Your Property Network November 2009
Here at YPN we have been guilty of concentrating our editorial pieces on buying from estate agents or direct from motivated sellers. It’s a fact that many professional investors purchase property from auctions that are happening all the time across the UK. YPN readers have been reporting that they are now starting to see increased activity at property auctions so we thought it was about time we investigated exactly what’s going on.
YPN: What is the current level of activity at your auctions now, compared to a year ago?
Andrew: We are much busier. That’s not to say that it’s any easier to sell non-prime stock. It isn’t. But there is much more competition now for well located, well priced properties in good areas. In 2008 there were one or two people interested in the better stock and virtually zero enquiries on the rest. Now, all properties get enquiries but the ones with sensible guide prices and located in the more desirable areas are receiving dozens of enquiries and multiple offers prior to auction. We are nowhere near the pre-summer-of-2007 good times again but there are certainly signs of improvement.
YPN: What sort of properties do your regular buyers typically look for and do they achieve a higher discount than buying through an estate agent?
Andrew: There is no such thing as a typical auction property any more. It used to be that auction properties had to be “problem” properties – i.e. short leases, needing extensive works, suitable for redevelopment etc – and while these still do well at auction, nowadays we get just as many enquiries for fully renovated properties suitable only for the end user market. In fact one of the most popular properties in our October auction is a 3 bed terraced house in Clapham that is ready to live in. We’ve had several end users fighting over it. It is being sold at the same price a local agent would expect to achieve. So while there are certainly bargains to be had at auction – it is not necessarily the case that ALL the properties will sell at way below market value. It all depends on the vendor’s personal situation and how good the property is.
YPN: What advice can you give our readers on how to buy properties at auction?
Andrew: It is important that buyers understand the basic principles of buying at auction. If you are the highest bidder on the day, you will need to put down a 10% deposit there and then and typically you will have to complete 28 days later. So buyers will need to have their deposit available in cleared funds on the auction day and they will at the very least need to have their finance agreed in principle for the balance. Although they do not necessarily have to have a mortgage fully approved on the property in question.
Obviously there is a risk that the bank may not lend on it, but I’ve yet to see that be the reason why there has been a failure to complete. If you are the winning bidder at auction, it is very unlikely that a bank will refuse you finance based on the price you’ve paid. We are always happy to talk inexperienced auction buyers through the process in as much detail as required. In essence, buying at auction is as simple and as basic as it gets once you understand it.
YPN: Can investors really expect to pick up a bargain with 300 hungry investors in the room?
Andrew: Of course. Not all those people will be bidding on the same property as you. And it’s quite feasible that you may be the only person there bidding on a particular property. In which case you will probably buy it on reserve – which is the cheapest price possible that you can win it for at the auction itself. There are other ways of picking up auction properties – either before the auction, or after the auction. And sometimes it is possible to negotiate even better deals than the reserve price in certain circumstances.