In this very unusual case, only one of the vendors signeed and they subsequently refused to complete the sale.

    “Reserve Price” The lowest price at which the vendor is prepared to sell the property. In the past, this reserve price was not usually publicly disclosed. However, Allsops and some other auctioneers are now disclosing this figure publicly. This means that if the bidding reaches this price, the property will be sold.

    Allsops quote a "Maximum Reserve Price". The actual reserve may be below this. So if the quoted maximum reserve is €100,000, the actual reserve may be only €90,000. So if you bid €100,000 and it's the highest bid, they will knock the property down to you. But if you bid €90,000 you may get the property, but they are not obliged to sell it to you.

    “Advised Minimum Value”. This has no practical significance at all. You could bid up to and in excess of the AMV and the house may still be withdrawn.

    Sometimes a building surveyor (or a solicitor) will already have looked at the property for another purchaser. They might then give you their report cheaper.

    Try to go to a few auctions before the one you are most interested in.
    Get a feeling for the atmosphere and how they work. The auctioneer is experienced in getting the best price. You are not experienced in dealing with his tricks.

    Don’t go alone. Bring a friend with you to control you and to help you if there are negotiations afterwards.

    It may be a good idea to have someone else again in a different part of the room to see if there is a genuine bidder against you. The auctioneer is legally entitled to take bids off the wall i.e. pretending that there is someone else bidding against you. They have nothing to lose by doing this up to the reserve price.

    Sometimes vendors ask a friend to attend the auction and bid up the house to the reserve price. There is no danger in this backfiring as the auctioneer is under instructions not to sell it below the reserve price.

    Set you maximum price and don’t exceed it.
    Some people are very competitive and they want to show that they can bid more than the other bidder. Don’t get into a battle above your maximum price.

    In general, try not to show your hand.
    Sometimes, the auctioneers are proactive in calling you beforehand to see if you are attending the auction. If you have already sought the title deeds and had an engineer inspect it and you show up at the auction, then they know you are serious. Tell your solicitor and engineer not to tell the auctioneer who they are acting for.

    Don’t open your mouth until the bidding is just about to be finished. Sometimes there are no bids.

    If the property is withdrawn and you are the highest bidder, don’t move above your highest bid in the negotiations afterwards. The auctioneer could well have been taking bids off the wall so you may well get the house for less than you bid.

    I am surprised that there is so little online about this topic. If anyone has any other useful links, let me know.
    Seven Rules for Buying a House at Auction

    An idiot’s guide to buying a house at auction – Good ideas, but be careful, this is an Australian site
  2. Brendan Burgess

    Brendan Burgess Founder

    Frequently Asked Questions

    How much will the solicitor charge me for checking the title deeds?
    This depends on you and your solicitor. They would normally charge you around €300 (?) if you are not successful. If you are successful, it will be included in the overall price you have agreed.

    If you are buying at the Allsops auction, Dillons Solicitors will send you a full report for €250 + VAT.

    Why do some people use a solicitor to bid for them at auction?
    I have no idea. Maybe they don’t trust themselves.

    Should I bring a solicitor with me to an auction to make sure everything is done ok?
    Sometimes the solicitor for the vendor alters the conditions of sale, but this is very rare, and usually the alteration is only minor. They will announce any such changes before the auction begins. It's probably overkill to bring a solicitor with you, but if there is a significant change, you probably should not bid.

    Do I really need to get the house checked out beforehand?
    Yes, by the solicitor and by an engineer.

    Can I put in a bid beforehand?
    You can, but it’s not generally the practice in Ireland.
  3. Horatio

    Horatio Frequent Poster

    Good post Brendan.

    I've seen auctions where the bid increment is say E5000, supposing the bidders get to a point where they wish to bid further but in increments of say E1000, how can a bidder indicate this to the auctioneer?
  4. Brendan Burgess

    Brendan Burgess Founder

    Say it out loud.

    I was bidding at an auction and exactly this happened. Let's say, I bid €295k. The next guy bid €300k. The auctioneer then looked at me and asked €305? I said - "No. €302k" but he declined the bid. I had some banter with him but didn't bid any further. I remember we were well above the guide price anyway at that stage.
  5. Bronte

    Bronte Frequent Poster

    I noticed that in relation to the auction in Dublin in April that some had sitting tenants. This issue should be raised with your solicitor. It is not normal to have sitting tenants when property is being sold. The Law Society does not advise it, can't remember why but it used to be the rule.
  6. mf1

    mf1 Frequent Poster

    It is the norm for a property to be sold with "vacant possession". If there is a sitting tenant, it is a material fact and must be disclosed. If its an investment property and the tenant is in situ with a proper lease and paying market rent, it may well be an attractive proposition for an investor for the tenant to stay. If, however, the tenant is some doddery old dear who has lived there forever and never paid rent, an investor would/should run a mile!

  7. Vanilla

    Vanilla Frequent Poster

    Deposit is not always 10%, check the contract. They may not accept a cheque and you may have to have a facility open to allow you to obtain a bank draft on the day. If all else fails and the contract does state 10%, bring a BD for 10% of the maximum you are going to bid. You can always pay more than the required deposit ( though you are showing your hand, it is too late for them to do anything about it) but not always less unless the Vendor agrees.

    Also, a solicitor will not act for two potential purchasers because of the conflict potential.

    Usually where they don't want the Vendor to know who is bidding on the day. They are often present in the room and not bidding while their solicitor bids on their behalf, instructions having been given in writing before hand about the maximum bid. Solicitors also are used to attending auctions and know more about strategies mentioned above, like watching for bids taken 'off the wall' and never making an opening bid.
  8. dewdrop

    dewdrop Frequent Poster

    In country areas where land is involved solicitors usually do the bidding. after a sale one sees it has been bought by the solicitor in trust.
  9. Macstuff

    Macstuff Frequent Poster

    Totally agree with the advice on going to a few auctions before the one you are interested in buying at. The atmosphere in auctions can be quite charged and a little intimidating, often leading buyers to do things that they normally wouldn't. You will learn loads by just attending and watching.
  10. Complainer

    Complainer Frequent Poster

    Last edited by a moderator: May 22, 2011
    What does 'off the wall' mean in this context?
    Last edited by a moderator: May 22, 2011
  11. ajapale

    ajapale Moderator

    Real Estate Auction Bidding Tips

  12. Brendan Burgess

    Brendan Burgess Founder

  13. Brendan Burgess

    Brendan Burgess Founder

    Good article in today's Irish Times by Pat Igoe a solicitor

    Auctions are tempting for bargain hunters and a graveyard for the unwary

    I hadn't realised that it is perfectly legal for the vendor to bid at the auction.

    He also suggests that the vendors often instruct their solicitor quite late, so there is no time to correct any problems in the title.

    "Do not assume you can negotiate anything in the contract after the auction" I thought that this was obvious, but it's probably worth stressing.
  14. Brendan Burgess

    Brendan Burgess Founder

  15. Bronte

    Bronte Frequent Poster

    Even if it were illegal it would still happen. Vendor would just get a 'friend' to do the bidding. Would have thought it was quite common by vendors and auctioneeers for that matter. Rule is don't trust anyone. Caveat Emptor.
  16. Bronte

    Bronte Frequent Poster

    Looking at it logically, most of the buyers were cash buyers, they go in there knowing there is probably going to be maybe either a structural, planning or title issue. Most will have done a survey so know what the structural issues are, a lot of planning issues can be got around or you can live with them, unauthorised structure but many years have passed etc, for the title problems, really there's very little that cannot be sorted with enough money. If you buy low enough, you can afford to take the risk and pay for the sorting out.

    What I've posted above is not for the faint hearted. You have to know what you are doing.
  17. Brendan Burgess

    Brendan Burgess Founder

    Hi Bronte

    I knew about auctioneers taking bids off the wall, but I had assumed it was sharp practice. I suppose, on reflection, there is nothing wrong with the auctioneer bidding the property up to the reserve. If they are not going to sell it anyway below that price, then no one loses out. Although I suppose it could be deemed to be an unfair reflection on the market. In other words, if they say that a property was withdrawn at €190,000 and the highest genuine bidder was €150,000, then it would be misleading. But you expect to be misled by auctioneers in Ireland.

    That is why I like Allsops practice of disclosing the reserve. We are all tired of the auctioneers' guide prices and AMVs.
  18. Bronte

    Bronte Frequent Poster

    MrMan will be on to you in relation to that first point no doubt. People have to take some personal responsibility and check out what they are buying independantly and make sure they can afford it.

    But yes the disclosed reserve brings a much needed level of transparency as is the way Allsops are going about their business.
  19. Brendan Burgess

    Brendan Burgess Founder

  20. Bronte

    Bronte Frequent Poster

    Last edited: Mar 2, 2012
    As you do I followed the auction yesterday. And some interesting points to the key post.


    This I hadn't noticed before on the Allsops website. It means that there can be very important changes made to what you are purchasing. Such as different title, leasehold versus freehold (doesn't really matter in a long leasehold 999 years but would if say 35 years).

    As an example there was a a property (office) sold for around 112 K with a great rental of 18K (about 20% therefore) but it had a) sitting tenant b) no lease c) tenants were solicitors d) possible non payment of rent e) sitting tenant would not sign that they had no rights (I forget the name of the document) f) issue in relation to payment of management fees so a property not for the faint hearted and no doubt one's own solicitor would advice one to walk away. In this case my guess is the buyer was willing to take the risk as the rent was so good.

    I'm pointing out this so that people really do check out what they are buying, legal advice is invaluable and per the posts above a check on title costs around 300€ which is money well spent. But also people must watch on the day any changes to the property description, title, terms and conditions etc

    Phone/Internet Bids

    If you bid this way you have to have your deposit in advance and signed the relevant documentation. You may send a cheque or bank draft. But if you do then the auctioneer knows your maximum bid, Allsops will not disclose this to the vendor's but being serious, if auctioneers know that a maximum bid is x then I would expect that there will be off the wall bids to that x price. I am in no way inferring that this is what happens with Allsops but it has been known to happen at other auctions.

    Blank cheques

    As an alternative to putting in a 10% deposit with your maximum deposit you can put in a blank cheque. That means your max bid is not known. Not sure if there is any reason sending a blank cheque is not a good idea, if you know the firm is reputable, as is the case with Allsops, but be careful if you do not know who you are dealing with. Old school wisdom says never write a blank cheque.

    Banks at auction

    For the first time BofI were at the auction. This is to be welcomed, that they actually in the business of actually giving out loans, most people in the past seemed to be cash buyers, but most investors would want a mortgage, so the bank I guess are being realistic and if a person has the money to invest (cash) then they have the money to take a loan and repay it.

    Anyone know if the BofI did actually sign up people for loans.

    No longer only distressed sales.

    New change is that apparently 1/3 of the property were ordinary vendors (not banks/receivers/liquidators). So if you really want to sell your property, are very realistic on price, then instead of waiting a year for a buyer go for auction.

    Realistic prices

    I did not follow the full auction but noticed that the ones I was interested in went for a multiple of rent of between 12 and 15 times rent. Adding in a bit of a premium for good locations (city centers, easily rentable, solid properties). Trying not to discuss property prices. But the auction seems to be paving the way to more of a reality for some, a message I do not see on Daft et al yet.

    Reserve price

    I noticed on two properties the price hitting say 69K with the reserve at 70K. Property was withdrawn as it did not reach reserve. Why would one bid 69 and not go to 70? You're there on the day, you've bid, presumable you want the property and you have the money, plus you've done your figures and you're 1K off. Maybe these properties are sold afterwards for the reserve price. I presume that after the sale Allsops are open to sell these at the reserve price?

    Hotel in Donegal

    Most interesting lot of the day, cannot believe how magnificent it looks (never dreamed it looked like that) and well done the manager who has secured the hotel after his 20 years toil. Looks like an intersting property for a weekend away. It's a good luck story for the manager and staff and maybe a sign of positivity going foward.
    Last edited: Mar 2, 2012