Buying or Selling Property at Auction

Investors buying or selling property at auction

Over the last decade, property auctions have become widespread and are frequented by an ever growing number of property investors. With over 260 property auction houses across the UK there will be several auctions held each month at venues near you.

Attractions for investors using property auctions

Property auctions allow for the speedy exchange of property which helps sellers dispose of their unwanted property but provides the astute investor with the opportunity of obtaining a bargain. This is particularly true where distressed property is being auctioned.

• Notice of properties being auctioned – Check the auction house website for upcoming auctions and browse through the properties that will be sale.
• Property types – Choice will be very wide and varied and will range from land purchases derelict buildings to tiny flats and great mansions. Commercial property such as shops and offices to trading businesses will also feature.
• Convenience for investors – All listed properties will go under the hammer on the day so if you bid, you will know immediately if you have acquired the property. Your only competition will be the people in the room so if no others bid you will likely pick up a bargain.
• Completing contracts – When the hammer comes down the property is yours and there will be a solicitor on hand to legalise the transaction. If you stayed within your buying limits you should be able to leave the auction a happy investor.
• Funding arrangements – Normally a 10% deposit is paid on the day with balance becoming due within 28 days. Unless you have the cash available you will need to have made your financial arrangements well before the date of auction.
• Price guides for investors – Property auctions usually post on their websites their past sales records. These will provide some general guidance but they are only a guide and properties can go for a lot less and sometimes for more.
• Value for money – Expectations are that most property will be sold below their open market value and many will be sold as distressed sales. Real bargains can be had and for those investors willing to carry out renovation work they can be ideal.
• Remote bidding – Most auctions houses will let you make arrangements with the auctioneer to accept your telephone bid and may in some cases handle the bid on your behalf. This is a service that would suit investors who are unable to attend the auction on the day, but arrangements will need to be agreed in advance.

Extra costs for investors to consider over the buying price

Here are some other costs that may apply if your bid is successful.

• Auction hose administration fees – These will will vary between auction houses but fees in the range of £200 plus might apply.
• Legal fees – Solicitor charges can vary considerably and will relate to some degree to the value of the property but £800 to £1500 may be a reasonable guide.
• Property survey report – This may be something you should consider but needs to be arranged in advance of the auction. Survey costs will depend on the extent of the survey but £400 to £600 for a basic survey and more for a full structural survey is likely.

Buildings insurance – A typical buildings insurance policy for a property rebuilding value of around £250,000 may cost in the region of £250 to £350 per year.

Stamp duty – This is a tax levied by the UK government and is applied in stages and at rates governed by the value of the property. Note that if you already own a property in the UK then an additional 3% is added to each band rate as shown below. Check the HMRC website for the current rates.

Typical costs for selling a property at auction

If you are disposing of a property here are some some typical charges.

• Auctioneers commission – This will usually be in the range 1.5% to 3% + VAT of the selling price and is paid if the property successfully sells. Expect minimum fees to apply.
• Auction legal pack – This contains all the legal information on the property such as land registry documents, deeds, searches, property information questionnaires, lease documents and tenancy agreements. Costs for a freehold property can be from £200 upwards and for a leasehold property a further £200 could be added.
• Catalogue Fee – To advertise in the catalogue an up front entry fee of around £200 + VAT will apply.

Mortgages and other financing considerations

Mortgages can rarely be obtained within the 28 day grace period so investors should never consider bidding for a property until they have their finance arrangements in place. Here are some things to consider when raising finance.

• Cash – If the property sells for a low price then using cash may be an option. However, with higher value property investors will normally require finance. Here are some things to consider.
  • Other owned properties – Where the investor already owns property with good levels of equity, it may be possible to re-mortgage that property and release enough cash to complete your purchase at auction.
  • Buying to renovate – As the buying price is likely to be low you may have sufficient cash to make the purchase but will need finance for the renovation. A bridging loan may suit for this and once completed and re-valued, you could re-mortgage the property for up to 75% of its value and clear, the bridge and have capital available for your next project.
• Bridging loans and bridging finance – A bridging loan is a short term lending solution used by investors to help them over difficult patches until proper finance can be arranged. Usually bridging loans are for 3 to 12 months and then redeemed via a mortgage loan. Bridging loans can be arranged very quickly making them useful to investors buying at auction. The following would be wise to consider:
  • Arranging your mortgage – before committing yourself to a bridging loan you need to have have made arrangements with a mortgage lender to be sure the bridge can be taken out in the time frame intended. Interest in bridging loans is much higher than mortgage finance.
  • Failure to secure a mortgage – Consider what would happen if lenders reject your mortgage application and you are left holding an expensive bridging loan. This could force you to sell the property in a hurry and not be able to recoup the money you have spent.

Some tips for buying at auction

• Finding an auction – Check the internet to find property auctions near you and subscribe to their mailing list. This will give you advance warning of up and coming property sales and what is to be auctioned.
• Study the catalogue – study the catalogue and make a short list of any properties that interested you. If you are serious about a property contact the auctioneers and arrange an appointment to view.
• Consider a survey – If the property is in poor condition and you really want it, consider having it surveyed. If your bid fails you will lose the survey cost but this could minor compared with owning a property that is full of hidden defects.
• Check the legal pack – There should be a legal pack for each property to be sold and this should be checked carefully.
• Finance – If you require finance make sure you have confirmation from a lender of heir willingness to lend.
• Auction day – Arrive early and remind yourself of the maximum amount you want to spend as once the auction starts it is very easy to be carried away and bid beyond your intention. Set your maximum price and stick with it.