Anyone can win at property auctions – the trick is knowing what to do next. Martin Roberts lets us in on some trade secrets
It would be very easy to get over-excited at a property auction and just keep bidding until you win. The winning bit is easy – the trick is to win on something that is a good investment of your money, and to know what to do next in order to turn a profit.
Here are a few of our top tips for winning at auctions, and making sure that you aren’t buying a lemon.
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Read the Legal Pack
Nasty surprises can lurk in the legal documentation accompanying a property, such as outstanding bills you may inherit, major works planned which should be detailed in Section 20 notices, and short leases. Make sure that the lease is longer than 80 years and that you have at least a month to complete the deal.
See also: Rising Property Prices Mean Stamp Duty Hike May Hit Harder
Do Your Homework
Pressure at a property auction can be intense, and there’s often little time between a catalogue being released and sale day, so the best informed bidder is at an advantage. Reading the legal pack and having your lawyer look it over, looking online at local property prices and checking the floorplan will only tell you so much; a personal visit and getting a full survey done will tell you if the property is damp, dilapidated, illegally converted or in need of expensive electrical restoration which will eat into your profits.
See also: How to Improve Your Home With a Kitchen Makeover
Don’t Forget Expenses
Things that can add to your auction costs include a percentage to the vendor, a fee to the auction house, Stamp Duty and insurance.
Go in with a figure in mind and stick to it; ignore the first few auctions, which often go over list price. In fact all guide prices can be underestimates, as this drums up interest – assume that properties will go for around 10 percent more than guide prices. Be prepared to go home without buying – there will always be another auction.
See also: How to Negotiate a Better Mortgage Deal
Arrange your finance
Ideally, visit your mortgage broker before you buy, discuss the property you are interested in and set a price limit. Arrange a valuation and get the mortgage on course immediately after your winning bid.
Though you can arrange a bridging loan after you buy, you will often have to pay a deposit of around 10 percent immediately, so make sure you take your credit card to the auction. Remember that online bidding often requires you to register a deposit in advance.
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If you are relying on selling another property to fund your bidding, be aware that it may not sell – around 28 percent of properties fail to sell at auction, and then their reserve price may be revealed, meaning that you may never achieve what you had hoped for.
This could work to your advantage if you’re buying – go to the auctioneers the day after an auction and ask for a list of unsold properties before they’re relisted.
See also: What Are The Pros and Cons of Short-term Letting?
Play it safe
Remember that rules for auction are rather different to other forms of contract; once you have put in a winning bid you are obliged to buy without signing any contract. If you do back out, you may lose your deposit, and the seller may sue you for any losses, particularly if they are then forced to sell for a lower amount.
Bidding in an auction requires a certain amount of self-confidence and gamesmanship. Go in well-dressed, sit at the front or stand in plain sight, take notes, speak clearly and state full amounts. Make sure you bring two forms of identification. Presenting yourself as confident and well-organised could deter other less confident bidders from going up against you – though others may be playing the same game!
Know the market
If you attend many property auctions you will start seeing the same faces and may be able to pick up some tips from what they buy or ignore. Don’t forget that property auctions are no longer exclusively the province of small-timers – with the popularity of TV shows such as Homes Under the Hammer they have become a mainstream business for many experienced developers.
What happens when I win?
If you win a property auction, you have to be prepared for a few things to happen on the spot. Usually, a member of the auctions team will take you to the contracts desk, where you will be asked to provide proof of ID and residency, as well as further personal details such as National Insurance number, length of time you have lived in your current address, and past addresses. These details will then be used for electronic verification for anti-money laundering purposes.
You will then be required to pay over the deposit monies, and any other charges stated in the auction catalogue such as the administration fee or buyer’s premium, before completing and signing two copies of the Memorandum of Sale. You will be give one copy of the Memorandum, and related papers which you will be asked to pass to your solicitor.
Shortly afterwards you should receive written confirmation of your purchase, your solicitor should be notified and you will get an explanation of the next steps. If you are moving into the property yourself, legal completion should take place usually within 28 days, and the auction team will be informed by the seller’s solicitors that they can release the keys, at which time you will be the owner of the property and able to move in.
“As a property buyer there are all sorts of tips you need to know – for instance there are some great incentives and tax breaks available when converting commercial property into residential, and you should Investigate the flat conversion allowance, as well as whether you can claim VAT back on conversion costs. Looking for a sale structured as a “Transfer of Going Concern” (a property that is being sold with a sitting tenant in place) can help reduce VAT costs, too.”
You’ll find lots of essential tips in my Making Money From Property masterclasses and seminars. You’ll learn about:
- Buy-to-let, social housing, HMO, Airbnb and more
- Investing remotely if you’re self-isolating or the best investment properties aren’t close to home
- Creative ways to finance properties
- Improving your credit rating
- Marketing, negotiation & spotting the best deals
- Creating a power team
- Mastering the mindset to achieve success
- Find out more at www.martinrobertspropertyeducation.com.
This feature was originally published in Property & Home with Martin Roberts, Winter 2020 issue – read more here.