Have you ever considered buying or selling a property through an online property auction?
Maybe you have, but were concerned that you didn’t know enough about them to take things a step further. With the coronavirus pandemic showing no signs of easing up, making property transactions online makes sense.
So in this post I will explain the process of buying and selling property through an online auction. I will also give you my thoughts on what you should look out for and my take on the whole online property auction scenario.
You may not be aware that online property auctions are not a new thing. They have been around for quite a while now and they have become a lot more popular recently due to the Covid-19 pandemic.
There is no real auctioneer involved with online property auctions. They are very different to attending a physical auction and purchasing or selling a property. It may seem strange to you (as it did to me at first) that people would be interested in buying a property that they have never seen – quite a risky thing to do right?
Well despite this, Savills, the estate agent, sold £18.5 million at its online property auctions in April 2020. This was a time that most people in the UK were in lockdown due to the pandemic. There always seems to be interest in making property transactions with online auctions.
Understanding Online Property Auctions
When you use an online property auction you will be able to see photographs of the various properties at the auction and then make bids on those properties. If your bid is the highest and satisfies the seller then you purchase the property. So this is the same as attending a physical auction to purchase a property.
You need to be aware that a seller can choose to use an unconditional auction or a conditional auction online. If you purchase a property at an unconditional online auction then there will be an immediate exchange of contracts once the time for the auction expires (assuming the meeting of the seller reserve).
If you purchase a property at a conditional auction online then you will have more time to complete a property purchase and exchange contracts. Usually this is around 40 days. Conditional auctions tend to attract more potential buyers because the additional time is helpful for them to arrange the necessary finance through a mortgage.
It doesn’t matter which of these two online auction formats you use, you have to provide your payment details before you can bid as a way to pre-authorise sales. This enables you to make a deposit immediately after the auction and confirm the sale with the seller.
How to buy a property through an Online Property Auction
To participate in an online property auction you will need to register for a free account at the website first. Once you have done this you can log in to the site and view the properties for sale, access the associated legal documentation with each property and view other auctions taking place online.
The information that the online property auction is likely to require from you is probably going to include:
- Your full name
- Your title (Mr, Mrs, Ms etc)
- Your email address
- Your telephone number
Most online portals are going to require these details. Some online property auction websites may require you to provide your address details as well. You need to check the auction site that you are considering using to see what they need.
In order to make bids on properties you will have to add a method of payment for your deposit. If you just want to take a look around and do not want to make bids right away, most online property auctions have a feature where you can watch specific properties and receive updates about the highest bid so that you can decide to make a move later on.
Selling a property through an Online Property Auction
If you want to sell a property through an online property auction then your first task is to decide on an unconditional or conditional format. Next you will need to enter a reserve price for the property. This is the lowest amount that you are prepared to accept for the sale of your property. You do not want your property to sell at a ridiculously low price.
Before you can open an auction on your property you will need to have the correct legal documentation in place. You need to make this comprehensive and include the following:
- Title registers
- Land registry
- Special conditions
- Any other legal document pertaining to the property
Your solicitor can put this pack of legal documents together for you. The online property auction should have a process that you need to follow to make your legal documentation viewable online to those that want to bid for your property.
Take as many photographs of your property inside and out as you can. This will certainly help you to sell it a lot easier on an online property auction. Use a high quality camera to take the pictures (the latest smartphones have good quality cameras) and follow the instructions to upload your photographs so that bidders can view them.
Next you have to set your auction terms. You need to decide on the amount of time you want to advertise your property and be able to accept bids for it. Usually the maximum time is 30 days from the date that your auction begins.
If you want to sell your property fast through an online property auction then choose a shorter period of time to advertise it and accept bids. This will put pressure on prospective buyers to make a decision. By choosing a longer time period to advertise your property you will be more likely to attract higher bids for it.
After you have performed all of the tasks above you will be ready to start your auction. Prospective buyers can only make bids in increments and if there are any late bids at the last minute then most online property auctions will extend the time slightly so that all potential buyers have a chance to make a bid.
If you have chosen the unconditional format for selling your property through an online auction, and your reserve price is met or exceeded at the time the auction ends, the successful bidder has to pay a holding deposit immediately. After this you have to sell your property for the price made in the bid. This is a legal requirement.
When you choose the conditional format for your auction and you receive a bid that meets or exceeds your reserve during the allotted auction time there will be a period of exclusivity. You will need to exchange contracts with the successful bidder within a specified time period (often this is 40 days). After the auction the successful bidder has to pay a reservation fee.
It is essential as the vendor of the property that you ensure the deadline for exchanging contracts is met. Failure to do this will mean that you will be liable for auction fees, and the successful bidder will have their reservation free refunded by the online property auction.
The Bidding Process with Online Property Auctions
Most online property auction website will offer a few different ways that you can place bids for the purchase of a property. The two most common ways to do this are live bidding and bidding by proxy which I will discuss here.
With live bidding online you watch the auction as it counts down in real-time. You are able to make incremental bids in competition to other bidders that are watching the auction. If another bidder makes a higher bid than you then you will be notified immediately and you can make a higher bid.
In the case where there is a late bid within the last 5 minutes of an online property auction there will be an automatic extension of the time left to bid by 15 minutes so that you and other bidders can adjust bids.
If you are unable to view the auction in real-time then you can use proxy bidding online. You tell the online property auction the highest amount that you are prepared to pay for the property and the software will make incremental bids on your behalf until your threshold is reached.
Should you use an Online Property Auction?
A lot more property investors are using online property auctions these days because of the potential to purchase properties below market value. With conventional property auctions affected by the coronavirus pandemic you may not be able to visit a physical auction.
As online property auctions have become more popular, there are more properties becoming available at these online property auctions. The biggest question that you need to ask yourself is “would I purchase a property without seeing it?”
Of course you may be able to view a property for sale before the auction begins. This will depend on the vendor and what lockdown rules are in place at the time. If you can view the property before participating in the auction I would always recommend this.