Daytime TV programmes often feature amazing property bargains that can be won at auction – and there are fantastic bargains to be had, but it’s just as easy to lose your shirt.
The inexperienced enter the auction room full of excitement, optimism and belief that they can snag a bargain, fix it up and make a massive profit. The problem is that people who haven’t much (or any) auction experience often fail to do their preparation and end up paying more than they should.
When the property owner is looking for a quick, guaranteed sale putting it up for auction ensures the sale is made quickly and without all the faff of viewings, offers that fall through and a long drawn-out sales process.
The vendor may be moving for work reasons, need to sell due to a divorce or realise the cash in a probate property to distribute between the beneficiaries of a will. Whatever the reason, an auction room is a good way to get the property off their hands and the sales process all sorted out within a month.
In addition, mortgage lenders often put repossessed properties up for auction and owners of any property that is considered unmortgageable often have very few other options.
Even if you’ve done your homework, the auction room has an exciting vibe and it’s easy to get sucked into a bidding war. There are plenty of people who have more money than sense and will keep bidding far beyond the actual value of a property under the hammer.
If you get caught up in the action that could be you! Keep your head and stop bidding when you reach the limit you’ve calculated. Every pound over your limit is a pound less in profit – and there is a point at which buying will put you into a negative equity situation. Perhaps take a level-headed friend who will restrain you from bidding over the odds!
Remember you’ll need to pay 10 per cent on a final successful bid right away. If you don’t complete in 28 days – you lose that 10 cent.
A final word – Is it worth it? Auctions are fun and exciting. There are definitely bargains to be bagged and there are investors whose investment strategy is buying at auction. So, providing you do your research and preparation thoroughly, yes, auctions can be very profitable for a smart investor.
Below – find my do’s and don’ts list for auctions.
The property investor’s auction dos and don’ts
DON’T | DO |
Turn up on auction day hoping to find a good deal | Check out the lots beforehand and research similar property values, the catchment area, rental potential, etc. and arrive armed with solid information on each lot you’re interested in |
Don’t check out anything beforehand – you’ll know a good bargain when you see one | Ensure you’ve got the legal pack for each property you intend to bid on. This will contain all the property’s relevant legal documentation including planning permission agreements, lease information and special conditions of sale. Ideally, get your solicitor to give them a once-over beforehand. |
Bid up to the limit of your bank balance | Do your sums beforehand, find out what the done up value of the property is and work out the costs of doing it up. Add your profit and know the most you can afford to pay before you start eroding your profits |
Don’t worry about getting a mortgage, you’re sure you can get one when needed | Know that when you win a bid on a property you’ll need to pay 10% immediately and must complete in 28 days (for most auctions – some are less). You need to either have approval in principal for a mortgage of some other means of paying the remaining 90% quickly |
Assume your solicitor will understand the urgency of completing fast | Have a solicitor experienced in auction transactions lined up and ready to go |
Bid on properties in poor condition because they’re bound to go for well under market value | Bid on properties in poor condition because you know nobody will get a mortgage on them and you can either pay cash or have bridging finance in place |
Nitin Aggarwal is Founder & CEO of Property Deals Insights www.propertydealsinsight.com
