It’s no secret that property auctions offer up some tremendous bargains.
Throughout the UK, there are over 400 active auction houses offering more than 33,000 lots, the vast majority of which are vacant residential units. But it’s not just the big developers and property traders that play in the auction market.
As property prices continue to rise, more and more private buyers are flocking to auctions in search of a good deal.
The advantages are clear – discount prices, quick completion, no chain and no gazumping. However, it’s easy to get caught short at an auction if you don’t know what you’re doing.
Know where to look - A great place to start would be to join the Essential Information Group. As well as listing everything that is going to auction, they’ll have historical information on a lot or similar lots. You can also search the internet, local papers and ask your local estate agent.
View the property – Always make the effort to view the property. The catalogue listing will hardly ever show you or spell out the negatives! There are two ways you’ll view a property generally - block viewings where the property is opened up a few times in the week prior to the auction for half an hour or privately. Have your tool kit and cameras at the ready, binoculars in hand for seeing what the roof is like and a screw driver to put in the skirting board. There’s not a minute to waste and you’ve really got to get around in every nook and cranny.
Do your research – Due diligence must be done prior to bidding because you’re not blessed with time after you have won the lot. Carry out thorough property and land searches and make sure you have read the legal documents and special conditions back to front and sideways prior to the auction. Consult a solicitor on the points that give you cause for concern and do get a survey done if you have any doubts about the condition of the lot.
Understand the difference between guide price and reserve – Generally speaking, guide prices are provided as an indication of each seller’s minimum expectation. They are not necessarily figures which a property will sell for and may change at any time prior to auction. Virtually every property will be offered subject to a reserve price. This is an undisclosed figure only known to the vendor and auctioneer and is the minimum bid that the vendor will accept. It is usually set within the guide range or no more than 10% above a single figure guide. If you can’t afford to pay the guide price, don’t bother doing the homework on the property.
Set an upper limit – Bidding isn’t for the fainthearted and it’s easy to get caught up in the moment. Before you know it, you’ve gone over your limit by thousands of pounds. On the fall of the gavel, you’ve effectively exchanged, so there’s no going back, at least not without some kind of penalty. Be strict with yourself and take someone with you who could act as your voice of reason.
Have financing and insurance in place – The usual completion period is 28 days on properties bought at auction so it’s important to have financing in place prior to bidding. Is the property mortgageable? A lot of properties being sold at auction will be in need of TLC and may not have working bathrooms and kitchens or have a problem with rising damp for example. If you’re intending to rent out the property, it may be hard to prove what rental income it will achieve if it’s not in a liveable state when you buy it. Lenders could therefore be reluctant and this is why many buyers look at bridging finance. You may also need to insure the property immediately.
Have a deposit – Your 10% deposit will be required on the day and not necessarily in cash. Check before you go and always take a form of ID with you. Some vendors will require cleared funds.
Go to an auction – Sit in on an auction before you decide whether this is a buying strategy that would work for you. Get a feel for how it works and research any questions that arose afterwards.
If you do decide to buy a property at auction, then we’ll be talking about ways you can maximise your profit in an upcoming blog.
