You can just imagine it. The adrenaline’s pumping, the auctioneer’s babbling at 100 miles an hour, he raises his gavel, and, with a bang, your first home or the start of a property portfolio is yours at a ludicrously low price.
There’s no doubt that it could be a good time to stick a toe into the mysterious world of the auction rooms. But you have to know what you’re doing so you don’t end up landing yourself a liability.
Good time to try the auctions?
The effects of last year’s interest rate hikes are now apparent in auction rooms throughout the country.
Research by property auction information specialists Essential Information Group shows the number of residential properties offered at auction had risen by over ten per cent in December.
The increase, according to the RICS was caused by repossessions, as stretched homeowners could not keep up payments following rate rises.
And though we’ve had two interest rate cuts since, the RICS estimate that the number of residential lots offered at auction will rise by 50 per cent this year.
But while the number of lots is up, confusingly, however, the percentage of properties that met their reserve price and actually sold at auction was down over 16 per cent.
This is, according to David Sandeman from Essential Information Group (EIG Property Auctions), because over recent years vendors have become used to a rising market and have been unwilling to settle for lower offers.
In this new climate, however, Sandeman predicts that not only will they have to come up with a sensible reserve, but the auctioneers will refuse to take on properties where they think the reserve is too high.
And while a small investor might hang on to a property rather than sell too low, institutions such as banks have may be happier to cut their losses.
Which is very good news for bargain hunters.
Brilliant bargains?
"People are always asking me if you get a bargain at auction," says Sandeman. "And I say it’s a very subjective thing.
"Say a property has a guide price of 100k and you’re prepared to go up to 120K, and I’m prepared to go up to 150K. If it goes for 125K I’ll think I’ve got a bargain, but you’ll think it was expensive."
You have to be realistic about the types of property that are sold at auction.
"Building societies are under a duty of care to the mortgagor to get the best possible price for their property," says Sandeman.
"In the vast majority of cases there have already been attempts to sell repossessed properties in the private market and they have not sold." This could be because they are in a bad state, have structural problems, or legal issues.
"Generally properties sold by estate agents are ready to move into. But at auctions properties need work so it’s difficult to compare prices.
"While the auction property may cost 20 per cent less it may need the equivalent amount spent on it."
But, says Sandeman, this is not necessarily a bad thing: "It’s a chance to put your stamp on the property."
How do I do it?
1. Try before you buy
Auctions can be confusing for the uninitiated, so before you’re ready to commit yourself have a dry run to find out as much as possible about how the sales work.
Get on a few auction houses’ mailing lists and read the catalogues thoroughly to find out the rules of engagement.
You’ll need to know the percentage you have to put down (usually ten per cent), how long you have to pay the remainder (usually four weeks) and the auctioneer’s administration fee (usually £170-400).
Then look for a couple of properties similar to one you might like. Book viewings, decide what you would pay and attend the auctions - but don’t bid!
2. Identify and research your property
When you’re ready to commit, find likely properties and start to research.
Remember that the auctioneer works for the vendor and it’s up to you to find out all about the property yourself.
Use house price sites on the web to find out how much similar properties have sold for.
Talk to locals and estate agents to find out what the area’s like, and if any changes are planned.
And try to Google the address too – you never know what might come up.
The HIP will be available containing all you need to know about the property’s legal status, but make sure you actually read and understand what’s in the documents (see below).
To assess the bricks and mortar the official advice is to get a survey done before you bid.
The disadvantage of this is that you could spend thousands on properties you’ll never own, so some people make do with taking round a knowledgeable builder.
Seasoned auction attendees who buy ten properties a day may buy blind, but they can afford to make the odd mistake and will offload a dud at the next auction.
If you can’t afford any mistakes it’s best not to take risks.
3. Sort your finances
If you’re borrowing on the property you will need a mortgage agreement in principle (AIP) before you start bidding.
Choose a lender who is not only willing to lend, but who will also come up with the money within the required time period.
4. Decide how much you are willing to pay
Don’t be seduced by the rock-bottom price guide next to a property.
The guide price isn’t what the auctioneer expects it to go for – it’s usually an indication of approximately where the reserve price lies.
The amount a property may actually sell for varies widely. If only one person bids a property can go for around the guide price, but if it’s a popular sale it can be double.
The important thing is to work out how much you would be happy to pay for the property and stick to it. Remember, if you overpay you could have difficulties raising the necessary mortgage.
5. On the day
If you really don’t think you can trust yourself not to get carried away and overbid in the adrenalin-soaked atmosphere ask someone else, a friend, relative, or solicitor to bid for you.
It’s possible to bid online or over the telephone, but it’s a shame to miss out on the drama of the event if you can possibly make it.
And, whatever you do, don’t forget your cheque book!
6. Avoid the auction
Some properties never make it to the auction rooms. Look for lots listed as "unless previously sold" as the vendors may be anxious to offload and happy to strike a deal beforehand.
Alternatively, look for properties that failed to meet their reserve price and see if the owners will take an offer after the auction.
Finally…
Some words of advice from David Sandeman.
"The credit crunch has scared off many of the private individuals and it’s now an opportunity for people to bag a bargain."
But, caveat emptor, buyer beware, has never been more pertinent. You’re in the lion’s den at an auction house, so protect yourself by finding out all you can about a property before you bid.
"Particularly beware of covenants," says Sandeman. "There was a case last year of a gentleman who came to a London auction and was outbid on the property he wanted.
"Another house came up in an area he knew, so he bid and won it for £45K and thought he’d got a bargain." But he hadn’t looked at the paperwork. "It turned out it had a compulsory purchase order against it for £36K."
Happy bidding!
Nikki Sheehan
The Essential Information Group
Essential Information Group covers the activity of every property auctioneer in the UK with over 36,000 lots being offered each year.
They are the only website that has full information on every property that goes to auction and the only website that is endorsed by all the property auctioneers.
Using their website will allow you to do 4 crucial tasks that are only available on EIG Property Auctions
- Search on what has happened to lots that have been offered in the past, including the all important full catalogue entry, location map and market trends
- Search on an ad hoc basis to see what is coming up in various areas and immediately see the full information on the lot without waiting to be sent a catalogue.
- Set up an "Auction Elert" to automatically notify you the moment a property that matches your requirements is listed for sale by an Auction House. Again you receive full details immediately.
- Search for lots offered at auction but remain unsold, a buyer's opportunity!
What makes them better and different from other subscription based sites? - No other site offers any of the above 4 facilities across the entire UK auction market
- No other site claiming to cover the entire auction market has the whole support, (if indeed any) of the complete Auction House community.
- No other site gives you a free "no obligation" trial period of their website and then a "cast iron money back guarantee" if you are not 100% satisfied.
Find Auction Property
| Feedback on this story: |
From: James Aylen
Date: 10 March 2008 I think that this means there's a better chance of getting a bargain at auction and I for one have to recommend the superb service from the Essential Information Group as I've been a happy subscriber of theirs now for over 4 years. |
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