Buying Discounted Property in an Auction
It's possible to buy sharply discounted property at auctions. The reason is that the vendors are mainly banks, building societies and other lenders who have repossesed or foreclosed on property and wish to sell it quickly to get it off their books.
Therefore buying property at auctions can yield sharp savings. This is a guide as to how to buy property at an auction.
Before the auction
You need to plan well ahead before you buy at an auction.
Before you do anything, get your finances in order. You will need to have the deposit of 10% of the property ready, as you will be expected to pay this on the day of the auction. Once you have bought, the rest of the money needs to be paid within 28 days. Therefore if you are buying with a mortgage, you need to have the mortgage agreed before you even go into the auction house.
Get a copy of the catalogue from the auction house you are going to be using, and browse the list. You should be able to arrange a viewing of the property you are thinking of buying. Sometimes the property will be in a right state - repossessed properties are often trashed by their upset owners. You need to be able to distinguish between trash that is superficial (it just needs a bit of cleaning and redecorating) or if it is structural (which will involve you stumping up money to a builder to fix it).
Check out neighbouring properties and ask estate agents what they are selling for. You should also be able to go online and check out nethouseprices.com to see the land registry entries for that street - it will give you a good idea of what has been paid in the past. Appoint your solicitor and get him to do the relevant searches to ensure there is nothing to hinder you from buying the property, and order a survey done on it that will satisfy your mortgage lender. Once you've chosen your property, got everything in place including the mortgage offer, you then need to attend the auction to buy it. By this point you should have worked out the maximum you are prepared to pay.
People usually advise that you go to your first auction just as an observer to familiarise yourself with the process. Auctions can be scary, and the urgency and excitement of the situation, complete with heart pounding, can mean that you overpay. Anyone who has participated in Ebay's auctions can attest to this. You need to ensure you are as calm as possible, and that you don't feel impelled by the excitement of the moment to go over what you decided to pay.
When you arrive at the auction, you will need to register with the auctioneer and get a hold of any addendum sheet that shows changes or alterations to the catalogue. Sit where the auctioneer can see you and raise your hand every time you want to bid.
Once you have bought the property, you will need two forms of identification, plus your cheque book to pay the 10% deposit. You will also sign the legal contracts of sale at this point.
Because by law the property is now yours, you need to insure it immediately to ensure that it is covered straight away. You then have 28 days to pay the rest of the money.
Note: If you are in a property chain (you are selling your existing property at the same time as buying the new property), things can get a bit hairy, especially if someone in your chain delays. You might need to get a bridging loan to tide you over. Again, discuss the possibility of bridging loans with your mortgage provider beforehand, so there arn't any last minute surprises. And you will need to keep right on top of the process, chivvying everyone so there arn't delays. Of course cash buyers such as property developers are at an advantage here, as they don't have these problems.
Things to be aware of
The vendor selling the property will usually have a reserve price that is the minimum they want to sell for - try to find out what the reserve price is - you can usually find out just by asking at the time you are viewing the property. The seller will also have an amount that they hope to get. This will be higher than the reserve price. Finally they will also have a starting point for the bids - "bidding to start from £xxxxxxx". The starting point is roughly about 20% to 25% lower than the amount they hope to get. So do your sums before hand. If the starting amount in the catalogue plus 25% is more than your maximum price, then don't even bother going to the expense of getting the surveys and searches etc done. Choose another house instead.
Don't feel pressured to bid. Sometimes the excitement of the crowd makes you feel impelled to join in. Instead wait to bid till the property is a little below reserve, and then gradually bid up. Remember that you know what the vendor is hoping to get (by working backwards from the starting bid), and you also know that their reserve is below what they hope to get. So your aim is to pay the reserve or just over but less than what they would like to sell for. Occasionally if the vendor is desperate, they will sell for below the reserve.
Don't get too friendly with the auctioneer - he is there to help the seller, not the buyer. So don't tell him how much mortgage you have arranged or your maximum price. Indeed don't tell him much at all. After all, your aim is to get the property for less than your maximum.