If you've ever seen "Homes Under the Hammer", you'll doubtless have wondered what buying at auction is really like and whether it offers a potential workaround to high sold property prices. You might also have pondered whether or not to sell at auction, particularly if you have a quirky, unusual or hard-to-market property. If you’ve already followed up on your idea, this article might be preaching to the converted but, if you're still to take the plunge, read on for some top tips from those who've been there and done it before.
1. Buy-to-let investors
You might very well be a buy-to-let investor yourself. However, if you're not, be aware that many potential purchasers at auctions fall into this group. This has its pros and its cons for both professional and amateur auction users. Tips from the professionals include:
-Understanding that buy-to-let investors may have greater familiarity with how auctions work, may be more likely to have done their homework, and may focus on making cash purchases that they can renovate and let out speedily. Some may also target properties that are not currently mortgageable and repair them so that they are mortgageable, thus quickly boosting the property's capital value. Of course, some private buyers look to do similar but, on the whole, it is investors who are more likely to have access to the sort of cash reserves that this sort of project demands.
-Realising that even experienced buy-to-let investors can see their plans stymied if they come up against rival bidders who are either amateur investors or who are looking to buy a property to live in themselves. This category of bidder may be less focused (or not at all focused) on achieving good buy-to-let returns. In other words, if you have your heart set on a property and are prepared to increase your bid, you may be able to outbid investor interest.
2. Due diligence
If you buy a property through an estate agent, you will almost always undertake considerable due diligence before committing to the purchase. Even allowing for a potential purchaser with the best of intentions, this level of due diligence does not always happen with auction purchases. Partly, this is down to purchasers forgoing the usual checks due to an unwillingness to spend money on a property they may not get to buy, and partly it is down to a lack of time. Auction catalogues are usually released two to three weeks before the auction event. While this allows sufficient time for interested parties to view a property (if they wish), it does not allow for the usual checks and searches. To some extent, this then means that someone buying property at auction is buying the property "as seen". However, tips from the professionals include:
-Finding out as much as you can about the local area. Remember to investigate crime statistics, transport links, school catchment areas, and try to find out about future development plans. In addition, pay close attention to the neighbouring properties. Do they look well-cared for? This sort of information is invaluable when determining whether a property might be cheap for a reason.
-Getting your solicitor to conduct as much due diligence in the form of searches as possible, as well as getting them to review any special conditions of sale, title deeds and the like.
-Considering getting a survey. It may seem counterintuitive to spend money on a property you have not even had a chance to make an offer on, but your potential future losses could easily outweigh this initial expense. For any property that is older than 75 years, a survey should be an absolute must. Equally, it is always wise to commission a survey on a property in an area known for subsidence in other buildings. As a minimum, a survey should give you comfort that your proposed maximum bid will not take you beyond ceiling sold property prices for the area.
-Taking a builder, architect and/or other relevant tradespeople to view the property. This can provide you with an invaluable heads-up on any structural problems, as well as a broad estimate of the cost of future renovation work.
-Talking to local lettings agents if you're hoping to rent out the property. It is all too easy for landlords, especially those buying outside an area they know well, to overestimate potential rents.
3. Making an offer before the auction
Don't rule out making an offer before the auction. Newcomers to the world of property auctions may be surprised that this is possible, but it is a recognised way of doing business. Of course, the vendor may not accept your offer, but you lose nothing by trying (other, perhaps, than the possibility of securing the property for less at auction). Tips from the professionals include:
-Making sure you have your finances in place before making your offer. If the vendor accepts your offer, exchange of contracts happens straightaway. This means that you must pay a 10 per cent deposit immediately, with the rest to follow within 20 working days.
-Remembering that if you haven't paid for the property in full by the date of the auction, the vendor is within their rights to withdraw from the sale and allow the property's auction to go ahead. If this happens, you would lose both your deposit and the property itself.
4. Getting your finances in order
Unlike having an offer accepted through an estate agent, a successful bid at auction allows no time for you to arrange your finances. If you need a mortgage, you must ensure that you have an offer in principle prior to the auction. Tips from the professionals include:
-Making sure you understand the payment terms before bidding at an auction.
-Investigating all possible finance options. You may want to think beyond the typical approach of taking out a mortgage. Bridging loans may be worth considering if you plan to sell on the property soon after buying it or if you hope to make it mortgageable following renovation work.
5. Telephone or proxy bidding
Don’t rule out bidding on the grounds of logistics. Property auction houses are well used to telephone or proxy bidders. Using a proxy bidder may be invaluable if you are worried about getting carried away on the day of the auction.
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