In the popular imagination, property auctions are the smart place to pick up bargains. That's presumably because auction guide prices are invariably lower than agent asking prices for comparable properties.
But there are two good reasons for that. First, homes sold at auction typically need renovating. Second, guide prices are designed to lure in buyers rather than offer any indication of the selling price, which is simply set by competitive bidding. Whether you get a good deal or not depends on who else is in the room - not on that seductive guide price.
This is just the start of the learning process. Frazer Fearnhead, founder of The House Crowd, offers his top tips below:
1. Know your limits
Rightmove and Zoopla provide an abundance of information to show what properties have sold for. That should give you a fairly good idea of what a property will be worth if brought up to a decent condition. A site visit is vital. Work backwards from the eventual value, taking into account refurbishment costs and a decent profit margin to calculate the maximum price you are prepared to pay. Be sure to do this in a cold, analytical manner, write it down and stick to it.
2. The auctioneer is not your friend
A good auctioneer will encourage, charm or even bully the audience into paying more than they wanted to pay. His responsibility is to achieve the highest possible price for his client. It's also worth knowing that, provided he does not go above the reserve price, an auctioneer is allowed to pretend he has taken a bid from the floor in order to drive up the price.
3. Before and after an auction
There are opportunities to pick up bargains either side of an auction. Once you have the catalogue and have done your due diligence, you are at liberty to make an offer. Sometimes this may be accepted - although in our experience it doesn't often happen as most buyers want to be sure they are getting the best possible price. In fact, your offer may help them set a floor for the auction sale. Conversely, we have been able to pick up a number of properties after the auction. It reduces sellers' expectations when properties don't reach their reserve price.
4. Befriend a lawyer
It is essential that you have a legally qualified person review the legal pack before you bid on a property. There is no end to the strange conditions, rights and restrictions associated with property.
It is a fact that you will not win every bid, so it could become very expensive if you keep incurring legal fees for properties you fail to buy. It therefore makes sense to educate yourself on the basics, which should minimise the time a solicitor needs to spend reviewing the legal pack. Build a relationship with a solicitor with relevant experience.
5. Practise makes profits
Before you enter the lion's den for real, familiarise yourself with the way everything works by doing trial runs. Order catalogues (most are available online), select properties of interest, go through the legal packs, conduct viewings, set the final price you would be prepared to bid and, of course, attend the auction. That way you will be brimming with confidence when you are actually ready to buy.
6. Find auction houses that meet your criteria
There are a plethora of auction companies up and down the country. Find out which ones deal in the types of properties you are interested in. I subscribe to a very useful service called Essential Information Group, which saves me huge amounts of time by automatically searching all auctions for properties fitting my criteria.
7. Buying unseen
Properties sometimes come with tenants in situ. This can be a positive thing, as you will have an immediate income. But it is not always possible to view these properties, as the landlord might not want to disturb the tenant, might not want the tenant to know they are selling or (possibly) has something to hide. Some people are prepared to run with this risk, on the basis that a tenanted property cannot be in terrible condition - but I'm not one of them. If you really want a certain property, ignore what the seller says and go knock on the door. The tenant won't always let you in, but it's worth a shot.
8. Empty is good
Attend auctions that are not well publicised or take place during holiday periods like December and August. You are likely to have less competition.
9. Don't get carried away
Stay away from suspiciously cheap properties. There's usually a good reason why that five-bed house only has a guide price of £10,000. You can pick up great bargains at auction, but it is by no means straightforward and you can just as easily end up losing a lot of money if you are not careful.
