Buying at auction and as an investment

Auctions have a reputation: fast, exciting and a bit scary. The scary bit is fair. When the hammer falls, you've made a legally binding deal, and nobody's coming round with a cooling-off form.

But auctions aren't magic and they aren't a minefield if you know the rules. This guide covers how they work, how to think about a shop as an investment, and where the money goes wrong.

How a property auction works

Every auction house has its own small print, so always read theirs. But the broad shape is the same:

1. Browse the catalogue. Each lot has a guide price. This is an indication of what the seller expects. It isn't necessarily what the lot will sell for, and it can change before the auction.
2. Get the legal pack. You'll usually register to get it. It contains the title, the lease if there is one, searches and special conditions. Have a solicitor read it before auction day.
3. View the property. Auction houses typically run open viewings in the run-up.
4. Arrange your money. If you're relying on a loan, get that sorted and surveyed first.
5. Bid on the day.
6. If you win, you sign the contract and pay a deposit straight away.
7. Complete. The balance is generally due around 28 days later, but check your lot's conditions.

One major auction house's buyer guide states that as the winning bidder you pay a 10% deposit, subject to a minimum, plus any fees listed in the property details, and that completion is usually 28 days later. Other auction houses vary, so treat that as an example and read your own lot's terms.

Guide price, reserve price and what they mean

The guide price tells you roughly where the bidding might start. The reserve is the secret figure below which the auctioneer can't sell. The same auction guide says the reserve is expected to be within the guide range, or no more than 10% above a single-figure guide. Auction houses differ, so check what yours says.

What does this mean for you? A guide price is a starting point for your research, not a verdict on value. Do your own sums and set your own ceiling. Then stick to it, because the room can get exciting.

The fees on top of the price

The hammer price is not the cost. Expect more on top, which can include:

• A buyer's premium or administration charge, payable on exchange
• Your solicitor's fees and disbursements
• Stamp Duty Land Tax (SDLT)
• Possibly VAT, if the property is subject to it
• Survey and valuation costs
• Lender's fees if you're borrowing

Check the catalogue and legal pack for each lot's fees. They're set by the auction house and the seller's conditions.

What does "an investment shop" mean?

Investment shops are properties already let to a tenant, often someone who runs the convenience store. You're not buying the business. You're buying the building and the rent.

That's attractive to some buyers because you don't run the shop. But you've swapped one set of risks (running a business) for another (depending on someone else who does).

Working out the yield

The headline number investors use is the yield: the annual rent as a percentage of what you paid.

Here are completely made-up numbers to show the method:

SDLT on non-residential property in England and Northern Ireland works in slices: 0% on the first £150,000, 2% on the next £100,000, and 5% above £250,000. On £500,000, that's £0 + £2,000 + £12,500 = £14,500.

What makes a rental income safe (or not)

A rent is only as good as the person paying it. Ask:

• Who is the tenant? A single trader, a small company, or a larger operator? Is there a guarantee behind the lease?
• How long is left on the lease? Short leases mean more risk that the shop goes empty.
• Is the tenant paying on time? Ask for evidence, and check for arrears. Arrears can become your problem if they're not dealt with in the sale.
• Who pays for repairs? Some leases put the whole burden on the tenant. Others don't.
• What happens at rent review? Read the clause. Don't assume it only goes up.
• Does the tenant have security of tenure? Under the Landlord and Tenant Act 1954, many business tenants have the right to ask for a new lease when theirs ends, and the landlord can only refuse on specific grounds. Some leases are contracted out of this. Reform is being considered by the Law Commission, but the current rules apply for now. Your solicitor should tell you which applies.

Is the shop a good one?

Why do investors like convenience stores? One reason is that the sector is big and established. The ACS counts 50,925 stores in mainland UK, forecast sales of £49.1bn in 2026, and over 456,000 jobs. But a strong sector doesn't make every shop a good one. Location, competition, the tenant and the lease all matter more than the average.

VAT: don't skip this bit

Selling a let property that includes a business may qualify as a "transfer of a going concern" (TOGC), which can mean no VAT is charged, but only if strict conditions are met. For property, HMRC has special rules about the option to tax and notification. If you get it wrong, VAT can turn up on the sale price.

Ask the auctioneer's legal pack how VAT is being treated. Then ask your accountant. In writing.

Financing an auction purchase

Because completion deadlines are short, you want your finance as ready as you can get it before the auction:

• Talk to a lender or broker who knows commercial property
• Get the valuation process moving early
• Have your solicitor review the legal pack for anything that could stop a lender lending
• Know what you'll do if a valuation comes in below your price

Some buyers use a short-term loan to complete and then refinance, but that comes with costs and risks. Make sure you understand the whole plan, including how you'd get out of it, and take advice first.

Common auction mistakes

1. Skipping the legal pack. Hidden problems often live in the small print.
2. Not budgeting for the extras. Fees, SDLT and VAT can add up.
3. Bidding with finance that isn't certain.
4. Falling in love with a lot. Always have a walk-away price.
5. Forgetting what comes with the building, such as arrears, repair responsibilities, or a lease that's about to end.
6. Assuming the guide price means "cheap".

Your auction checklist

1. Funding agreed in principle, with a plan B
2. Legal pack read by your solicitor before auction day
3. Viewed the property, and had a survey if borrowing
4. Fees, SDLT and VAT worked out for the lot
5. Tenant, lease and arrears checked (for investments)
6. Maximum bid written down
7. Deposit ready and know how it will be paid
8. Completion funds ready for the deadline

This guide is for general information only and isn't legal, tax or financial advice. Check current rates and rules with qualified advisers. Examples use invented figures to show the method.