The auction room goes quiet in suspense as the auctioneer raises the gavel above the block with a theatrical flourish. ‘Going first… going second… going for the third and final time… gone,’ he roars – before sending it crashing down with a flick of his wrist.
Buyers Oscar Ryan and Adam Roubicek have just bagged themselves a one-bedroom flat in London for £265,000.
On the open market such a property would cost more like £300,000. The 20-year-old friends grin from ear to ear – they may have secured a steal for themselves.
These two young men are part of a growing army of house hunters going to auction. Sales were up a third last year, according to EIG Property Auctions – with some 50,000 homes going under the hammer.
While online searches for advice on how to get involved in a property auction has increased by 23 per cent over the past year, according to the property website Compare My Move.
As property prices continue to rise, buyers are left with dwindling options to bag a bargain. The average price hit a record high of £297,166, according to Halifax, as house prices rose by another 3.3 pc last year.
But auctions are one area where good deals still come up. Properties sold this way are substantially cheaper than on the open market, at £166,000 on average, according to publication Property Auction News.
This in part reflects the types of property that go up for auction, as they are more likely to be in poorer condition or at the lower end of the market. However, the lower average price is also because some properties still go for less than they would if bought through an estate agent.
Buyers Oscar Ryan and Adam Roubicek have bagged themselves a one-bedroom flat in London for £265,000 at an auction
Hampstead flat worth: £300,000 and sold at auction for £265,000
David Sandeman, founder of EIG Property Auctions, says: ‘Auction houses can be brilliant places to pick up a great value property – just as long as you know what you are doing.’
What’s more, you don’t even have to show up to the auction in person these days – most are now sold in this way online.
However you decide to do it, though, you will need to plan ahead if you want to find a property that is right for you.
‘It can be quite an emotional roller-coaster, so bring along a level-headed friend to ensure you keep your feet firmly on the ground – and enjoy the experience without the heart ruling the head,’ advises Sandeman.
I visit a Barnard Marcus auction on a chilly winter morning in a half-full ballroom at the Grand Connaught Rooms in Covent Garden, central London, to find out who is buying and learn the tricks of working out whether an auctioned property is a steal or a money pit to be avoided.
Here, a flat in London’s Notting Hill goes for £410,000 – similar ones on the same road have sold for more than £1 million. A two-bedroom house in Sale, Greater Manchester, sells for £170,000 – similar properties in the area have sold for more than £200,000.
A Grade II-listed former church near Bristol sells for £200,000. While another church in the town sold for £475,000 last year.
Estate agent Oscar and his salesman friend Adam, both from Hertfordshire, plan to roll up their sleeves and also employ builders to refurbish their flat in Hampstead, north-west London. They have £50,000 to spend on the former housing association property, which they hope to sell for £390,000 later in the year, at a profit of £75,000.
‘We were fighting it out with a couple of online bidders – going up in increments of £5,000,’ says Adam. ‘We set ourselves a ceiling of £275,000 that we almost hit. We are absolutely thrilled.’
Make sure you are well-prepared
When the gavel goes down, you have exchanged the contract with the seller and the purchase is legally binding. So have your finances in place before you start bidding.
Notting Hill flat worth: £1 million and sold at auction for £410,000
Oscar and Adam are immediately whisked aside from the other 60 seated people by ‘runner’ Simon Gillibrand to the drawing room at the back to sign contracts.
At this point they must hand over 10 pc of the sale price, plus £1,500 in commission to Barnard Marcus. The auctioneer takes debit cards, but not credit cards, cheques or cash.
Those bidding online must hand over a £6,500 refundable deposit even before they are allowed to bid, while for phone bidders it is necessary to initially deposit 10 pc of the reserve price.
Check prices of similar properties
On the open market such a property would cost more like £300,000. The 20-year-old friends grin from ear to ear – they may have secured a steal for themselves.
Don’t start bidding until you have got a sense of what similar properties tend to sell for. That way you’ll know how much is reasonable to pay. EIG charges £210 to sign up to a three-month service that shows all the auctions and properties coming on to the market – as well as past prices reached.
Sandeman says: ‘Do not go to an auction without doing your homework – which includes checking out prices for similar properties at other auctions. With our service you can also input what you are looking for and, if anything comes up, we send you an email.
‘We also enable you to watch in real time how sales progress without you having to take part to provide a feel for how an auction house works and the demand for different types of lot – to give you an idea of what to expect.’
The EIG service also enables you to explore the history of any property you might be interested in. If it has been snapped up previously at an auction by a developer and then found itself back on the market, you should be wary.
Ensure you view the property
House viewings are just as important when buying at auction as when doing so on the open market. Properties should be open for viewing in the weeks beforehand.
Sandeman advises that you should get a friendly local builder to check out the property you are considering ahead of time. They can then provide a realistic idea of its true worth and also spot any potential problems, such as rotting timber frames or signs of damp.
You can also do a basic survey of the property to check for any issues.
Manchester flat worth: £200,000 and sold at auction for £170,000
Phillip Arnold, who runs Phillip Arnold Auctions in Ealing, west London, says: ‘It amazes me how people are often happy to spend at least half a million on a house, but not a few hundred pounds on getting the property properly looked at – ideally not only checked out by a local builder but also with you paying perhaps £400 for a basic survey to be done.’
Work out a budget for how much the property will cost you overall once fees and refurbishment costs are added. Work out potential yields in case you later want to rent it out. You can do this by visiting local estate agents and asking about the market and rents charged in the area or by using property websites.
Get lowdown from the auctioneer
Ask the auctioneer before a sale why a particular property is on the market. Reasons that would make it difficult to sell on the open market should set alarm bells ringing. These can include rented properties where there are tenants that the landlord cannot evict or potential structural problems, such as cracks indicating possible subsidence.
However, there are reasons when it could work out well, for example, if it is a probate sale and the next of kin wants to dispose of the property quickly, if they seller wants a quick deal because they have been let down by buyers at the last minute, or the owner is the council with housing association stock they want to sell.
Read the small-print
You must also ensure to read the legal property pack for each sale – a document that records ownership details – to make sure there is nothing untoward in the small-print, such as a public right of way through the garden. This is available for free before the sale.
If you cannot understand technical jargon, ask a solicitor to translate the information – this usually costs around £200.
Sometimes, the pack includes ‘special conditions’ that mean you might also be liable to pay an additional three per cent fee to a sales agent.
Decide what you are willing to pay
Guide prices are often a poor indication of what a property will go for as sellers use tricks to get the best possible result.
Richard Adamson, a property auctioneer for Allsop, says: ‘If you want to sell a £300,000 property, then a guide price of £100,000 will act as an enticing carrot that could get a lot of interest from buyers. If your guide price is at £250,000 you may find it attracts fewer bidders.’ Buyers should decide in advance how much they are happy to pay – and not go above that.
Sandeman adds: ‘Auctions are like buses – so if you miss your dream property do not worry too much as another will come along later. Never allow yourself to feel panicked into a purchase.’
Get a mortgage in place
There is no turning back once the hammer is swung. For this reason, you must have a solicitor and potential mortgage agreement already in place.
Most properties bought via auction have a 28-day competition date and home loans for auction properties can be harder to get.
If you need to borrow money you should only bid when you have an ‘agreement in principle’ with a mortgage lender and the deposit in cash.
Contact a mortgage broker or lender weeks before the auction armed with details of the property you are looking to buy, its guide price and the maximum you are prepared to pay.
You also need proof of income and affordability, so you will need to provide three months of payslips and bank statements, as well as any other relevant financial documents. Lenders typically only offer you a loan on a property which has both a working kitchen and bathroom.
Also, be wary of bidding for a home with wet or dry rot, or a problem such as Japanese knotweed, as you are unlikely to get a home loan for these.
The time frame for getting a mortgage arranged is the main stumbling block with an auction – not the rate offered, as this should be no different to other home purchases.
A spokesperson for mortgage provider Nationwide Building Society says: ‘It should be no more difficult to get an agreement in principle than getting a standard mortgage – although if details later come out, such as survey showing the property is
on a flood plain, it could change the offer.
‘So you must be totally upfront and disclose all the details about the property you are interested in purchasing and not expect to be able to borrow more than initially agreed.
‘If the final hammer price ends up being higher than anticipated, do not rely on the bank to bail you out.’
If buying with a view to renting out a property you need to get a buy-to-let mortgage, which is typically two percentage points higher than a standard residential one.
‘If your mortgage provider fails to get the paperwork sorted out within the typical required month after the hammer has come down, it may be necessary to take out a temporary bridging loan through a broker.
A spokesperson for broker Clifton Private Finance says: ‘You can secure an auction property with a bridging loan and refinance on to a mortgage as a fast and convenient way to secure finance, allowing you time to apply for a mortgage as a loan-term solution. You usually only pay interest on the months you have the loan for.’
Clifton Private Finance charges 0.55 pc a month for such loans. If you cannot get financing you are in trouble. When the gavel went down the purchase was legally binding, so at the very least you lose your deposit.
But the buyer is perfectly within their rights to also pursue you for damages due to a breach of promise, which could result in bailiffs knocking on your door demanding money if you fail to pay up.
Have you bought a property at auction? Send an email to toby.walne@dailymail.co.uk
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