There’s more than one way to buy a property, but a significant proportion of buyers still favour making a trip to the estate agent or, increasingly, searching online to find their next home. For years, savvy property investors have found bargains in auction houses, where a vast range of buildings, from period houses in need of renovation to empty garages are on offer to the highest bidder. While you can never know what’s going to happen on the day, it still pays to be prepared so here are the top five tips from the experts.
1. Experience an auction
You may be familiar with auction houses, but property auctions have a different feel to antiques and art auctions. Wander into one before you spend and observe what goes on. “It’s just best to feel comfortable when you arrive and understand how the bidding process works,” says head of Savills’ auction division Chris Coleman-Smith. “They can be very exciting so don’t get carried away.” Most people, for instance, don’t realise that contracts are exchanged on the same day as the auction so, unlike a normal purchase through an estate agent, you can’t go back and re-negotiate the price if you overbid. Choose a maximum amount and stick to it. It can be tempting to go over budget but it’ll cost you in the long run.
2. View the property before you bid
Once you’ve picked a few properties from the catalogue, visit it in person at an open day. Not only will this allow you get a feel for its proportions, but it will give you a sense of the work that needs to be done. It often needs renovation and you want to know how much you need to invest in repairs before you can gauge what you’re willing to bid. Taking a surveyor or an experienced builder along with you is also a good idea. But if the property does have structural issues, it shouldn’t necessarily put you off bidding for it. David Tonks, director of commercial broker Advocate Finance, says it has arranged numerous loans for properties with structural issues that some lenders refused to mortgage. “This was possible because a structural engineer was able to confirm in a report what the structural issues were,” Tonks explains. “As these costs were small in relation to the size of the property and fell within the customer’s budget, the lender had the necessary comfort to proceed with the financing of the property.”
3. Get your money ready
“The main issue with financing a property at auction is finding a lender that can meet the deadlines required,” says Tonks. “Typically with an auction purchase you need to complete within 20 working days. These are very tight deadlines that high street lenders cannot usually work to.” One way round them is to work with an adviser who has experience of the auction financing process to find a specialist lender. Another solution is to pick the property you want and, if you don’t already have the money in the bank, make sure you’ve secured a mortgage before you go to auction. Coleman-Smith adds, “If you can’t get the money before completion, everything else is a total waste of time.”
4. Get a solicitor on the case
When a property is being sold at auction, the vendor’s solicitor will put together a legal pack of documents associated with the sale, such as the title deeds, special conditions, land registry search and leases. According to Coleman-Smith, most auction houses now post legal packs online as part of their digital catalogue of what’s due to go under the hammer. The experts advise you to get a solicitor to look at these legal packs before you decide to bid on a property because, if your lender can’t get security over the property, then you cannot complete the purchase and you’ll lose your deposit.
5. Beware of excess fees
One of the great things about buying a home at auction is that you can avoid agent fees and a lot of paperwork. However, there are still some sneaky rates that could catch you unawares. Introductory interest rates are offered by certain lenders. These advertise low interest rates but the small print reveals these are for a limited time only (usually three months), after which the rate doubles. Another fee to watch out for is the exit fee, a percentage of the total loan amount, which some auction lenders charge when you settle the loan. Some lenders also charge interest on a monthly basis for fast-tracking your mortgage. Tonks suggests looking for one that charges on a daily basis because “the difference can be thousands of pounds. If you appoint the right adviser to arrange the finance for you, then you can relax as they will ensure these are not an issue.”