You may have noticed them already. Signs advertising repos up for auction have been erected, press and TV ads are out there, and the traditional British auction world is looking on with grim fascination.
Like the circus rolling in, REDC, the US repo auctioneer show, has come to town, and it’s kicking off on March 31st with five sales promising fun, finance and fantastic bargains.
Appealing perhaps more to first-time buyers looking for a low-cost step onto the property ladder, or investors seeking an initial foray into buy-to-let, the lure of bargain prices, combined with US-style razzmatazz, promises to make it a fascinating spectacle.
If the housing auctions follow the US format, we’ll be expecting James Brown anthems, whistles blowing, tuxedoed ‘ring men’ getting over-excited at every bid, and the sort of atmosphere of religious fervour that Brits usually reserve for football.
So, what’s new? Spokesperson for REDC, Ross Clarke, told me that the differentiating factor is largely in terms of style, though he was unable to confirm whether we would be treated to any James Brown.
But there are a few more factors to take into account, some of which have caused those in the business to be concerned that it could all end in tears.
1. The Fee
Perhaps the most obvious is the fee charged to the buyer. While British auctioneers will take a cut of 1-1.5 per cent, and often ask no fee from the buyer, REDC plan to charge buyers a whopping ten per cent plus VAT.
This is double the fee they ask in the US, and, when the VAT is added, it is a figure that could have serious repercussions on the price obtained by the mortgagors.
David Sandeman from the property auction information service EIG Group, believes this could cause problems for the banks and building societies trying to shift their stockpile of bad debt.
"A mortgagee in possession has a clear and fiduciary duty to obtain the best possible price for the property and minimise the loss to the borrower," says Sandeman.
"Given that any prudent buyer would discount their top bid by 11.5 per cent, to take into account the buyer's premium, one has to ask is the lender acting in the best interests of the borrower?"
Christopher Coleman Smith, Head of Savills residential auctions, says, "It’s a cheapskate way of doing things. They’ve done a deal with the vendors where there’s no charge for them, and they get all the money from the punters in the room.
"I’m surprised at the vendors going down that route."
2. The Promotion
As well as the press and TV advertising, REDC has said that it will be following the US format with boards outside the properties advertising the fact that the home has been repossessed.
A great marketing ploy, or a cruel final humiliation for the home’s previous occupants? Well, it depends where you stand.
Not many of us would want to see such a sign next door to us, and fears have been mooted that local property markets could be affected by the use of the ‘R’ word on signage.
However, perhaps we’re being unrealistic. The manager of one estate agent in Eltham, who is conducting viewings on behalf of REDC, certainly thinks so.
"People buy repossessions every day, and by the time a sign goes up there have been bailiffs sitting outside, and people coming to change locks, so most of your neighbours would know anyway."
3. No Starting Bid
The company claims that there is no starting bid, but, according to their small print, they reserve the right to bid, on the seller’s behalf, up to the reserve price.
This suggests that, as in the States, there may be false bidders among the crowd, pushing the price up, a practice known as shill bidding.
According to David Sandeman, it does happen here that a vendor will have people pushing up the price on their behalf, but is a practice generally frowned upon by UK auctioneers.
4. The Price
What most people attending the auctions will be keenest to know is whether they will really be getting a bargain?
They may, but because the company say they will not publish their results, it will be impossible to monitor whether or not this really is a good way to buy property cheaply.
You can’t even rely on the Land Registry statistics to find out, as it has a policy of not publishing the sale price of repossessions.
As an added confusion, no guide prices are given for the properties for sale, only 'previous valuations'.
Winning a housing auction at well below the previous valuation won’t necessarily mean you’ve bagged a bargain, because these valuations seem to bear little resemblance to the most current price.
Five minutes spent playing detective on their site will show that many of the properties listed are currently being marketed elsewhere at a lower price than their given ‘previous valuation’.
For example, a two-bed home in Gravesend listed at £162,500 is actually on the market at only £109,995. And a five-bed home in Poole listed at £1.5 million is now advertised on the market for £1.1 million.
So, anyone seriously interested in a property would be well advised to take the previous valuation with a pinch of salt and conduct their own research.
5. The Finance
The other thing that REDC is selling is mortgages.
Although you can obviously pay in cash, or arrange your own finance, the pressure is on to take advantage of the finances on offer at the auction.
However, before signing anything, it is worth knowing that REDC UK Limited is not authorised by the Financial Services Authority to give mortgage or investment advice.
Do Your Homework
Christopher Coleman-Smith says that it may be exciting on the day, but remember to do your homework.
"If you go to an auction you’ve got to take responsibility for your actions.
"Get your own finance sorted out, do your due diligence and make sure you’ll be happy with the property, then keep your fingers crossed. And remember - it’s a serious business."
Will it work in the UK?
So are we ready for the REDC experience? David Sandeman is doubtful: "The private buyer market can’t operate in the auction environment. It has always been the preserve of the professional investor.
"People will be interested; they think because it’s an auction it’s going to be cheap, and they’ll send out lots of catalogues, but people won’t be able to move quickly enough to buy."
And, says Sandeman, we’ve seen it all before. "The American auctioneers, Kennedy Wilson, came over in the early nineties, playing loud music. It didn’t work. They only did one set of auctions.
"We do things differently in England."
Nikki Sheehan
From: Kong Ye Chung
Date here 28/03/2009 Very good and informative story, I am hoping to be a FTB and after reading the small print on the REDC website I realised that it wasn't all that it was cracked up to be. Houses are still over valued and knowing that there may be fake bidders in the room has strengthened my resolve of how much I am willing to go upto including the commission they charge. Thank you. |
From: Chris Neville
Date here 28/03/2009 Very good, although have you bought the copyright for that picture of James Brown?! |
