If you are considering buying property at auction, be it residential or buy to let property, property for redevelopment, commercial property or even overseas property then taking a more detailed look at what property auctions have to offer and the potential investment opportunities they create could certainly be worth your while.
Investment Property Partners property investors guide to buying property at auction covers a number of important factors that you need to become familiar with well before you get too carried away and start your bidding.
Buying property can be a difficult game – regardless of whether you purchase direct, off plan, through an agent on the open market or at one of the many property auctions that take place around the country.
Buying Property at Auction
Most of the time properties will be put up for sale using the traditional estate agent method, however, more recently property auctions are becoming increasingly popular as buyers and investors look to sniff out that elusive bargain.
Just one look through any property auctioneer’s catalogue and you will see why. There are some serious bargains to be had and providing you have done your homework, you get a little bit of good luck and are in the right place at the right time, you could walk away with a dream property for a snip of the price of what you’d normally expect to pay.
It all sounds extremely exciting doesn’t it? But don’t get carried away too soon. With their growing popularity, property auctions are increasingly competitive places, full of potential home owners looking for that bargain property.
Property auctions also tend to attract many property investors, builders and property developers who tend to have more available cash to spend, so don’t get your hopes up too much as you could come away feeling a little deflated or worse still, having paid way over your budget for a property because of the fierce competition.
How do Property Auctions Work?
If you have spotted your dream property and are heading off to a property auction in a couple of weeks determined to make it yours you will need to get to grips with the process of buying property at auction, how they work, what you need to have done beforehand, and the terminology and jargon that goes with it.
Property Auction Guide Prices
One of the first things you need to understand about buying property at auction is how guide pricing works.
Auction guide prices are in many instances an indication of the minimum amount a seller is prepared to accept for their property.
Guide prices are normally set on the low side in order to tempt in plenty of buyers, but remember that the properties will very rarely sell for such a low figure.
In many instances, the final price that the property sells for is often significantly higher than the original minimum guide price – but some people do get lucky.
Property investors or business owners looking to buy commercial property for instance, often stand a better chance of successfully buying a property at auction, whilst others looking to buy a run-down, dilapidated residential property and give it a new lease of life may also do well, because fewer people will want to take on the challenge of buying something and refurbishing it.
Financing your property purchase is also a significant factor that needs to be carefully considered when buying property at auction.
Despite property auctions gaining in popularity, there are still some people who are sceptical about the quality of properties on offer at auction houses. This needs addressing however, as there is often nothing wrong with the properties for sale at an auction, it is just that the seller wants a quick sale together with an element of certainty.
Research the Local Market
From a property buyer’s perspective there are lots of things to bear in mind when buying property at auction… some more important than others, and it is these that you need to watch out for to avoid being stung.
Firstly, if you are a builder, property developer or budding buy-to-let landlord and want to be able to rent the property out or make alterations, you should check the local planning rules and also whether there are any restrictive covenants in place that may affect the use of property.
Different properties often have different legal covenants in place and some will stop you extending the property, which could adversely affect any future rental income or resale value – so it is vital that you know what you are letting yourself in for.
On the same note, you should carefully examine any legal packs that are available for the property… and seek professional advice should something crop up that you don’t understand or you think might be a cause for concern.
Before going to a property auction, you should also draw up a business plan that clearly sets out your investment objectives, your budgets and financial goals, and the role that your property will play in your investment portfolio.
If in Doubt Get Professional Advice
You should also consider getting a property solicitor on-board to help you make sense of the property legals to ensure there are no unwanted surprises waiting to catch you out later on.
You may also want to engage the services of a building surveyor or structural engineer who will tell you if the property is structurally sound and free from major defects or expensive repairs.
Review the Local Property Market
Even though you may be excited about the prospect of buying your dream property at auction, you should try to avoid rushing head first into the auction without first checking the local property market, property values and getting a good feel for what else is available for sale.
Look at what similar properties have sold for and keep all research close to hand for easy access.
Property Finance… Funding your Auction Purchase
One thing that you may not realise about buying property at auction is that if you win the auction and your bid is acceptable to the seller, it is legally binding and you are required to place a deposit.
Normally, a ten per cent deposit on the property’s final selling price will be required.
It is therefore important that you have all relevant finances in place before the auction commences.
Buying Property Before it is Reaches the Auction Room
What many property investors and auction visitors don’t realise is that if you have identified a property you would like to buy you can register your interest with the property auctioneer before the start of the auction itself.
This could give you a big advantage over your potential competitors as you will be available to find out if the property is for sale prior to auction.
If the sellers’ pre-auction asking price for the property fits within your budget, and you don’t want to take the chance of another interested buyer pushing up the price then you could buy the property before it ever gets to auction… an option well worth considering.
Property Auctions, Deposits & Balancing Payments
Once you’ve bought your property you need to ensure you are able to pay the deposit on the day of the auction, and the balance of the final sale price within 28 days of the auction finishing.
You should also ensure that you have enough money set aside should any repairs, maintenance or refurbishment works need doing to the property.
Never Bid Beyond your Budget!
Finally, and probably most importantly, you should decide on a maximum budget for the property you want to buy and then never exceed it at an auction – regardless of how much you want the property.
If you’ve prepared a financial plan built around the desired return on your investment then there has to be a cut-off point at which point your plans become unrealistic… remember, a budget is there for a very good reason.
If you are considering buying property at auction… remember, always be impassionate, complete your investigations and prepare your financial calculations well beforehand, and never get yourself into financial difficulty over one property.
Property Investment Solutions
As a leading independent property and land investment specialists Investment Property Partners offer expert advice and support to clients across our specialist areas of expertise helping them to achieve their investment objectives.
If you are a property investor searching for commercial property, residential buy to let or overseas property investment opportunities please contact us today to discuss how Investment Property Partners can help you.
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