Buying property at auction is more popular than ever but it pays to learn the rules. Sharon Dale reports.
Homes Under the Hammer is one of the nation’s favourite TV series and its success has led to a bidding bonanza at property auctions.
The programme’s winning formula follows the buyer’s journey from auction room to renovation but the pre-sale preparation is rarely mentioned.
Before you think about stepping foot inside a sale room, it is vital that you acquaint yourself with this way of purchasing a property. It has many benefits for both buyer and seller. It offers a fast and straightforward transaction, unlike the open market where chains break down and vendors change their minds or try to pull a fast one at the last minute.
However, it also has pitfalls for the novice bidder. Those with a competitive streak can find themselves paying way over the odds, while those who have not done their homework can end up with a restoration nightmare.
Here are some tips on how to buy at auction.
*Finance. Once the hammer falls, the buyer is locked into a legally binding arrangement, so you must have funding in place. You will be expected to pay 10 per cent of the purchase price as a deposit immediately and the other 90 per cent is due within 28 days. This is why cash is king at auction. Getting a mortgage offer is difficult in such a short period of time, especially as the Mortgage Market Review demands extra checks and balances. Most banks and building societies are also loathe to lend on a property deemed uninhabitable. There are specialist finance providers, including Auction Finance, though their rates are in line with commercial development funding packages and interest rates and fees are higher than a residential mortgage.
*You can hunt for lots via property portals but it pays to register with specialists, such as Eddisons, Auction House and Pugh, along with estate agents who conduct their own auctions.
*Always view the property. You can then assess the location and the condition of the building. At the height of the last buy-to-let boom, investors were bidding and buying unseen and regretted it.
*Speed is of the essence when preparing to bid. The duration between an auction being announced and the sale is between four to six weeks. This gives you just enough time to exercise due diligence. Request the legal documents from the agent, get a solicitor to check them over and get a survey. Don’t dilly dally as surveyors are very busy at the moment and you may well have to wait up to two weeks for an appointment and another two for the report.
*Do your sums and add a 15 to 20 per cent contingency for a property that needs renovation as they almost always come in over budget. It is very easy to get carried away in the heat of the moment but stick to your maximum price when bidding. If the reserve price is not reached and the property is withdrawn from the auction, there may still be a chance to buy. Approach the auctioneer after sale ends and ask if it is possible to buy by private treaty. If you ask what the reserve was and try and get as close as possible to it, you may stand a good chance of securing a deal.
*To whet your appetite here are some lots that are about to go under the hammer in Yorkshire.
*Two, two bedroom semi-detached houses, previously one large dwelling, in Ossett with a guide price of £125,000. The auction is on May 18, www.auctionhouse.uk.net/westyorkshire
*Cemetery Lodge, Harrogate, detached two bedroom lodge with outbuilding. Guide price £225,000. Auction on June 7 at Elland Road, www.pugh-auctions.com
*Four bedroom end terrace cottage with annexe and workshop in Oldstead, near Helmsley. Guide price £200,000 to £250,000. Auction on May 25, www.hunters.com/auctions
*Modernised one bedroom cottage in Ripley, near Harrogate. Guide price £120,000. Auction on May 12, www.fssproperty.co.uk
*Pretty converted schoolhouse in Rudston, near Driffield. Guide price £250,000. Auction May 9, www.cundalls.co.uk
*Woodland View, one bedroom house, Hebden Bridge. Guide price £50,000. Auction May 18. www.auctionhouse.uk.net/manchester