Having watched a few TV programmes about buying properties, doing them up and renting them out, you’ve decided you’d like to do the same. You have some savings in the bank and now you’re dreaming of becoming a property tycoon.
You eagerly search the internet and flip through the pages of your local newspaper looking for houses in your area that are going to be auctioned off. After all, this is how they do it on TV.
Auctions can be a really good way to get into the property market – you can buy a property easily and quickly if yours is the final bid – but be warned: there are some pitfalls.
Why are auctions a good place to buy property?
Very often at auctions you can find unusual, quirky properties that estate agents find hard to sell, or you can pick up a bargain property that needs renovating. Auctions are not just for experts who have experience and insider knowledge, they’re now popular with ordinary buyers who want to avoid the slow-moving house buying chain.
Once the hammer falls at an auction, a sale is concluded, and unlike traditional methods there’s no risk of the sale collapsing at the eleventh hour. A sale at an auction is very transparent, as you get to see all the bids as and when they’re made.
What are the downsides to buying at auction?
One of the big downsides is losing your head and getting involved (and carried away) in a bidding war. If the price of a property is pushed beyond your budget, stop bidding, otherwise you’ll lose money and may not be able to afford all the repairs and renovations you had in mind.
What are my costs going to be?
The costs you need to allow for are:
- Auction house fees – these may be represented as a percentage of the final bid price or a set admin fee. In some cases, you’ll also be responsible for the seller’s fees, so check with the auctioneer before the sale takes place
- Your solicitor or conveyancer’s fees
- Stamp duty
- The cost of insuring the property
How do I find an auction?
Once you’ve decided on the area/s you’d like to buy a property in, check the property pages of local newspapers and search online. You should also contact local auction houses and ask them for their sale catalogues.
How should I prepare for an auction?
- After studying the auctioneer’s catalogue, draw up a list of properties, then call the auction house and make a time to view these. It’s a good idea to take someone with building experience with you so you know exactly what you’re letting yourself in for and how much it could cost to refurbish the property.
- Before the auction, decide what your maximum bid on a property will be and don’t, or try very hard not to, bid any more.
- If the property you have your eye on is in disrepair, you might like to consider paying for a survey. In this way, you’ll be sure there are no surprises. But it will add to your costs.
Ask the auctioneer for a legal pack
Auctioneers will normally provide legal packs for the properties in their catalogue. These packs contain title deeds, local authority and environmental searches, a list of fixtures and fittings, details of the seller, and leasehold information. Ask your solicitor to go through the pack to make sure everything is in order.
Beware of an auctioneer’s guide price
In an effort to attract more bidders, auctioneers often set a guide price that’s much lower than the price the property is finally sold for.
Show me the money!
If you’re going to need a mortgage, ask your lender to let you have a ‘mortgage approved in principle’ letter before the auction. If your bid is successful when the hammer falls, you’ll have to pay a 10% deposit there and then, with the remaining 90% payable within a month from date of sale.
If, for any reason, you can’t come up with the balance, you’ll lose the property and your deposit. You may also have to pay the costs of re-selling the property, as well as make up the shortfall (if any) between your agreed price and the final selling price.
What to do on the day of the auction
- Keep calm and play it cool. Try not to get caught up in the heat of the moment.
- Get to the auction in good time and sit in a spot where the auctioneer can see you easily.
- For identification purposes, take your passport or driving licence and have proof that you can pay the 10% deposit.
Going … going … good luck!
Article provided by Sara Bryant, an independent content writer working alongside a selection of companies including Silk Sharples Jennings Surveyors, who were consulted over this post.