Just before I share my own 'Golden Rules' for buying property via an auction, I would first like to share a summary of an article that I saw that prompted me to write this blog post.
Top tips for Buy-to-Let investors in the auction room (all credit for these tips goes to the source quoted):
1. Research before you bid
- Do 1 or 2 'dry runs'
- Read the auction catalogue
- Visit a property you will bid on
2. Check your rental returns
- Run the numbers e.g. rental yield
- Have a contingency fund available, especially when vacant after purchase
3. Auction house jargon
- Guide price, reserve price, sale price - know what each means!
4. Arrange finance beforehand
- 10% of purchase price (plus fees) paid on the drop of the hammer
- 14-28 day completion is typical
- Consider having an approval in principle for any finance before bidding
5. Proxy bidding
- Can't be there? No problem - appoint the auctioneer to bid for you!
- [You can also bid by telephone and sometimes even online]
6. Auction room checklist
- Take two forms of ID
- Take your cheque book & bank details
- Have your solicitor details to hand
Source & credit: based on an article in Property Reporter by Warren Lewis
I have shown a summary of the article above to give you an insight. However, I also developed my own Property Auction Golden Rules as shown below.
This list of 'Golden Rules' below is aimed at a general first-time auction buyer really and is meant in a light-hearted way
Property Auction Buying Golden Rules:
Rule #1 - sit on your hands if and when the bidding gets to your pre-set top price, as emotions can run high in an auction room and neanderthal man steps in!
Rule #2 - read the full legal pack in detail on each property you are interested in before bidding, sometimes parts of it are published late and remember that most properties are in the auction for a reason; so your job is to establish what that reason(s) is and then can you live with it?
Rule #3 - get your finances in place beforehand as once the hammer falls you are committed to complete usually within 28 days and sometimes sooner or else lose your deposit. I would have a pre-approved facility in place and also a plan B back up plan if possible in an auction purchase. Oh and I just bought a property using bridging finance and it overran the 28 days that you will probably be up against...hence the reason for a plan B
Rule #4 - visit the property prior to auction to see for yourself what you are heading into, ideally take someone with you if you are unsure about what to look for
Rule #5 - everything takes longer than you think it will - I allow more time to get any subsequent refinancing or sale completedd and usually work on 6-9 months myself
Rule #6 - fees are everywhere and creep up on you, auctioneer, sometimes a buyers fee, legals x 2 (yours and lender and possibly also the vendor - read the pack to find out), lender exit fees, new finance fees, broker fees, survey, etc, etc.)
Rule #7 - have a dry run at a different auction if possible before you go and buy to see how it all works and remember that you will need to take ID and pay the 10% plusauctioneer fees by cheque or immediate transfer on the day. I sat through an entire auction in London the first time I ever went and picked out two 'dummy' properties that I was trailing 'virtually' to see how they fared. I read the packs, did the due diligence, and then discovered that both had been pulled from auction beforehand in any event! That happens...
Rule #8 - take advice from those that know better...and no that's not me...try either Sam Collett's book 'How to Buy Property at Auction' or Paul Ribbons' book: 'Hustle Your Way to Property Success' - these will show both sides of the same coin - buying or selling through auction...quite eye-opening!
Bonus Rule - To buy at auction you do not have to buy at auction! Remember under Rule #7 above how two properties had been pulled from the auction? Sometimes it is because they have been sold prior to auction. So, you can consider making a calculated bid prior to auction to try and secure a property...if it is close enough to the vendor's target price and the auctioneer gets paid then it could work. The downside is that you may end up paying more than needed so weigh this up beforehand. Another option is to buy property that did not sell through the auction. This is usually when the vendor's reserve (minimum) sales price has not been met. An auctioneer can not take a commercial view to accept a bid of even £1 short of the reserve price. This provides an opportunity to negotiate a good price after the auction.
There you have it - six top tips and eight, plus a bonus, Golden Rules for Buying Property at Auction.
Just after writing this post, I happened across an interview between Vanessa Warwick from Property Tribes and David Sandeman of EI Group, which is worth a look and reinforces much of what I said...and yes I really did write this post first 🙂
Here is a link to the discussion on Property Tribes
On the subject of links, I have listed the EI Group in our Resources page already but it is definitely worth considering subscribing to their services if you plan on buying at auction regularly.
Do you have any tips or rules you want to share?