Property auctions: Buying under the hammer
Wednesday, 29 October 2008 03:31
Property auctions were once the realm of bargain properties for buy-to-let investors, but the credit crunch and financial crisis have seen investors step away from the markets while buyers looking for a deal have been coming forward.
Daniel Barnes heads into the auction room and looks at buying under the hammer.
The auction world has changed over the last year.
A year ago, auction houses were packed with buyers looking for a quick sale - avoiding chains.
Even bargains were not guaranteed - with bidders pushing up prices to accept good quality.
"Auctions were a jolly good way to buy and advantageous to investors. In 2007 good clean properties were coming up and they could move in quick as they were generally empty," explains Richard Hair at the National Association of Estate Agents.
A quick turn around from the hammer going down to tenants moving in was what led buy-to-let investors to even pay over market prices at auction.
However, a year later and auction houses are sparsely populated. Properties going under hammer are sourced largely from those needing a quick sale - moving out to pay for care homes, following the death of the owner, those unable to meet their mortgage repayments, or from banks after a repossession.
At recent London sale a regular explained: "Six months ago this place would have been packed. Now there is next to no-one here."
A slow start at the auction saw a small freehold two-bedroom house in West Ham reach £95,000 before the hammer went down for a final time - under the reserve price and no sale made.
However, in the audience were some buyers.
Interest was sparked on a Bromley flat with a guide price of £125,000. Once the auctioneer had signalled the reserve price had been passed - interest picked up, as buyers know a sale was on the cards. One woman at the back of the hall was biting her finger and hesitating over £133,000 while she listened to her mobile.
Eventually she loses out with the flat going for £165,000.
Modern auctions are far from buying sight-unseen, most buyers are going in doing their homework
A representative from an auction house, Mustbesold.com, explains: "All the information about the properties are on the website.
"Unlike traditional buying you have to do all the due diligence - covering deeds, searches etc - before buying.
"Most buyers check out the properties beforehand."
He adds the crowd at an auction is split between professional investors, buy-to-letters, those looking to refurbish and sell on, first-time buyers and owner occupiers.
Also there are the unseen buyers, with a bank of bidders attached to phones
"We expect to sell 100 properties today," the Mustbesold rep explains. "That's what most estate agents will do in six months."
At the end of the day a total of 133 properties with a combined value of £10.7 million had gone under the hammer - after the initial slowness picked up.
At the auction, one buyer - of a Northampton three-bed flat with a guide price of £117,500 - explained he made a move because it was "a good buy".
He explained he lived locally and knew the area and was buying the house as a buy-to-let.
Another buyer - planning to move in to his new purchase - explained he had bought at £50,000 below the market price - but he had reservations.
"I say it is under the market price, but it is hard to know what the market price is these days."
Mortgages
Finance for buying a property at auction can be a little backwards.
After the hammer has come down you have to provide a deposit of ten per cent, then you usually have 28 days to provide the rest, be it through buying outright or obtaining a mortgage. Properties coming from repossession sometimes must be completed in 14 days.
Bridging loans are also available to cover the gap between a deposit being needed and cash coming through from a lender.
But you need to obtain a mortgage in principle before heading into the auction room and ensure the lender can complete the application within the 28 day deadline - or your deposit can be lost.
As well as the cost of the property it is necessary to factor in the auctioneer's fees, any admin fees charged and also stamp duty.
Be prepared
Before walking into the auction house you need to do your homework. Sellers provide Home Information Packs (Hips) which are available online and some buyers choose to carry out surveys beforehand.
As well as checking the Hip, it is also worthwhile seeing the property in person to make sure they are no hidden surprises. Also head to a local estate agent to see what prices similar properties are being sold at.
However, by paying for surveys beforehand, you are open to wasting money if you are not successful.
Also it is key to make sure you are concrete about your budget. Having a mortgage in place should help you do this, but in the heat of the auction room you have to make sure you keep to it.
Buyers
Most of the action - or the most visible action - at the auction seemed to be from buyers looking for somewhere to live. Arriving in London for the auction, they were told when their property was due to come up and they waited - rushing in and out of the hall as deals were made or missed.
One such buyer told me: "We have seen the house and we want it. I've never been to an auction before but it was the only place it was up for sale.
"I know my budget, I know how much it is worth and we'll see if we can buy it," she said with her fingers crossed.
House prices may be falling - meaning the auction discount may not be such a great discount - but those looking to buy now seemed happy with the purchase, mainly because they wanted a particular place.
The professionals meanwhile were more circumspect. If a good property at a good price came along they would bite, but they knew there were plenty more fish in the sea.
Daniel Barnes
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