How to get good deals on property at an auction

Auctions are a great, yet unexplored, means to buy property overseas. Often homes that are sold go at cheaper than market rates, especially when it comes to foreclosures. Real estate auctions are already common practice in Austria, the UK, Germany and the U.S., but have only recently emerged in Spain, Croatia and Montenegro.

Nearly all European countries allow foreign citizens to participate in auctions except for Greece and Turkey, Nevertheless, there can be some restrictions. For instance, in Spain foreign citizens can only participate in those organised by real estate agencies but not banks. Austria, on the other hand, holds separate auctions for foreigners and locals due to geographical limitations on foreign property purchases.

Property auctions sell every type of real estate: residential and commercial property, land and even islands. It’s possible to get discounted prices, particularly if the auction is not widely announced and there are few participants. However, auctions in stable or strong real estate markets herald smaller discounts for buyers. For instance, in London and Paris the maximum discount is about 15%, while in some Spanish regions, buyers could get up to 50% off, but as Spain’s ailing market regains international popularity, bargains will be fewer and harder to come by. On the very rare occasion, a sale may be concluded for a token sum. For example, in 2015 a bankrupt Spanish airport sold under the hammer for only €10,000 or a hundred thousand times cheaper than its construction cost (about €1 billion).

Rules of engagement

A few reasons why auctions are good buying options:

• No delays. The auction transactions are closed within minutes. For example, the Gianni Versace villa in Miami was sold under the hammer in just 17 minutes in 2013.
• No gazumping. Once the hammer falls, the property goes to the buyer and the owner cannot consider any other offers, even if they are higher.
• High resale value. For instance, a buyer purchased a house in Germany for €70,000 and renovated it for €80,000. After a few years, they resold it for €240,000, making a profit of €90,000. Had they demolished the old building instead (about €30,000), they could have sold the land plot for €130,000 and still earned €30,000.

However, there are a few rules that buyers can’t break during an auction:

• No gazundering. After the hammer falls, the buyer cannot lower their price.
• No backing out. A bid has the same value as a binding legal contract.
• Sight unseen. Often bidders may not view the property interior before the transaction is concluded. In some cases, viewings are limited (max. two) and organised on certain days or at certain times.
• Tenants. The property may be occupied by tenants. It's not recommended to choose a property that is already let as it may take months or even years to get the tenants to leave.
• No mortgages. In most cases it is impossible to buy a lot using borrowed funds, except in Latvia, which has a special company that lends for property auctions. In theory, in Germany foreign nationals can take out a mortgage but it is rarely seen in practice.
• Personal attendance. If the buyer can't attend the auction in person, they will have to pay a middleman to represent them for at least €300–500 per auction.

Step-by-step auction process

1. Property valuation. Before putting property up for auction the organisers (e.g., bailiffs, notaries, owners, etc.) get the real estate value appraised. The starting price is usually 50–90% of the market value. Whether the final bid exceeds market value depends on the demand for the lot.
2. Viewings. The auction catalogue is available several weeks before the event. Every detail deserves attention, and once the selection is made, it is imperative to view the properties. It's worth getting the locals and real estate agents’ opinions.
3. Finding a lawyer. In most countries, it’s up to the buyer whether they use a lawyer, except in France where it’s mandatory. Tranio always recommends using the services of a legal professional when buying in a foreign country.
4. Registration fees. Participants are asked for a cheque amounting to 5–20% of the starting price (depending on the auction type). If they don’t buy anything, they get their money back, but not making a deposit incurs a penalty. In France, no cheque is required if the property is less than €125,000. Participants must also have their identity documents and account details at the auction.
5. Study the shortlist. Before the auction begins, check what property made the shortlist as some can be sold or removed from the list.
6. Bidding. To bid, a buyer must make a clear gesture, like raising their hand. If the property goes to another bidder, it is not the end: if the transaction cannot be closed, the seller contacts the next highest bidder.
7. Payment terms. The initial deposit to participate in the auction serves as a down payment on the property and the remaining amount must be settled within a month.

Buying property at auction is an adventure, but as always, it is important to be prepared and informed of the risks. Here are some other Tranio articles with useful tips so you know what you are getting in to:

• New or pre-owned property: how to choose the best holiday home
• Five reasons why you still need a real estate agent
• Liability: what to know when buying abroad

Yulia Kozhevnikova, Tranio