Looking to buy property is an exciting time. It is even more exciting when you think you may bag a potential bargain. However, you have to be aware and beware when it comes to buying property at auction as you don’t have a lot of time to do the necessary research – but once you’ve bought it, you will have a lot of time to reflect on any mistakes!
Typically auction catalogues are released 14 days prior to auction. That means you have just two weeks to view the property, check the legals, get a survey, raise the finance, research the area, assess demand, research the end value, cost any works, get quotes from trades people – it’s a lot of work to do in a short space of time!
Because there is so much to do – and so little time – and because you are focussed on “bagging a bargain” it can mean the simplest things get forgotten.
From the outset you must focus on getting the answers to 2 key questions – this will help you understand more about the property:
1. Who is selling the property? Most auction houses will show who is selling the property – it may by order of the mortgagees/ LPA receivers/ a housing association or if it says nothing it will typically be a private individual/ company. If in doubt, give the auctioneer a call and ask.
2. Why are they selling the property? If it is a mortgagee/ LPA receiver they often need to sell the property quickly to raise the funds to clear the debt that is owed. If it is a housing association they may be selling the property as it is deemed too expensive to refurbish for their own use, or they may need to raise additional funds for other properties. If it is a private individual – it could be they need to raise funds quickly, or maybe the property has a problem which means it cannot be sold easily on the open market.
In all instances you must be “suspicious” and act like a detective as to the motivations behind the seller. This may sound far fetched – but properties go to auction for a number of reasons and your job is in doing the detective work to understand why it is going to auction. A “people problem” (i.e. debts need to cleared) is a problem which be solved pretty easily through the sale of the property. However, if it is a “property problem” i.e. the property has structural or legal issues, these are problems which come with much higher costs, longer time frames and more complications. These are issues you need to be aware of and which need to be factored in.
The legal pack for an auction property is critical in understanding the background of the property and may highlight issues you did not see when viewing the property. This can range from things such as having a short lease which will make finance difficult, work which has been undertaken without planning permission or building regulation approval to the property being located in an area which the council plan to compulsory purchase in the future to build a new road.
I have seen auction properties (which were being sold as repossessions) which had legal issues which meant while you owned the flat, you did not have any right of way into the building to enter the flat! Others (again repossessions) had substantial communal bills which you were required to pay when you became the legal owner. In one example, there was a flat which looked cheap at a guide of £90k, however further investigation revealed that the new owner of the flat would also then become liable for a community bill of £25k! The legal pack will also detail any additional costs you may have to pay – in the case of housing associations, they typically ask for a contribution towards their legal fee (usually 3% of sales price). Again, all these costs need to be taken into account as they will impact on your bottom line.
Viewing auction properties is a minefield – on the surface many properties appear to be good value. However, the old adage “if it looks too good to be true…it usually is” is worth heeding. Thorough research and detective work is required to uncover if that “auction bargain” really is all it’s cracked up to be.