Buying property at auction can offer many advantages, principally the opportunity to get a good ‘deal’. However there are also some significant potential pitfalls, particularly for those inexperienced in this fairly specialised area or in the market they are thinking of investing in.
This article highlights some of the things you need to take into account.
Before buying property at auction, go to a couple of sales to see at firsthand how they work. It will make buying a property through this route less daunting and familiarise you with the process. Order some catalogues to get a feel for guide prices in the area you want to buy and yes watch a few episodes of Homes Under the Hammer, you might be surprised at what you pick up.
The catalogue gives you the description of the property, details on how to view each property and usually the conditions of sale, so it is vital you read these. You may also be able to get a pack about the lot you are interested in from the auctioneer who will include details of title deeds, leases and searches. Ideally don’t buy in an area you’re not familiar with to some degree. However, if you want to then at least take the time to research online and if at all possible visit the area or speak to agents who operate or are based there.
Always go and see the property rather than just buying based on the catalogue description alone. If possible, take a builder or someone whose advice you trust with you so you can at least assess how much work the property might require.
Check websites such as primelocation.com etc to find ‘sold’ and ‘rental’ prices of similar properties in the area to help you work out what might be a fair price for any property you are interested in.
If you are buying a property to let out, then you need to know about the rental market there. For example, is there a university or hospital nearby which might provide you with a steady stream of tenants, are there good transport links? You should also check the market in the area you are interested in isn’t already saturated with rental properties. The lettings portals should be able to provide you with information on rental trends etc but there is no substitute for local knowledge, find a ‘friendly’ local agent and ask them. Belvoir Lettings Dundee is always happy to give an opinion about a potential purchase in our area or even just have a general ‘natter’ about the market.
University cities (like Dundee) can be particularly profitable as there will always be a need for rental accommodation, even though a lot of ‘purpose built’ student accommodation has been built in Dundee in recent years it is very expensive and students (and their parents soon realise this). Don’t necessarily be put off by the idea of ‘student’ tenants, just like any other kind of tenant they come in the ‘good, bad and bloody awful’ groupings, any reputable agent will thoroughly vet them and insist on a guarantor. It’s very gratifying so witness how fast some of them start cleaning up when you tell them if they don’t then you will be on the phone to their parents.
It is essential to get a survey on any property you are considering buying at auction. You may lose your survey fees if it proves unsuccessful but believe me ‘better safe than sorry’, don’t cut corners.
Carefully read the conditions printed in the catalogue. Always get legal or professional advice from a solicitor, surveyor.
Make financial arrangements to ensure you have a 10% deposit ready for payment on auction day (most auctions will require this), when the contracts are signed and access to the remaining 90% within 28 days.
Plan ahead if you need mortgage assistance. It’s wise to arrange a mortgage in principal with a bank or building society before buying at auction. You could lose your 10% deposit if you fail to complete within the time given (normally within 20 working days).
Be aware that buying at auction is a binding commitment, check what the situation is with the auction you plan on attending and if the law may be different where you live to where you’re buying e.g. England to Scotland.
Before you go to the auction, have a firm idea of exactly how much you can afford to spend and don’t exceed the limit you decided on. Just because other people are pushing the price higher and higher in the auction room, it doesn’t mean the property is necessarily worth it. Don’t get carried away with a sudden rush of blood to the wallet.
Never leave yourself financially overstretched and remember that property prices could still fall, so you should avoid at all costs leaving yourself exposed to being in a position of negative equity – where the property’s value is less than the mortgage you have on it.
Remember to take two forms of identification, cheque book 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.
On arrival, 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 able to see you bidding clearly.
When placing a bid, make sure you gesture clearly at the auctioneer. Subtle twitches and winks will not be picked up. Either raise your hand or nod/shake your head clearly. 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.
You will need to put down a deposit at the auction of 10pc of the property’s price there and then if your bid is successful, so make sure you have the funds available. Take your cheque book with you to the auction and at least two forms of identification.
As well as mortgage and survey costs, don’t forget to factor in legal costs, renovation and refurbishment costs, running costs, and insurance costs. There may be a ‘buyer’s fee’ to pay at the auction house, which usually ranges from £150 to £500, so check if there is one before the day.
Remember that you will also have to pay stamp duty on properties if the property falls into that bracket.
Finally if you want any free advice or a rental valuation then drop me a line with the details at nick.horan@belvoirlettings.com
