John Calls An Expert: Valuable Advice And Support From Those ‘In The Know’
Also as Editor of Hot Property News, I am aware that there are two main reasons why people buy properties at auction. The first is a financial consideration; to either make or save money. There are so many bargains out there for the taking, and you could not be thought of as being unrealistic to expect a saving of around 20% over the conventional estate agent route. Reason enough, I would have thought, to choose to hold your chequebook high in a saleroom rather than wave it under the nose of an estate agent.
But the other important reason for being involved in the auction process is choice. The sheer variety of properties on offer at auction never fails to amaze me, and excite me. You won’t find a selection such as is available from the rostrum anywhere else, and certainly not down the high street.
In an estate agent ’s window, yes there are lots of properties for sale, but … well, I find them all rather similar. My eyes glaze over after a short while and everything starts to look the same - all tarted up to other peoples’ tastes and all over-valued, deeply- cherished possessions. So dreary and unrewarding.
But at auction it ’s very different. Okay, so there are lots of what one might call ‘ordinary dwellings’, and some of them may look much the same, but there’s a whole range of different types of property on offer to whet the appetite of the eager developer, prospective landlord, or even just the curious observer.
Apart from a general cross-section of period and modern terraced, semi and detached houses, bungalows, flats and maisonettes, over the past few weeks of ploughing through the hundred or so auction catalogues I have teetering in a pile beside me I have pleased to note the following:
- Barns for renovation and conversion, some for removal and re-erection elsewhere;
- disused lighthouses, beaches and even islands;
- pubs to convert or for commercial operation;
- office suites, warehouses, showrooms and industrial units;
- beautiful period houses, some for immediate occupation and others for repair, modernisation and refurbishment;
- corner and high street shops, many vacant and some tenanted investment opportunities;
- apartments for use as city bases or for long- or short-term letting;
- holiday accommodation for private use or for hire;
- farms, oast houses, mills and watermills;
- arable and grazing land, woodland and forests (deciduous, broadleaved or mixed, some with rivers running through and teaming with wildlife);
- garages, workshops and lock-ups;
- redundant government buildings now surplus to requirements (courtesy of the MoD, the Home Office, the Highways Agency, the Departments of Education and the Environment);
- ex-city, borough and district council property and land;
- redundant British Rail land and buildings, like old engine sheds suitable for characterful restaurants or nightclubs, old signal boxes, station and crossing houses;
- reservoirs, river frontage with fishing rights;
- continental holiday flats; and even castles.
For me this kind of variety is very exciting. If I look in an estate agent ’s window or trawl through their displays in local newspapers, I roughly know what to expect. But when an auction catalogue arrives I have no idea what kinds of property it may contain. And yet my heart always beats a little faster than usual, anticipating what might be therein.
What is it going to be this month?
What ’s going to stimulate my imagination?
Are there going to be opportunities for investment?
Any possibilities for a little buy-repair-and-sell speculation?
And what about the commercial potential - a tele-cottage, factory, art and crafts centre, cyber cafe, cinema, themed crèche, or whatever.
Is there going to be anything that may encourage me to move house?
Auction catalogues provide great stimulus for dreaming, plotting, planning and scheming. I appreciate that it can sometimes be frustrating, setting your heart on a prospect only to be beaten on the day. But is it not better to have dreamed and lost, than never to have dreamed at all? And then there’s always the next day, the next sale.
Buying at auction is a wonderful way to find a home or make an investment. Only because of convention more people don’t involve themselves in the process. The unconventional reeks of danger. It ’s different and that, for some people, is enough reason to steer clear. Maybe someone, somewhere is trying to pull the wool over my eyes. Better to pop down to Chummy & Co’s in town. They’ve got adverts in the paper. I’ve heard of them. So that ’s alright then. And, after all, as we know, an estate agent always has the purchaser’s best interests at heart? Er … don’t they?
Auctions used to be seen as the province of shady developers and sold problem properties that estate agents didn’t want to know about. That ’s all changed. These days about 60% of residential sales are to owner-occupiers. Indeed, auction houses are going out of their way to make it easier for non-professional investors to participate in auctions. Pre-sale information is now much easier to get hold of - virtually all catalogues are available to view online - and auctions are typically held in upmarket hotels to attract the general public. Repossessions still figure prominently among the lots on offer, but typically a good range of residential property is available, usually ripe for renovation, along with commercial investment opportunities ranging from banks and shops to buy-to-let flats.
Each auction has a catalogue of all the lots containing details of tenure - most offer ‘full vacant possession’; that is, there is no chain - and guide prices. Interested buyers then arrange a visit before the day of the sale, normally as part of a group viewing. Before the sale, you need a solicitor and finance in place, just as in a conventional house purchase. Bidders normally get a buyer’s pack with the relevant legal documents and local authority searches, which your solicitor should check. But even if the pack includes a pre-sale survey, it is wise to get your own surveyor’s report - and most mortgage lenders insist on it. If your best bid is successful, the fall of the auctioneer’s hammer signals that the exchange of contracts is complete. You stump up 10% of the agreed price there and then, and will be expected to complete the purchase within 28 days.
The advantages of buying at auction are: speed, transparency and certainty. According to the National Association of Estate Agents, nearly one agreed house sale in three never makes it to exchange of contracts, thanks to collapsing chains, gazumping and people changing their minds. But once the hammer falls in an auction, the property belongs to the buyer and neither party can pull out. There is no downside, unless you behave foolishly. It is true that some properties that come to auction are flawed in some way, in that they need renovation, but by no means all. But that ’s great if you’re a developer, builder or have DIY skills because the discount you’ll receive is way less than the costs of works. Further, many people don’t like their houses “done up”, in someone else’s taste, and would rather embark on that kind of work themselves. One common pitfall for the inexperienced is underestimating the costs of renovating a property, or getting carried away with the excitement of bidding for a place they’ve fallen in love with. In both cases, carefully preparatory work in calculating costs is essential. If you do your sums and set yourself a bidder’s ceiling above which you will not stray, the risks of buying at auction are seriously minimized.
My advice for a beginner would be to a couple of auctions before trying to buy, and view a good selection of properties. Make sure the property you buy is insured immediately. Buy before the auction. About 15% of properties in catalogues are sold before the auction to keen buyers who make the seller a pre- emptive offer. Mortgage brokers may be the best way of finding a competitive mortgage for an auction-bought property. Be sure to budget for all transaction costs. Finally, if your chosen property fails to make its reserve price and is withdrawn from sale, leave your best bid with the auctioneers.