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Auctions have become particularly popular in the current property downturn; savvy buyers see them as an opportunity to pick up a bargain with desperate sellers wanting quick sales. They are traditionally the place to find unusual properties, run-down ex-housing association houses or repossessions, but now there also tends to be a number of private sellers who haven’t been able to sell via a traditional agent. The auction offers the attraction of a quick sale without lengthy discussions with lenders, surveyors, solicitors and estate agents
Properties go to auction with their guide price, but this often goes out of the window when a bidding war starts or there is a flood of interest in a particularly interesting property. For example, a two-storey toilet block in Fulham recently sold for £403,000 – more than four times its guide price. Guide prices can be set especially low by banks wanting to sell repossessed homes on quickly – these sorts of properties normally make up for around 10-20% of the total auction stock. Housing associations will also auction houses that they consider to be not financially viable to maintain.
As a seller, auctions can be risky. Although you can set a reserve price, under which the property will not be sold, if it is set too high there could be little interest in the property and it may go unsold. However, the odds are in your favour; according to Savills, around three in every four properties that go for auction are sold.
1. After identifying the property you would like to bid on, go and view it with a builder to get a good idea of how much any necessary renovations are going to cost you.
2. Talk to estate agents about how much it is worth and check internet sites such as houseprices.co.uk to find out what similar properties in the area sold for.
3. Having done your homework on the value of the property, you will now be able to add the renovation costs to the auction guide price to work out how much you are willing to bid – if indeed, it’s worth bidding at all.
4. If you’re serious about the property, invest £300-£500 getting a homebuyers report.
5. Hire a solicitor with an expertise in auction property and engage the services of a mortgage broker that specializes in turning loans around very quickly; you will need to pay a 10% deposit on the day of the auction and the remaining balance 28 days later.
6. Beware that auctioneers can make last minute changes so make sure you scrutinize the small print on the day.
7. Going on one or two “dry runs” to get the feel for how the auction house works is advisable.
8. Take along your solicitor or a friend when you are intending to bid seriously for a property – they can stop you getting carried away.
9. Look out for houses being auctioned outside their local area – it could mean fewer bidders to compete against.
Be aware that even after you’ve made the winning bid, the deal could still fall through if the mortgage company think that the house is not worth as much as you are paying. Another reason to know your limit.
