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Bridge Over Troubled Water
It has recently been reported that a comparatively modern semi-detached house in Teeside, albeit in poor condition and without a roof, has been sold at auction for £9,000! Are we in the same country where, this time last year, the average price of such residential properties was £165,000? Apparently we are, but this example belies the received wisdom from the mortgage industry, which claims that prices have fallen by some 16.5% since the landmark Northern Rock debacle.
Embattled investors, not least those who have speculated on buy-to-let and overseas second/holiday homes only to find their expectations of a year ago seriously adrift, are puzzled. The question uppermost in their minds is when will the market bottom-out? Have we seen the worst? Are there any green shoots visible or are prices going to sink further?
Economic history teaches us that all recessions come to a fairly predictable end within a year or so. That means we’re probably half way to recovery already. Unfortunately, the thirteen previous recessions in modern economic history weren’t quite like this one. No-one is prepared to stick their neck out.
The answer for investors is to buy properties that would be good bargains anyway and that probably means buying at auction.
A combination of the shortage of mortgage funds, the recession, the downturn in the new housing market and the loss of confidence in the ‘buy-to-let’ market has triggered an increase in the number of properties being sold at auction. There's no quicker way to buy a property. Buyers aren’t part of a stressful and slow-moving chain so there are often great deals for the taking. Once the hammer goes down, the sale is set and there can be no re-negotiations – so you can’t be gazumped. This is obviously a huge benefit for many buyers, not least because the date of the auction is known from the outset and the timescale for completion is fixed and legally binding for both buyers and sellers.
STRONG ACTION IN AUCTIONS
According to the Essential Information Group, recognised as the UK’s leading source of information and data on the property auction market, December 2008 saw an overall sale rate of 67%, which was the same rate for December 2007. More than £300 million worth of property was sold at auction in December 2008 alone.
This trend is a sign that auctions are successfully bringing together buyers and sellers in a difficult property market. The auction market compares favorably with the mainstream market, where the volume of sales has dropped dramatically. The swiftness of the auction process is appealing to both buyers and sellers.
If you are a novice property developer planning to take on a building project and pick up a run-down bargain to renovate and extend, make sure you check the planning status of the site. If you plan to take on a big project, follow these rules:
BIDS IN, QUIDS IN
Buying and selling at auction is a straightforward and transparent process if you do your research and know the rules. Most importantly, ensure you have your finance in place before you even think of making a bid. Those buyers with capital arranged, can pick up outstanding deals. There’s never been a better time to bid.
Case study – ‘lots’ to learn from
Robert Lucas, 28, from Wigan has been buying run-down property at auction to renovate for more than ten years.
“I’ve been buying properties at auction since I was 18 and have built up a portfolio of 20. When I first started I had no experience, but wanted to get into property buying and knew there were bargains to be had at auction.
“I buy property, do any work that’s needed and then rent the houses out. Two weeks ago I bought a flat for £38,000 at a Manchester auction. The guide price was £50,000 and the flat next door to it recently went for £70,000. The flat will be ready to rent out within a month.
“My advice is to get finance in order before you go to the auction. I use Auction Finance Limited because I can tell them how much I need one day and have the money the next.
“Around one in three property sales fall through and these properties often end up at auction houses. The main reason for a sale falling through is when a survey finds that there are structural faults and the banks won’t lend. Savvy buyers can do work on a property to fix the problems and still make a healthy profit.
“The main difference between buying through an agent and buying at auction is the speed of the transaction. At auction you need to complete and exchange in 28 days, whereas through an estate agent the whole process typically takes 8-10 weeks. The fact that a contract is formed on the fall of the hammer means that the buyer is legally obliged to sell to you.
“Auction catalogues come out around a month before a sale so you have plenty of time to have a look at a property you want to buy. If you like it, have a structural survey carried out. These can be arranged very quickly. From there, you need to get a legal pack which your solicitor should examine carefully to spot any issues.
“When you’re in the auction room, set a budget and don’t be tempted to go over it. Before you bid, find out what houses in the same area have sold for to make sure you’re getting a good deal. I use Upmystreet.com to get this information.
“An auction is a great place for a first time buyer to get their foot on the ladder, there are thousands of bargains to be had, although you will need to have a good deposit saved up.”
Chris Baguley is a Director at Auction Finance Limited. For more information log on to www.auctionfinance.co.uk