How To Buy Property At Auction
|
Are you a househunter looking to snap up a property on the cheap?
With the property market easing and homes now taking longer to sell,
property auctions offer sellers a quick sale and buyers the chance to
bag a great property bargain.
And with Royal Institution Of Chartered Surveyors (RICS) predicting
there will be 123 repossessions every day this year - an increase of
50% on last year - it looks like auction rooms in 2008 could be
busier than ever.
Already, there are signs that selling at auction is becoming more
popular. RICS claims nearly 5,000 homes were sold at auction in
the third quarter of 2007 -- a 5% increase on the same period in 2006.
Homes Under The Hammer
The main advantage of buying at auction has to be the no-nonsense approach to the sale.
Unlike the traditional route (which usually takes around 12 weeks from
the day an offer is accepted until contracts are exchanged), once the
hammer goes down at auction, you have effectively exchanged
contracts, and neither party can back out.
This eliminates the anxiety many traditional buyers face before contracts are exchanged, such as being gazumped
by another buyer with a higher offer, or being left without a home
to move into if the seller decides they no longer want to sell their
house.
At auction, if your bid is accepted, you pay a deposit of around 10% on
the day of purchase, and generally have 28 days to complete the
transaction. There is no property chain.
But the most attractive aspect of buying at auction, for me, is the
potential to pick up a quirky property at a bargain, knock-down
price. Homes often end up at auction because the sellers
need to sell quickly. Many of these properties have been repossessed
and have seen better days, so the reserve price can be low. Some will
need extensive renovation work while others may be unconventional
in some way, and so will only appeal to a niche buyer.
All this means you stand a greater chance of finding a bargain at an
auction than in an estate agent's window. After all,
at auction, the seller can't mull it over and wait for a higher
offer. There is no estate agent around to push up the price or
advise the seller not to accept your offer. And if, on the
day, nobody else is interested in buying the house you're bidding
on, then it's yours for your first bid!
However, it's not all plain sailing. And as buying a home is probably
the single most expensive purchase you'll ever make, it's important to
be aware of the pitfalls of buying at auction, as well as the benefits.
So before you go bounding towards your next auction, here's a quick
guide to what you can expect.
Great Expectations
The first thing you should do if you're looking to buy at a property
auction is to request a catalogue. This will include a list of
properties up for sale, together with detailed information and guide
prices for each lot.
The types of property you're likely to find at auction can vary
immensely. Ranging from the weird and the wonderful to the
downright dilapidated, properties for sale at the
auction I attended included an ex-post office, some garages, and
even an ex-telephone repeater station.
While repossessed homes certainly feature, as mortgage
lenders like to offload these properties quickly, don't assume that all
homes for sale are those which have been repossessed. Estate
executors and local authorities also often choose to
sell their properties at auction. Quite simply, any seller
who wants to sell their home quickly, without any possibility of a
breakdown in the chain, will prefer
an auction.
If you find a property you're interested in, go and see it! Only by
viewing the property can you find the true meaning of ambiguous
catalogue terms such as ‘in need of upgrading' and ‘in poor decorative
order'.
You will also often discover things not mentioned in the catalogue. One
lot which looked like a bargain was in fact located right next to a
sewage works. A feature conveniently left out of the catalogue
description, and something I only found out from visiting the site.
The catalogue will usually publish a viewings list, where you can go
along to view the property at allotted times closer to the auction
date.
Put Your Money Where Your Mouth Is
If all is well, then the next, and most important step is getting your finances in order.
If you're not fortunate enough to be a cash buyer, then you'll probably need help from a mortgage lender.
Some people mistakenly believe that just because a property is sold at auction, you won't be able to get a mortgage
on it. This is not true. However, all lenders in England and Wales
require you to have a survey and valuation completed before they will
lend you any money. They also require certain legal checks to ascertain
ownership of the land. And this means you will have to shell out
hundreds of pounds in fees. Please note that different rules apply in Scotland, where buyers are offered more protection.
With a normal sale through an estate agent, you would only do this once
your offer has been accepted by the seller. With an auction, you have
to shell out these fees before the auction, as once that hammer falls
on your bid, you are 100% committed to the purchase and must have your
finance in place.
You may be reluctant to risk forking out for valuation and legal fees,
for fear you will be unsuccessful on the day of the auction. You may be
even more reluctant to shell out for a structural survey or homebuyer's
report, which looks in more detail at the condition of the property.
However, if you close the deal only to find the survey reveals some
major problems with the house, or the valuation falls short of the
price you paid, then you'll be in big trouble. Mortgage lenders will
only lend you the amount the property has been valued at (minus
whatever deposit you are expected to put down to get that particular
deal). It doesn't matter to them whether you have paid more than that
figure. And if you haven't got the funds to make up the shortfall
between the mortgage lender's valuation and the price you paid, then
you will lose the 10% deposit you put down on the day on the auction.
There is another reason why it is risky to buy a
property at auction without getting an agreement in principle from
the mortgage lender beforehand: time. After the auction, you only have
28 days to complete the transaction or you will lose your
deposit - and unfortunately, despite all the technological
advances of the 21st century, it can still often take more than 28 days
to apply for and get mortgage funding. That's why, if you are
buying at auction, it's a good idea to use a broker who can put pressure on the lender to speed up the process.
Check The Small Print
Before the day of the auction, your solicitor should request a legal
pack from the auctioneer. This should contain all the legal documents
for the property, including its entry on the Land Register together
with other legal searches required by the mortgage lender (for
example, the environmental and local authority searches). These
are required because they can reveal problems which affect
the value of the property, so even if you're a cash buyer I'd highly
recommend you look over these carefully.
The pack should also include any ‘special conditions' relating to the
sale. It is absolutely vital that you read these, as they list specific
details which fall outside the general conditions of sale.
This can be anything from a shorter completion date to the seller
requiring the reimbursement of part or in some cases all of their legal
fees. The last thing you want in a no-nonsense auction is to suddenly
be surprised with additional costs because you didn't take the time to
read them.
The packs cost around £15 per copy or can also be viewed for free on the day of auction.
The Big Day
Once you've done all your homework, attending the property auction is
as easy as pie. If you're looking to make a purchase, you will need two
forms of identification to prove your name and address, together with
your chequebook to pay the deposit and any auction fees.
When you arrive, the first thing you should pick up is an ‘addendum
sheet'. This includes any amendments and additional information to the
properties listed in the auction.
Read this very carefully, as some changes listed are far from minor. In
the property auction I went to, a misprint meant that one of the
properties only had two bedrooms instead of three, and in one case the
property was changed from leasehold to freehold. As this shows, you
could make a costly mistake if you fail to take note of any changes
before bidding.
If you can't make the auction in person, you can always make a proxy
bid or bid over the phone. Details of how you can do this can be found
in the auction catalogue.
Going, Going, Gone!
Once the bidding starts, it's very easy to get carried away, especially
in such an intense atmosphere. You're likely to be surrounded by some
heavyweight professional investors, some of whom have very deep
pockets, and as I discovered, the slick haircuts to match.
Try not to be intimidated, but whatever you do, don't be tempted to bid
more than you can afford or higher than the valuation of the
mortgage lender. In the heat of the moment, raising your hand for just
one more bid can end up snowballing into thousands of pounds.
Auction virgins are advised to sit in on a few auctions to get a feel
of the atmosphere. Once you've gained an idea of what to expect, the
actual process of completing the sale is simple, transparent, and
final.
So if all goes well, it will be the quickest, and dare I say,
the most exciting purchase you'll ever make - and hopefully at a
bargain price too.
More: How Big Was The Housing Boom? / Find A Better Deal On Your Mortgage
