House prices are still rising relentlessly and in popular areas, homes are often already under contract by the time the estate agent’s board goes up. Hard-pressed homebuyers are having to look for sources other than the local estate agent.

Around 30,000 properties are sold at auction in the UK every year - many at up to 40% below high street prices. Auction firms usually focus on unusual, hard-to-value premises such as churches and village halls, as well as pockets of land and commercial lots with potential for change to residential use. Cinderella properties in need of renovation are often sold though auction. For that reason you may find yourself competing against professional property developers.

Buying at auction requires careful planning, attention to detail and nerves of steel. If you are successful the reward can be a dream house at an affordable price - but unless you do careful groundwork that promising auction bargain could turn out to be a costly under-the-hammer horror. It is worth remembering that some superficially attractive properties go to auction because they have hidden extras – dry rot, strict planning restrictions, or the neighbours from Hell.

Getting started

Almost 200 companies run residential property auctions every year in the UK. One, estate agent FDP Savills, holds eight national auctions a year in London and six regional auctions. It says that the demand for all types of property at auction is exceptionally strong, and there is a well-established market for houses and flats requiring refurbishment.

Most auctioneers will send catalogues for forthcoming auctions up to a month in advance, and the Essential Information Group offers a property auction search service at www.eigroup.co.uk. Find more links to Auction houses with our collection of Property Auction Sites (www.uknetguide.co.uk/Homes_and_Gardens/Property/Property_Auctions.html). The property is normally advertised for three weeks before auction day, during which time you can view it by arrangement. This is the time to make a thorough examination of the property and – vitally – the surrounding area, to make sure it is suitable. If you decide to take the plunge, let the auction house know you are a serious contender, so it can keep you informed of any developments. Now is also the time to have the property surveyed, get a solicitor to check the title to the property and arrange the necessary finance. The successful buyer will probably be expected to complete the purchase within 28 days of the auction. You must also be prepared to insure the property from the moment the gavel sounds.

Set your highest bid

Estimate the total costs of repairs, decorating, legal and surveying fees, removals, mortgage and any other expenses - and work out how much you are prepared to bid. Remember the buyer’s premium will add another 1.5 per cent or so to the selling price, and you will have to pay stamp duty on top.

Pre-sale price estimates are often wildly below the final sales price to lure buyers to the auction. They can fluctuate throughout the pre-sale period so keep in touch with the agent for regular updates. The guide price – usually set on auction day – is normally within 15 per cent of the reserve price, which is the minimum price the owner will accept. Once the reserve has been met the vendor is legally obliged to sell the property to the highest bidder.

Auctioneers are masters at slowly pushing up the price. Bids tend to go up in £5,000 jumps, then £1,000 and £500 with the auctioneer charming every last penny out of bidders. If your bid is successful, you will have to sign a legally binding contract immediately after the auction and pay ten per cent of the final price on the spot - using a cleared cheque or a banker's draft. Cash will not be accepted.

Two golden rules for buyers

• First, do your homework – get an answer to every question you have before the auction.
  
  
• Second, at the auction, set your limit and stick to it. If you think you’ll get carried away or feel nervous about the process, send someone else to bid on your behalf. Or you could place a proxy bid that fixes the amount you are prepared to pay.

Tips:

Try to attend an auction before you start bidding yourself. It helps to know the ropes and will also help prepare you against the kind of auction fever that ends in you bidding far more than you originally intended.

Check with local estate agents to see what similar properties have sold for.

Be prepared to pay for a survey – even though you may not end up winning the auction. It could save you a great deal of pain if you uncover hidden horrors like subsidence, or structural problems. You could also invest around £150 in a formal valuation from a mortgage lender.

Check out planning permission details with the local authority and look at any the legal packs held by the auctioneer. These should contain details of deeds, leaseholds and access. If you get the legal pack in advance and are uncertain about something, ask a solicitor.

Make sure you are able to pay – if you don’t have the finance ready in time, you will lose the deposit.

On the morning of the auction, check that the property is still available. They can be withdrawn or sold privately at the eleventh hour.

Finally, if you are desperate for the property you can make an offer before the auction. Most vendors and auctioneers will happily accept if it is high enough.