Bidding to win:how to buy a property at auction and bag a bargain home
London properties took nearly 30 per cent longer to sell this spring than they did two years ago, according to Rightmove’s House Price Index.
Buying at auction allows you to buy or sell and have keys exchanged in 28 days. You can save yourself a packet, too, if you choose right. Get it wrong, however, and it will cost you dear.
Here are my top tips on a successful buy:
1. VISIT THE PROPERTY
Attend one of the viewings. I didn’t. When I bought my second auction property, I’d read the legal pack, seen a floor plan and some old pictures on a website. And the place was tenanted, so how bad could it be if someone was living there?
But it was bad. Water damage, dodgy electrics and dilapidated décor greeted me. The renovations swallowed a whole year’s rental income. Had it not been for modest house price growth I’d have ended up with a loss. You may not be as lucky.
2. KNOW WHAT YOU ARE BUYING
If a bedroom looks really poky or doesn’t have any external windows, a room has likely been split to create more sleeping space.
If the conversion was done without the freeholder’s permission, you will need to pay to convert it back. Factor these costs into your bid.
3. DISCUSS THE PROPERTY WITH YOUR MORTGAGE BROKER
You don’t have to be a cash buyer at auction. I’ve funded all my hammer purchases with mortgages. But you do need a good broker.
I video a property when I view it and show this to the broker. Together you will agree how much you can borrow and how much it’s likely to be worth.
The broker should also visit the property and get your mortgage agreed in principle. You also agree a cast-iron limit that you will not bid above. Arrange a valuation immediately after a successful bid.
You usually have 28 days to complete. You will lose your deposit if you fail to get the mortgage, or if it takes too long.
4 READ THE LEGAL PACK
I am always stunned by the number of people bidding who haven’t bothered to read the legal pack.
Start with the special conditions and read them carefully, as this is where nasties can lurk. If in doubt consult your solicitor.
Things to look out for include: any outstanding bills you may inherit — I’ve seen an £80,000 liability in one legal pack; if major works are planned (detailed in section 20 notices); and any extra buying costs. Factor all these costs into your bid.
If you are buying with a mortgage, make sure the lease is longer than 80 years, that the seller has owned the property longer than six months and that you have at least 28 days to complete.
5 HAVE A PLAN FOR THE AUCTION
Auctions are exhilarating. It’s easy to bid more than you can afford.
Take my advice and ignore the first few properties. They are there to get bums on seats and always sail well over the guide price, so leave them to buyers with deep pockets.
Be prepared to go home empty-handed. There are plenty of auction houses in London. If you’re outbid today there will be another chance soon.
Lastly, write down your maximum bid for each property before you go in. Stick to it. If you don’t feel you can, take someone with you or consider asking someone else to bid on your behalf.
6 DON’T FORGET YOUR BANK CARD
If you succeed, you must pay a 10 per cent deposit and some auction costs immediately, so make sure you have the funds and means.
You also need to complete a raft of paperwork. Check the auction catalogue for the list of documents they require.
If you are buying with someone else, or on their behalf, take their documents, too.
7 USE A SOLICITOR WHO IS FAMILIAR WITH AUCTIONS
A lot needs to happen between exchange and completion. You require a solicitor who can act for you promptly and efficiently and chivvy the other side along, too. Speak to the auction house if you need a recommendation.
You also need to be on the ball yourself.
Send the sale documents to your solicitor as soon as the hammer falls, respond to their enquiries at once and call them and your mortgage broker regularly to ensure everything stays on track.