Buying Property At Auction - How To Outsmart The Rest Of The Room

It's true that buying a bargain at auction isn't quite the 'hidden gem' that it once was - at least for the majority of people in the room. Programmes like Home Under the Hammer have highlighted the potential for snapping up an absolute bargain at auction, which of course means that more people want a piece of the action. More bidders, however, means that actually getting your hands on a discounted property is harder than it used to be, but still not out of reach.

And another obvious appeal of buying at auction still remains - it's fast. If you're in it to make money, speed is key.

So, is it still possible to make money from buying properties at auction? The answer, is yes! Whether you're an absolute beginner when it comes to buying houses, or you've been around the property investment block a few times, here are a few tips to ensure you're the smartest one in the auction room.

The Auction Catalogue

Worth reading? Yes, but keep in mind that auctioneers have a tendency to set guide prices designed to get maximum interest from buyers. i.e. they know they can attract more bidders to the room by setting the price low, meaning there will be more competition for the property.

Also make sure you get the addendum sheet on the day of the auction. It will include any extra information that wasn't available at the time of printing the catalogue. If you spot something in it about the property you had your eye on that makes you nervous, maybe it's better to leave it.

Visit the lots

You see it all the time on Homes Under the Hammer - the person who ends up buying the property has never actually been inside it. This is incredibly risky. Or, you can be smart and actually go visit the properties you've got your eye on. You might spot something that wasn't mentioned in the catalogue. You can also start to get ideas of costings for any renovation work - take a builder along with you to the viewing if you can.

It's even more important to visit the property if you're not familiar with the area. The house in the catalogue photo might look fantastic but it won't tell you if it's on a street where the local ruffians like to hang out or if it's right next to the local pleasure house!

The Survey

So, you've seen the property you want to bid on. Do you get a survey? Well, look at it this way - it's about £500 to get a survey. If that survey picks up that the joists in the roof are about ready to collapse, you could be forking out ££££'s to fix a problem you hadn't factored into your calculations. Or, the survey might uncover a serious subsidence issue - if you're planning on buying the property to do up and sell on, be aware that any potential buyers will struggle to get a mortgage as many lenders won't lend on a property that has had recent subsidence.

If you're not getting a survey at least have a trusted builder check it out top to bottom.

Also, while we're on the subject of 'spending some money now to avoid nasty surprises', I'd always recommend having a solicitor look over the property details - they'll be able to tell you about any restrictive covenants.

Have a 'Final Bid' in mind

Everyone says it - don't get carried away. Have a top price and stick to it. Easier said than done, especially if the property in question is your 'dream home' or you've already spent money getting a survey done. But remember - if you're buying for investment you're only taking money out of your own profits if you go over your budget. How far you want to squeeze your margins is up to you.

Buying Cash or with a Mortgage

Buying with cash is always the preferred option as you definitely have the money there when you need it. You'll definitely need 10% of the purchase price to pay on the day. Buying at auction with a mortgage is extremely risky, especially since the Mortgage Market Review came into effect earlier this year, which makes the whole process of getting a mortgage even longer and more complicated. Unless you have the mortgage already lined up, how can you know you'll have the money in your account within the 28 days (or less, in some auctions) from when the gavel goes down? From that moment, you are legally obliged to pay buy, so you'd better be sure you have the money to do so.

Some investors use bridging finance to buy a property. Again, this can be risky - and it's definitely expensive - and beyond the scope of this blog.

Auctioneer's Fees

You hopefully already know most of the key costs involved in buying a property - surveyor and conveyancer fees, renovation costs, mortgage set up costs and ongoing interest payments, stamp duty if the property's over £125k.

If you're buying at auction, you'll also need to factor in auctioneer's fees - this is usually about £150 for administration fees and you may also be required to pay a 'buyer's premium' of around 1.5% of the sale price.

Psyching Out the Competition

Want to come across as a serious property investor? Then act like one, dress like one, bid like one. Wearing a sharp suit will help you look like you're someone who regularly buys at auction and isn't afraid of the competition. I don't know about you, but when I wear a suit I sit up straighter and feel more confident - confident body language goes a long way in the auction room.
There are several bidding techniques you could use to increase your chances of getting the property you want for the price you want:

  • Strategic jump bidding. This is where you bid a large amount over the previous bid - so if bids are going up by £1,000 each time, and the bidding is up to say £45,000, your next bid would be something like £55,000. It can have the effect of other bidders pulling out as they think you can top their bids.
  • Quickfire bidding is where you immediately beat the previous bid, with no pause. This gives the impression you have plenty of money in the bank and aren't even near your limit, which can knock the confidence of other bidders
  • Late bidding (my personal favourite). i.e. only putting in an initial bid just before the third and final call. It places you as a new bidder, who others in the room think is just getting going and not near their limit. They don't know if you're actually near your top bid - it's all about perception.

Of course, none of these methods are foolproof, and a lot of it comes down to delivery as well as who's in the room on the day. But why not go along to a few auctions as practice, and see what techniques are used and which seem to work best for other bidders?

Doing the Deal outside the auction room

They say some of the best deals are actually done before or after the auction. Most auctions fail to shift all of their stock, so why not approach the auctioneer after the auction has finished? The owner has to pay to have the property in the auction so it may be they're willing to accept offers to avoid having to put it in another auction. Doing a deal before the auction is also possible - the owner may appreciate getting a guaranteed sale rather than risk putting it in the auction. But it could mean that, once the owner knows there is someone wanting to buy the property (and at the price you've given), they choose to put the property in the auction anyway at a higher reserve.

Getting a local property at a national auction

This technique does require some extra effort but can be well worth it.

Essential Information (E.I.) is a pay-for-subscription website that has up to date information on auctions across the UK, including historic auction data in some cases providing details on auctions before the catalogue is published. Browse for properties in your chosen area that are listed in auctions in other parts of the country. It'll be too far for most people in your area to travel to, and people in the local area are unlikely to be interested.

Published on 15 July 2014

Source Dominic Woodward

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