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| © Nick Kane |
It's quick, it's exciting and it takes some nerve ' we're talking about buying a house at an auction. Get it right and you can make some great deals ' get it wrong and you can end up in big, big trouble.
There are golden rules to buying at auction and if you follow them you won't get burned and you could end up with a dream home at a fraction of the price you thought you'd have to pay for it.
Let's consider the appeal of the auction and what is likely to be on the market. The obvious attraction is that prices can be up to 40 per cent less than in the estate agent's window.
The idea is that the seller can quickly realise their capital from the property ' albeit at a lower price but what they gain is as good as an instant cash sale.
Mortgage lenders often put up repossessed properties for auction usually at deliberately reduced 'reserve' prices simply because they want to offload them quickly to realise their cash and the amount owing ' the money the mortgage lender is intent on recouping ' is unlikely to be anywhere near the market value.
Local authorities and housing associations also sell property this way. More often it is about immediate cash flow and the ease with which money can be accessed. Other properties put up for auction will be those with development potential, probate sales and homes that are difficult to sell. It is rare to find a property for sale at auction that can be moved into straight away. Around 25,000 properties now go to auction every year at more than 200 auction houses nationwide.
To be successful at auction the approach has to be right, you must do your homework and if you really are serious, you will have to speculate by spending money before you start bidding.
You will need to have your survey, or building society valuation, sorted beforehand as well as the conveyancing. The mortgage needs to be in place before you bid. You also have to move fast and there is much greater uncertainty than buying a home the traditional way. The auctioneer's hammer will fall on the highest bid and that is it.
The timescale from the announcement ' basically when the auction catalogue showing all the 'lots' for sale is printed ' to the date of the auction is often only three or four weeks. But with the right approach you can put all the pieces in place.
Succeed and you will more than likely have saved money and not become involved in a dreaded chain. If you're nervous about the auction process you could get your solicitor or surveyor to do the bidding for you. You can either stand beside them or, if you prefer, could stay chewing your fingernails while waiting for the phone to ring.
GOLDEN RULES OF BUYING AT AUCTION
As you would with a house that you were following up through an estate agent you would view the property. The basic details are in the auction catalogue but you need to be more thorough ' especially if you are seriously keen. When you turn up there will be the unnerving experience of looking at the house with a number of other people but do not be put off because the fallout between the viewing and the auction is huge.
Look at the property closely, gamble if you want on a survey but remember this could cost £500 or more and you might end up being outbid. It is a good idea to take a long look at the neighbourhood as well, the usual research you would do with any other property purchase ' including travel routes, shops and other amenities.
Are there any obvious problems? Is it likely to be noisy? Does the property back onto a railway line? Is it on a major flight path? Is it in the heart of the red-light district? These are things that you need to know, which is why it is a good idea to visit the house and the area at different times during the day.
If you are still convinced this could be the home for you visit local estate agents and see what the asking price is for similar properties. You now have a yardstick and can start planning your strategy.
For peace of mind it is worth considering a full survey done to protect you. It's possible the property is for sale because there is a structural problem ' something a simple valuation will not reveal.
And planning has to be precise. You need to be organised, and you need to devote time to the project. Caution and common sense are the watchwords and remember when the bidding starts it goes up in units of £5,000. The auctioneer will let it be known when the property has reached its reserve price.
Once the bidding starts to level off, the incremental rise in bids will be by £1,000. You should have a ceiling to the amount you are going to bid and avoid, at all costs, the temptation to push on that little bit further to get the place. But just because someone else is bidding higher does not mean the property has suddenly gone up in value. By having a valuation done beforehand you should know what to pay.
You need to remember that, as soon as you have made your auction bid and are successful, the property is your liability. You cannot change your mind just because you later discover it is too small. And if you renege on the deal, you will lose your deposit, and, if the property is offered for sale again and gets less than when you bought it, you may be sued for the difference.
Ensure you can genuinely afford to bid and take into account your total costs, including solicitors' fees, any repairs, renovation or redecorating, your mortgage and move costs. Work out what the absolute maximum you can afford then set your budget a little below this figure because you don't want to be overstretched.
It is a good idea to have a dummy run and go to a property auction where you have no4 intention of buying just to get a feel for the process. It really is a case of look and learn.
If you are successful you will need to pay a deposit (usually 10 per cent) as soon as your bid is accepted on the sale day. If you are a first-time buyer you will probably have that much available anyhow. Normally this money is paid as a banker's draft or building society cheque. Next you have to put together the finance to pay off the rest of the bill.
Ideally you should have a firm offer of a mortgage before you go to the auction and you must also tell your lender that you are buying at auction. Most lenders will probably be happy enough with this. You have your limit and it is easier to be granted a £100,000 mortgage and then reduce the amount that you borrow, then work the other way round.
And unlike a normal purchase, solicitors or conveyancing agents do a good proportion of the work before you actually agree the sale. They have to complete the local authority and other searches as well as making sure that the owner and property are accounted for at the Land Registry.
The auctioneer usually has copies of various legal documents that are kept available for prospective buyers. They may charge you a fee of around £10 for a pack that outlines the property's special conditions of sale and some details about the title deeds.
AUCTION INFORMATION
The real battle is finding homes that are for auction. The best way is to search on the Internet, check the local paper and ask at estate agents. On one site that lists houses coming up for auction, a three-bedroom home in Middlesex was down as likely to reach £165,000 in an auction. Interestingly, virtually the same house was being sold through estate agents for £15,000 more. And this is the attraction of auctions ' if you get it right, you get more home for your money.
THE DAY OF THE AUCTION
Remember to take two forms of identification, chequebook and all your banking details with you to the auction. If possible, arrive early and familiarise yourself with the empty auction room. On arrival, you may need to register with the auction house in order to bid prior to the start of the auction. Check with your auctioneer.
Get a copy of any addendum sheet. These are distributed around the auction room and contain late information or alterations. Don't assume that all the properties included in the catalogue will be offered on the day of the auction. Some may be withdrawn or sold prior to the auction.
Take a seat or stand somewhere in the room where the auctioneer will clearly be able to see you bidding. When placing a bid, make sure you gesture clearly by either raising your hand or nodding your head. The auctioneer will warn the room when he is concluding a sale.
If a property fails to reach its reserve price, don't give up. The vendor may decide to accept your bid later at the end of the auction. Make sure you leave your details with the auctioneer.
Don't forget that the property becomes the buyer's insurable risk as soon as the hammer falls. The conditions assume that the buyer has acted like a prudent buyer. If you choose to buy a lot without taking these normal precautions you do so at your own risk.
Case Study
Andrew Grant, of Andrew Grant Estate Agents in Worcester, had an unusual auction on his hands in the heart of England.
"One of the 12 lots is a gamekeeper's cottage in 10 acres near Hanbury, the village that was the model for Ambridge in The Archers.
"I sold the cottage for £500,000 about 18 months ago to an elderly Lottery winner who has since died, leaving it in a very poor state. We had set a guide price of £550,000, which was upped to £600,000 and then removed after we received a £700,000 bid from someone who said he wouldn't be attending the sale.
"The trustees, however, charities that would benefit, wanted to continue with the auction. It was an instruction I hoped they wouldn't come to regret.
"All my initial fears proved unfounded. Three familiar faces turned up to bid for the gamekeeper's cottage, which went for a staggering £950,000. In fact, every lot sold and all my clients were happy.
"Slight worry later in the day when a buyer had cold feet because there was nowhere to park his sports car. Our client is a wealthy and very polished businessman. Realising the buyer is upwardly mobile and moving from a little box, we pat him on the back and says that when you live in an Elizabethan mansion, you don't need to drive a Porsche."
