Buying property at a property auction.
What type of purchaser are you?
Buying at Auction means you get the deal done quickly. As soon as the gavel (that's the auctioneers hammer) falls and you were the last bidder then the property is yours. Unlike buying through private treaty (the normal way using an estate agent) there's no gazumping, and no chains breaking down, once that hammer has gone down that property is sold. There are lots of good bargains to be had at auction (some not so good bargains as well) so you can find that ideal property at a knockdown price. Buying at auction isn't for everybody but if you've decided to buy at auction, whether for investment or to buy your dream home, then there's definitely a gem out there for you.
There are three types of person that will buy at property auctions. The first type will be looking for their dream home. Somewhere they can purchase a house at a house auction for a good price still leaving them some cash in their back pocket in order to be able to renovate the house and make it into the home they dream of. The second type of person are property investors looking to purchase a property at a good price giving themselves an asset which accrues value over a number of years while paying them an income from rent which they charge to tenants. The third type of person that buys at auction is looking to purchase a property with development potential to enable selling on for a profit. These investors either buy a house that is basically sound but in need of renovation or buy the plot for the land and tear down any existing building and replace it with a brand new home. To tear down, radically change, or erect a brand new building means that planning permission will be required. If the plot is purchased with planning already in place then this pushes up the initial purchase price of the plot. Parcels of land that are sold with no existing dwelling upon them and no planning permission in place are said to be sold with "hope value" meaning that the investor is buying speculatively on the basis that at some point they will get planning permission to develop the plot in some way.
All three types of purchaser at an auction although they may have different requirements for the end product must all obey certain rules and follow certain procedures in order to find and make sure the property they are interested in meets their requirements. Property auctions aren't for everyone but if you're interested then read on.
Find the property
All three types of possible auction purchase start with identifying the area that you are looking in. This could be a small area or very large area. Obviously the more you focus on one particular area the less opportunities you are going to find and you will have to scour the auction catalogues diligently one by one finding the particular properties in the right area that meet your requirements. To find all the latest property auction action use this site
www.propertyauctionaction.com to locate the auction houses, auction dates and browse the auction catalogues. The catalogues give some brief details of each property and some give an indication of who the vendor is be it a housing association or a bank where they have repossessed the property.
When you purchase a house you will normally be buying the freehold. When buying a flat you will usually be buying the leasehold. Freehold means you own the land and property outright where as leasehold means you are only renting the land and property upon it until the lease expires although in practice you can pay an agreed sum of money to the freeholder to extend the lease if it is nearer completion but that can be costly. Banks will not normally give mortgages on leases that have less than twenty-five years to run.
If you buy a flat that is freehold you will not find it easy to get a mortgage. This is because the freeholder will be responsible for maintaining the fabric of the building. When a flat is leasehold there will be a management company that is responsible for maintaining the structure and common areas. There will be a charge payable annually by the leaseholder for this service. Normally the leaseholders are represented on the board of the management committee for the building thus making sure the leaseholders views and interests are aired to the management company.
Before the auction
When you have identified a possible property there are certain initial actions that you can take to check the integrity of the property that will not incur much cost. First of all check the purchase prices that have been paid on similar properties in that area with one of the websites listing the property transaction information such as
www.ourproperty.co.uk. To view current asking prices use one of the online estate agencies like
www.rightmove.co.uk that allows you to view properties for sale in the area that you specify and that meet your criteria. To get a guide on the demographics of the area use a website like
www.checkmyarea.com or
www.upmystreet.co.uk. It can also be useful keying in the postcode in with quotes into
www.google.co.uk or the street and town name as this can throw up information about the area. Many council websites now have search facilities allowing current and previous planning applications to be viewed online. For a small fee a copy of the title register and plan for property in England and Wales can be downloaded from the Land Registry at www.landregistry.gov.uk usually showing the price paid for the property as well. If your initial research makes the property worthy of further evaluation then the next stage should be to contact the auction house and request a copy of the legal pack. There maybe a charge for this usually around twenty five pounds. The pack may merely consist of some electronic documents that can be retrieved online or maybe a more substantial bundle of paper documents that you can view at or have delivered from the auction house offices. Legal packs typically contain title deeds, previous land surveys, structural surveys and other papers relevant to the sale of the property. Read through the legal pack carefully to identify any potential problem areas. These could be covenants that restrict the use of the land and or property or which give the previous owner or surrounding neighbours rights to cash sums if for instance you are looking at purchasing a parcel of land for development. Covenants can also relate to rights of way or maintenance of ground and or other buildings.
At this point you may decide to get your solicitor or conveyancing agent involved to perform the legal checks and searches upon the property. Although this will involve real cost you will need to get your solicitor involved at some stage should you be serious about bidding for the property at auction. Solicitors perform the searches upon the property that identify potential problems such as the ones mentioned earlier as well as checking the lease agreements if it is a flat that you are looking at. Flats are mainly purchased as leasehold. When a flat is leasehold there will be a management company that is responsible for maintaining the common areas. This management company will need to be checked out along with the accounts. Any works that are due to be performed need to be accounted for and a cost so you know what service charges you are likely to incur in the future. Flats are also often subject to peppercorn rents payable to the freeholder on an annual basis. These are usually small but can be increased at
agreed schedules subject to the lease agreement. Flats are often subject to freeholds that are held by chancellery bodies and could therefore be liable for the upkeep of ecumenical ground or property on or around the land upon which the flats are built. This will be identified by a chancel check. Other checks that solicitors perform relate to the services that may or may not be connected to the flat such as water, drainage and electricity and also to the legal title and use of the property or land. Restrictive covenants prove to be expensive to get removed.
Having performed some initial investigation you will then need to visit the property and check out the surrounding area. At this stage you may want to take a surveyor along with you. I would always recommend getting a surveyor involved at some stage before the auction especially for established houses. Most auction properties have a timetable setup by the auction house for viewing the property. This is normally published online. Phone the auction house in order to register your interest in the property and also take this opportunity to ask them for some more details about the property e.g. current condition, neighbourhood etc and how much interest has been shown in the property so far. Sometimes it will be down to a local estate agent to organise the viewings and again the same type of questions can be asked of the agent as listed above. Agents are normally a good source of information regarding the property and area and most are usually only too willing to discuss these maters with you. If you are buying to renovate or develop and then sell on then agents can give you and idea of the potential resale value.
Sometimes if a property fails to meet its reserve it maybe be put up for auction again with the same or different auction house. Look out for properties that are being auctioned second time round and find out from the first auction house what the reserve was. Although a property may have a guide price this does not necessarily mean it will sell at that price as the reserve set by the vendor is invariably higher with the guide price being published set to conjure up interest. As a rule of thumb expect properties to sell for between ten and thirty percent above their guide price. At this point decide what the highest bid you are prepared to pay for the property is and make sure these funds are available to you before the day of the auction.
At this point use all the information you have accumulated up to now to evaluate the maximum price you are prepared to pay for the lot on the day of the auction. Of course you can always make a pre-auction bid. To do this contact the auction house and inform them of the lot and amount to you are prepared to pay pre-auction. The auction house and vendor will then have to evaluate whether this bid is worth taking now or whether to risk losing your offer and letting the property find a better value in the saleroom. You never know you might get lucky.
The day of the auction
You are comfortable with the property you have selected to purchase at auction and the auction day has arrived. Before you set off to the auction phone the auction house to make sure the auction is still taking place at the published venue and time and that the lot you are interested in has not been withdrawn. If you are successful in bidding for your lot then you will need to put down a deposit of ten percent. Sometimes if the value of the property is less tan twenty thousand pounds then the minimum deposit is two thousand pounds. The deposit cannot be paid for in cash or credit card and you must take along two items for proof of identity such as a passport and utility bill.
Make sure you arrive at the auction at least half an hour before the auction starts. This will give you time to register, if necessary, and to check any last minute special conditions relating to your lot. Some auction houses require you to register then give you a card with a number on it so that if you are the successful bidder for your lot then you are easily identifiable. Familiarise yourself with the auction room and find a place where you have good vision of all the other bidders so you can get an idea of who is bidding against you.
Bidding for your lot
When the auction starts the auctioneer will direct you to a copy of the general conditions of sale for the auction but will not actually read them out. You should be familiar with them before the auction. The will briefly explain the bidding process and then the auction will begin. The auctioneer will give a very brief description of the lot and then ask for the bidding to begin. As a rough estimate the auctioneer will process between twenty and twenty-five lots per hour though this may vary.
Be aware the auctioneer may take bids "off the wall" which is where the auctioneer is bidding on behalf of the vendor. There maybe someone in the room bidding on behalf of the vendor. Only one person is allowed to bid on behalf of the vendor be it the auctioneer or someone in the room.
When the auctioneer announces your lot it is time for you to go into action. Make sure you bid clearly so that the auctioneer registers your bid. The old myth that if you scratch your nose you have made a bid is not true. Your bid will only be registered if the auctioneer sees a definite gesture. The bidding process is quite organised with the auctioneer only ever registering the bids of two people until one drops out and then they look for another bidder. You may not even get to bid if the current bidders go above your ceiling. Telephone bids are quite common with someone from the auction house bidding on behalf of the person on the telephone. Quite often the auctioneer will open the bidding with one person making a bid and then no other bids until the auctioneer has announced the property will be sold on the third and final asking. At this point just as the hammer is about to come down someone makes a bid and the bidding war starts. Keep in mind the ceiling price that you calculated before the auction and stop bidding when the price gets to your limit. Do not get carried away with the emotion of the auction room and start bidding above the limit you set yourself before the auction. If you are successful in your bid for your desired lot then you maybe asked to hold up the card with the number given to you when you registered for the auction and member of the auction house staff will come to find you. There will be some forms to fill in and the deposit to be paid plus a fee to the auction house that is usually about two-hundred-and-fifty-pounds. The balance of the money will be required to be paid by you within twenty-eight days although sometimes you may have to complete within fourteen days if stipulated by the vendor. Make sure your solicitor is aware that time is of the essence and that you need to complete quickly.
Property auctions whether they be commercial auctions or house auctions are not for every body but they are definitely worth a look.
