It is possible to get a good deal at an auction but you need to know what you are doing.
The best way to understand how property auctions work is to go to a few first before actually getting involved yourself. It’s also worth watching TV programmes like “Homes under the Hammer.”
If you buy residential property at an auction the main plus is that you can get the property you want quickly without lots of negotiation.
RESERVE PRICES AND GUIDE PRICES
Once the gavel goes down, that’s it! As log as you are the highest bidder and the property has met the vendor’s minimum or “reserve price” - then it’s yours.
Some property auctions quote a “Guide Price.” It is not the same as the “reserve price” but is a good indication -e.g. if the Guide Price is £105-115,000, the reserve price is probably around £110,000.
For the uninitiated prices at property auctions seem low, but there is usually a good reason. Many properties are in poor condition, have subsidence, are blighted by proposed road developments, have been occupied by squatters, have sitting tenants or have defects in the legal title. Or they may just be unique and therefore hard to value.
However, other properties may have nothing wrong with them at all - apart from possibly being in a bit of mess.
PROBATE AND REPOSSESSED PROPERTY
This is usually the case with those being sold by executors after the death of the owner, repossession properties (which have been repossessed by lenders and already failed to sell through estate agents) and “distressed sales” - where the property is being sold by people who have overstretched themselves financially.
Look out for properties where the vendor is in a different part of the country to the solicitor - this may indicate a probate sale. These can be good as often the vendors will accept a low price in order to “move on” quickly after the death of a loved one.
Repossessed properties often have the words “for sale by mortgagee in possession” in the details and whilst they are often left in a mess, they are usually structurally sound and need nothing more than some basic redecorations to enhance their value.
If buying with existing tenants in place, check whether they are Assured Tenants or Assured Shorthold Tenants. These should be OK but be wary of “Rent Act” tenants who will have rents fixed at a lower than market level, which will be hard to increase and it will be virtually impossible to gain possession unless they are in serious rent arrears.
DO YOUR CHECKS FIRST
Obviously, to be on the safe side, it’s best to get the property cheked over for structural soundness, the finance in place and insurance ready to go and the legal checks done before the auction.
This costs money, of course - and is one of the downsides of buying at auction - but means if defects turn up and it wasn’t worth what it sold for, then at least you will have avoided buying something that may have ended up being a nightmare.
Ask for the package compiled by the auctioneer which should be available about 4 weeks before the auction.
This will have details on each property and the memorandum of agreement (which is equivalent to the contract), the title documentation, the searches, whether there is any outstanding planning or environment issues etc and replies to general enquiries.
Have this checked over by a conveyancer and have him also look out also for any special conditions, for example, it may say the buyer has to pay the vendor’s legal fees!
Then go and view the property. Some can only be seen at block viewings, so you’ll get to see possible fellow bidders. Once you’ve found a property you like, recheck with your conveyancer that there aren’t any legal problems.
Since many properties sold at auction have structural problems, unless you know someone who is an expert, you may be best advised to get a fairly thorough survey done. If it needs work, carefully budget for it with a good builder and get a DETAILED quote showing a proper specification of the works to be done and what materials will be used (and ensure these are included in the cost.)
Get quotes for buildings insurance cover before the auction but remember many insurers will charge more or won’t insure at all where there is subsidence or if it going to be unoccupied for a long period after purchase.
Work out the maximum price you’re prepared to bid before the auction starts. If you’re the highest bidder and the reserve has been met, you must sign the contract in the auction room and pay a 10% deposit.
You have to complete in 28 days, so your solicitor will need to move quickly and get all legal documents ready and the finance ready. If you don’t complete, you lose not only your deposit, but if the property has to be re-auctioned and it ends up fetching less than you have paid, you’ll be liable for the difference!
So make sure you use a conveyancer who understands the auction process and who can work fast! Ensure you have your deposit with you at the auction.
Auctions won’t take cash due to money laundering regulations so check beforehand what form of payment is acceptable.
ON THE DAY
On the day of the property auction, arrive early and check the “addendum” and the legal pack in case anything like special conditions have been added. Keep cool and stick to your maximum price.
Some property auctions will have a reserve price stated. If it isn’t, and the auctioneer says something like “It’s in the room” or “this property will sell today” this means the reserve price has been reached and the highest bidder will get it.
If the sales details quote “unless previously sold” you should be able to approach the auction house and make a bid in advance of the auction. If it is accepted, you’ll still need to move fast and ensure finance is ready and conveyancing can be done quickly.
If the property hasn’t met its reserve, the auctioneer will normally tell you the reserve and advise if he has the vendor’s authority to sell at the reserve price for up to 24 hours after the auction.
A lot of buyers snap up auction bargains by always trying to agree a price after the auction for the 5 to 20% of properties that have not met their reserve price.
For more advice on buying at auction contact us.
ABOUT DAVID LAWRENSON AND LETTINGFOCUS
I’m David Lawrenson from buy to let experts LettingFocus.com.
We work in a consultancy role with organisations helping them with their products and services for the private rented sector but we also offer unbiased advice for landlords too.
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