Understanding Online Property Auctions

What is an online property auction?

An online property auction is simply a digital version of an in-house auction. Instead of waiting for an auction to be held in a particular area, travelling to the auction and then bidding on a property surrounded by other bidders, you just need access to the Internet so that you can search for online property auctions. You can then check listings and place bids from the comfort of your own home or anywhere in the world, using your desktop PC, laptop, tablet or mobile phone. With 24/7 access to the platforms and usually a longer auction time than an in-house event, online auctions offer a little more leeway.

How do online property auctions work?

Whether you’re new to property auctions altogether or just the online versions, bidding on a property can seem daunting. There’s no need to worry, however, as the online process is simple and each platform provides clear information. Properties are marketed before the auction date and you can check the platforms for details of the available lots and auction dates. You can use the search feature, register to receive email alerts and set up an account.

Property information

The property details will include photos or virtual tours but you can also arrange an in-person viewing, which is recommended. A copy of the legal pack will be available to download as well as other property-related paperwork, such as a floor plan or copy of the Energy Performance Certificate (EPC). You’ll also have access to the online auction terms and a guide on buying via the platform.  

Bidding

Just like an in-person auction event, you bid for the property alongside other interested parties and the highest bid at the end of the auction wins. An online auction period is usually longer than an in-person one. An in-person event can be over very quickly on the day whereas an online auction period can run for 48 hours, 7 days or 30 days, for example. During this time, you can watch the auction live and see the bidding details, such as the minimum opening bid, number of bids and highest bid. As you’re bidding online rather than in a public auction room, there’s less pressure during the bidding process. This makes online auctions a good choice if you’re not confident about attending an in-person event.

As well as viewing the auction live and bidding yourself via the Internet, auction platforms usually offer an alternative method of bidding called proxy bidding, which is when you provide authorisation for automatic bids to be placed on your behalf up to a maximum amount. Check each platform for details of their available bidding methods.

Fast completion timescale

Once the virtual hammer falls and you secure the winning bid, you need to complete the purchase within the auction timescale. This depends on whether you’ve taken part in an unconditional or conditional auction sale as the timescales differ from 28 days to 56 days, respectively. We’ll explain these types of auction sales in more detail below.

Auction timescales

There are two types of auction sales — an unconditional auction sale and a conditional auction sale. The main difference between them is how long you have to complete your property purchase. Each online platform will detail whether the particular auction sale operates on an unconditional or conditional basis. You will be provided with clear instructions on the process for the relevant one.

Unconditional auction sale

An unconditional auction sale is the traditional method of auction. It is a fast way to buy a property as it has a 28-day completion timescale. When the virtual hammer falls and you successfully win the bid, the contracts exchange immediately. At this point, you are legally bound to buy the property. Your deposit, which is 10% of the purchase price, is also payable straight away. You then have a completion timescale of 28 days, which is when the 90% balance must be paid.

Conditional auction sale

This is the modern method of auction and is more commonly used on online auction platforms. It has a longer completion timescale of 56 days. Once the virtual hammer falls, you sign a reservation agreement and pay a non-refundable reservation fee. This enables you to secure a 28-day exclusivity period to exchange contracts. Until the exchange of contracts, you are not legally bound to buy the property.

The reservation fee

The reservation fee covers the seller’s auction costs, such as the auctioneer’s fee and the listing agent’s fee. It is calculated as a percentage of the purchase price and is usually about 3–5%, subject to a minimum amount. It’s payable in addition to the purchase price so you need to ensure that you budget for this. You should be aware that the reservation fee will be included in the stamp duty calculation.

The exclusivity period

The exclusivity period allows you time to have a survey carried out and finalise your mortgage. As mortgages take time to arrange, opting for a conditional auction sale is a good idea when using a mortgage to finance your purchase. It ensures that the lender has enough time to complete the process, which can be a risk when using the traditional auction method.

Even though you have this extra period, you should still apply for your mortgage in principle before bidding on a property. That way, you know what the lender is prepared to offer you and can set your bidding limit accordingly. To speed up the mortgage process and ensure that there are no unexpected issues, it’s recommended to have a survey carried out on the property before the auction date.

The last 28 days

When the exclusivity period comes to an end, you pay a 10% deposit and exchange contracts. After that, you have a further 28 days before the completion date, which is when the remaining 90% must be paid. The longer completion timescale gives you breathing space and flexibility that’s not possible when buying via an unconditional auction sale. To benefit from this, though, it’s the more expensive option of the two.

The guide price vs the reserve price

As well as understanding the type of auction sale you’re participating in, you need to be aware of the terminology relating to prices. On an online auction platform, you’ll see the terms guide price and reserve price mentioned. We’ll explain the differences below.

The guide price

As its name suggests, it is purely to give you a guide on the minimum amount a seller expects to get for their property. It’s often set low to encourage bidding and is usually used as the starting price when bidding commences. The guide price can change at any time before the auction, either at the seller’s or auctioneer’s discretion. For example, it may be increased if there’s been a lot of interest in the property. Therefore, be sure to keep checking it before the auction starts.

Listed on the property details, the guide price will either be a single figure, such as £250,000, or a range, such as £360,000–£370,000. It helps you to decide whether a property is within your budget and a good option to bid on. Just be aware that properties often sell for between 15% and 25% higher than the guide price.

The reserve price

The reserve price is the minimum amount the seller is prepared to accept for their property. It’s confidential between the seller and the auctioneer. However, you can estimate what it might be. This is because a reserve price has to be set in a particular way based on the guide price. The reserve price should be no more than 10% higher than a single guide price amount or it should be set within the guide price range. The reserve price can change before the auction in the same way that a guide price can.

What types of properties can be found via online auctions?

You’ll find a vast range of property types available via online auctions. These include residential, commercial and mixed-use properties, leasehold and freehold properties as well as land. Whether you’re looking for a flat in the city, a cottage in the country, some office space, a retail opportunity, an industrial unit or warehouse, land for your self-build project, a buy-to-let investment, a tenanted property, a renovation project or a unique property, such as a windmill, barn or converted church, online auctions are a great place to find exactly what you’re looking for.

Can you buy a property via an online auction with a mortgage?

Financing your online property purchase with a mortgage is possible although the 28-day completion deadline for an unconditional auction sale can be very tight. A conditional auction sale, on the other hand, gives you plenty of time to arrange a mortgage. Either way, at Trinity Finance, we work closely with lenders specialising in auction purchases. They are used to dealing with the fast auction timescales and strive to finalise mortgage deals as quickly as possible.

Our mortgage brokers can arrange your mortgage in principle before the auction date. This lets you know how much the lender is prepared to offer you so that you can budget and bid accordingly. The lender will require a property valuation to be carried out as part of the mortgage process. To speed up this process, we can liaise with them to arrange the valuation before the auction. We also recommend that you have a survey carried out before the auction. This will highlight any issues that you may be unaware of and confirm whether or not the property meets the lender’s requirements.

The benefits of using an online property auction

There are lots of advantages when it comes to buying via a property auction online. This style of auction has increased in popularity in recent years, especially since the pandemic when auction houses had to find an alternative way to operate. Since then, auction houses have noticed a continuing increase in buyers, especially younger buyers who prefer the fast-paced nature of an auction purchase and aren’t phased by bidding online. When using an online property auction, you can benefit from speed, transparency, access to a wide range of properties, stress-free bidding from anywhere in the world and more, as detailed below.

Speed

Online auctions are a fast way to buy a property compared with buying one via an estate agent. Auction bidding periods can be short, such as 48 hours, with some platforms offering ‘buy it now’ features or similar facilities for cash buyers. Once the virtual hammer falls, the completion timescale is also short. Therefore, it’s important to make sure that you’re ready to act quickly should you secure the winning bid.

No risk of being gazumped

When you buy a property through a private seller, there’s always a risk of being gazumped while the transaction is in progress. With an auction purchase, however, you either exchange contracts immediately or have an exclusivity period when winning the bid, depending on the type of auction sale you’ve participated in. Both of these provide peace of mind that you won’t be gazumped or that the seller will simply change their mind.

Transparency

Online auction platforms provide clear guidance on how to register, the bidding process, the fees payable, the auction terms and the legal requirements. Each property listing contains details of the property as well as a copy of the legal pack. The latter enables you to do your due diligence before bidding on the property. When bidding, you can see the bidding history, allowing for fairer competition between all of the prospective buyers.

A longer auction time than an in-person event

When bidding in an auction room, the event can be over very quickly, even in a matter of minutes. An online auction, however, offers a longer bidding period, such as 48 hours, 7 days or 30 days.

Access to a wider range of properties

Many of the properties listed for sale at auctions are the types that don’t tend to be offered for sale by estate agents. For example, properties that require considerable improvement, tenanted properties, unmortgageable properties, properties with issues, such as structural damage, legal problems and short leases, as well as unique and rare types of properties. This gives you a much wider range of properties to choose from and makes online auctions popular with investors and those looking for a bargain.

Opportunity to view and arrange a survey

Although you’ll be able to see photos of the property online or take a virtual tour, it’s recommended to view the property in person before you bid on it. Having a survey carried out is also recommended so that you can be sure there are no issues, such as structural damage. This is especially important when using a mortgage to fund your purchase as many properties listed for sale at auctions are unmortgageable.

Access to the legal pack

When you register to bid on a property, you’ll be able to download a copy of the legal pack. You need to check this carefully and it’s recommended to ask your solicitor to check it too. This is because they’ll pick up on any issues that you may not notice.

Stress-free bidding

When buying a property via an online platform, you can bid from the comfort of your own home. You can also benefit from the bidding anonymity that this provides compared with an in-person event. As a result, there is less pressure than with an in-house auction environment. This is good if you’re inexperienced at auction purchases or don’t feel very confident about bidding.

Worldwide availability

As long as you have access to the Internet, you can participate in property auctions online from anywhere in the world. You can search for upcoming auctions, register to bid, watch live auctions and place bids 24 hours a day, 7 days a week.

Secure bidding

When you register to bid on a property, you’ll be required to provide your credit or debit card details. Online auction platforms use secure online card registration facilities to ensure that your personal data is protected. The security of transactions is maintained using features such as escrow services or reputable payment gateways as well as SSL encryption.

A fixed time frame to complete

Whether you participate in an unconditional auction sale or a conditional one, you’ll have a fixed time frame within which to complete your purchase. This is either 28 or 56 days, respectively. These fixed timescales remove any uncertainty with the buying process and you know from the outset exactly when you’ll be able to collect the keys to your new property.

An immediate legally binding transaction (unconditional sale)

If you participate in an unconditional auction sale and secure the winning bid, the contracts will be exchanged immediately and you’ll be legally bound to complete the purchase in 28 days. This means that you can confidently register to bid on a property with the knowledge that you can collect the keys in a matter of weeks if you’re the highest bidder.

An exclusivity period (conditional sale)

When participating in a conditional auction sale and successfully winning the bid, you benefit from a 28-day exclusivity period. This gives you time to arrange a survey if you haven’t already, sort out your finances, which is especially helpful if you need to finalise your mortgage, deal with any legal aspects and arrange your property insurance. The exclusivity period also provides reassurance that the seller won’t sell the property to anyone else during that time.

Legal considerations for online property auctions

When registering to bid on a property, you need to read and accept the online auction platform’s terms and conditions. It’s also essential to do your due diligence before bidding on a property and a vital part of this is checking the legal pack. The online auction platform will provide a copy of the legal pack relating to each property that’s listed. This generally includes the title deeds, searches, office copies, details of the fixtures and fittings and the special conditions of sale.

As well as reading through the legal pack yourself, it’s highly recommended to ask your solicitor to check through it too. They will notice issues that you’re unlikely to, especially when it comes to the special conditions of sale. There may be arrears on the property, for example, which you would be legally liable for. Or there may be specific terms to adhere to or restrictions on what you can use the property for. The Addendum also forms part of the legal documentation and this will detail any last-minute changes before the auction. As such, it’s essential to check this before the bidding begins. Any bidding is done on the basis that you have read and accepted the legal pack as well as all terms and conditions relating to the auction purchase.

Remember that if you win the bid in an unconditional auction sale, the contracts exchange immediately and you have to pay your deposit. At this point, you’re legally liable to complete the purchase by the deadline. Failure to do so not only means you’ll lose your deposit but the seller can take legal action against you. They’ll be entitled to recoup their costs as well as charge you for the cost of selling their property again. 

The costs involved in buying a property via an online auction

As well as the property purchase price secured by your winning bid, there are other costs to budget for. These can include an administration fee, a survey fee, a reservation fee, a buyer’s information pack or legal pack fee, a Buyer’s Premium, the legal costs, the cost of property insurance as well as any stamp duty and overage that’s charged. Each online auction platform states when the relevant fees are payable. It’s important to check this information as some fees are payable when the virtual hammer falls.

Administration fee

This is usually paid at the same time as the deposit and covers the auctioneer’s costs for managing the auction sale. Each platform charges a different amount and it can be a set fee or in scaled increments depending on the purchase price.

Survey fee

You should have a survey carried out on the property to check for any structural issues. This is especially important if you’ve applied for a mortgage to finance your purchase. Many properties sold at auctions are unmortgageable and a surveyor will flag up issues that you may be unaware of, such as subsidence, wet rot, damp or the presence of Japanese knotweed.

Reservation fee

This non-refundable fee is payable at the fall of the virtual hammer when participating in a conditional auction sale. It reserves the property for you during an exclusivity period that enables you to carry out your due diligence. The fee is usually about 3–5% of the purchase price, subject to a minimum amount, and is paid in addition to the purchase price. It’s used to cover the seller’s auction costs, such as the listing agent’s fee and the auctioneer’s fee.

Buyer’s information pack or legal pack fee

Some online platforms charge a fee for the buyer’s information pack or legal pack. The cost will be clearly noted in the auction terms and conditions.

Buyer’s Premium

You may be liable for a Buyer’s Premium, which is either a set fee or calculated as a percentage of the purchase price. This becomes payable when a seller chooses not to pay the selling costs.

Legal costs

You’ll need to use the services of a solicitor to handle the legal aspect of your property transaction.

Property insurance

Once the contracts have been exchanged, you’re legally bound to complete on your purchase. As such, the property needs to be insured so that it’s financially protected in the event of unexpected damage.

Stamp duty

Stamp duty (SDLT) may be payable when buying a property in England or Northern Ireland, depending on the purchase price and your circumstances. Land and Buildings Transaction Tax (LBTT) is charged as an alternative to stamp duty in Scotland and Land Transaction Tax (LTT) is payable in Wales.

Overage

An overage clause may be included in the contract stating that you must pay the seller a further amount after completion should a specified condition be met. For example, if new planning permission is granted or the existing planning consent is enhanced, thereby increasing the value. The overage is usually calculated as a percentage of the increase in value. You should be aware that this amount may be included in your stamp duty liability. If this fee is payable, the details will be clearly stated in the special conditions of sale in the legal pack.

How does an online auction differ from an in-person auction?

The two auction settings offer different bidding processes and experiences when it comes to the environment that you’re bidding in.

A traditional auction requires you to travel to the auction house and bid in person on the auction day. There’s an exciting atmosphere and the bidding process is very fast. If you’re inexperienced in buying at auctions, the dynamic environment and need to make fast decisions can be daunting. As an experienced auction buyer, however, you may prefer the live aspect and fast conclusion of an in-person event.

In contrast, an online auction offers a longer auction time, giving you more time to consider your position and bid as a result. This, combined with the fact that you can bid from the comfort of your home, means there’s less pressure. You’re also at less risk of getting caught up in the excitement experienced in auction houses, which can sometimes lead to bidding higher than your budget. These factors make online auctions particularly appealing if you’re new to auctions or aren’t completely comfortable with the bidding process.

Bidding digitally makes buying a property at auction much more accessible and convenient too. You don’t need to make arrangements to travel anywhere and you can access online auction platforms from anywhere in the world.

Register to bid on an online property auction platform

You can browse through lists of properties available in upcoming auctions without the need to register with auction platforms. Before you can bid on a property, however, you’ll need to create an account with the relevant platform. This usually just involves providing your email address and a password and then verifying your email address.

You then need to register to bid, following the platform’s instructions. This includes providing your personal information and verifying your identity. Each platform has its own registration criteria so you may need to confirm how you intend to finance your purchase, for example, and provide documentation as evidence of this. You may need to give your solicitor’s details and possibly agree to a credit check. All platforms require you to accept the auction terms and conditions before proceeding. You also need to provide details of your debit or credit card for the pre-authorised bidding deposit and fees in the event that your bid is successful.

How to bid on a property

When the auction goes live, you simply enter your bid where indicated. You can continue bidding using the increment levels that have been set by the auctioneer. Alternatively, you can enter a maximum bid, which is known as a proxy bid. This enables the system to automatically place bids on your behalf. It does this in increments until your maximum amount has been reached.

Whichever bidding method you choose, if your bid is the highest when the virtual hammer falls and it either matches or exceeds the reserve price, then you’re the successful bidder for the property. At that point, the pre-agreed deposit amount or reservation fee plus auction fees will be deducted from your debit or credit card. You’ll then be contacted by the auctioneer to pay the balance due for these and, if participating in a conditional auction sale, you’ll be asked to sign the reservation agreement. If it’s an unconditional auction sale, the exchange of contracts will take place immediately.

Bidding extensions

Many prospective buyers like to bid at the last minute in the hope of placing the highest bid before the end of the auction and getting a bargain. However, unlike some online marketplaces that allow bid sniping, online property auctions have bidding extension windows. This means that if someone places a last-minute bid before the scheduled end, an extension to the auction time will be given, such as 60 seconds. This extension window enables other bidders to see the new bid and place another bid if they wish to. The clock will reset by the same extension time each time another bid is placed. When no further bids have been made during a full bidding extension window, the auction will then close.  

What happens to unsold auction lots?

If a property isn’t sold during an auction – for example, if none of the bids have met the reserve price – the seller may consider post-auction offers. This can be good news if you were the highest bidder as the seller might be willing to negotiate with you. If this is the case, you need to be ready to act quickly.

You can offer on unsold properties even if you didn’t take part in the actual auction. Just search for unsold auction lots on different online property auction platforms. You can then check the property details in just the same way as for properties listed for upcoming auctions. When you’ve found one you’re interested in, you can contact the auctioneer with your best and final offer amount.

Considerations before participating in an online property auction

Buying a property at auction is a great way to get a bargain and benefit from a fast and transparent process without the worries that come with buying via the traditional route. Bidding via an online property auction rather than in-person at an auction house is more convenient and less pressurised. However, there are some factors that you need to consider carefully before taking part in an auction.

The risks

Buying at auction comes with risks, especially financial ones. For example, you may decide to pay for a survey to check the property’s condition before the auction and for a solicitor to check over the legal pack for you. However, there’s no guarantee that you’ll win the bid. If you’re not successful at the auction, this money is effectively wasted. Or you may have your heart set on the property and get carried away during the bidding process, exceeding your budget. This can be a particular issue if you’ve participated in an unconditional sale. This is because you’re legally bound to complete the purchase if you win the bid. Not doing so can have extremely expensive repercussions.

The terminology

It’s important to understand the terminology before you take part in an online property auction. Make sure that you’re clear on the difference between a guide price and a reserve price, for example. Understand the differences between conditional and unconditional auction sales and check which type applies to the auction you want to participate in.

The terms and conditions

Each online auction platform has its own terms and conditions. It’s essential to check them carefully before registering to bid on a property. You need to fully understand your liability should you secure the winning bid.

As long as you understand how the online auction process works, you’ve done your due diligence on the property and your finances are in place before the auction, buying a property this way can be a very rewarding experience.

Arrange your finances to buy via an online property auction

Before bidding on a property, you need to know your budget, not just for your bidding limit but also to include all of the costs involved. If using a mortgage to finance your purchase, our mortgage brokers can arrange a mortgage in principle for you in advance. That way, you’ll know what the lender is prepared to offer you, allowing you to plan for the auction accordingly. At Trinity Finance, we deal with specialist lenders who are well-versed in handling applications for borrowers making auction purchases. They act quickly to process and finalise mortgages to meet the short auction timescales.

If you prefer, bridging finance is fast to arrange and provides you with a short-term loan to buy the property while you arrange your long-term finance. Our brokers can discuss your needs and circumstances to find a bridging loan that offers the right flexibility, whether you’re looking to buy a residential or commercial property. With the funds in place before the start of the auction, you don’t need to worry about missing out on an opportunity. If your situation is complex, we offer alternative funding solutions and can find a more suitable loan for you.

Whatever your needs, just give us a call on 01322 907 000 and our auction specialists will be happy to help you. Alternatively, send an email to us at info@trinityfinance.co.uk or an enquiry via our contact form. We’ll reply to you as quickly as possible with further details of the auction finance options available.