Top tips for newcomers at the auction house

Here at Auction Finance, we like to think that attending an auction almost every day throughout the year keeps us pretty clued up on the property industry.

Scott Hendry
29th June 2015
Auction

Buying a property is one of the biggest investments individuals and businesses make so we know how much our customers value our expertise.

The market is on the up and our latest lending figures, outlined in my last blog, clearly show that demand is persisting into 2015. We’d like to encourage anyone thinking of starting up a property portfolio to consider the auction room.

I’ve put together Auction Finance’s top tips for those new to the auction room. For those of you who are more seasoned professionals, I’ll be covering more in-depth tips in the coming weeks. Please do comment below if there’s anything specific questions you’d like answering in the next blog.

Here are our top tips to secure the property you want at auction:

1.    Be prepared

If you’ve never been to a property auction, attend some before you make any bids to give you a valuable insight into the way the auction works and the tactics other bidders use. It’s also a useful tool to research the sale price of similar properties in the area you wish to buy.

Have as much information about the properties you are interested in as possible. Study the auction catalogue and ensure you read all the small print and terms and conditions. We advise viewing the properties beforehand and taking a builder and surveyor with you if there is renovation work to be done. Also, check the legal documents, these can either be downloaded from the auction house’s website or requested from the vendor’s solicitor.

2.    Understand the lingo

Don’t get caught out by not understanding the phrases used in the auction house. For example, there can be a variation between the guide price and the reserve price. The guide price of a property is an indication to where the reserve will be set and the property could be sold. However, the reserve price could be above or below the guide price. The reserve price is lowest price the vendor will accept and will be agreed between the vendor and the auctioneer before the auction.

The final sale price will depend on the bidding in the room and the vendor's final instruction. The guide price should not be relied on as to what the property will sell for, or its market value.

3.    Do the maths

Make sure you do the maths before going to the auction. All too often the excitement of bidding in the auction room takes over. Sit down and put pen to paper and write down the cost of the property and work out what budget you will need for any renovation work.

If you are planning to rent out the property, work out the rental yield. This is a simple calculation, expressing the rental income as a percentage of the purchase price. Also make sure you have a contingency fund for when the property is not being rented and loan or mortgage repayments still need to be met.

4.    Arranging finance

When purchasing at auction you will need to think carefully about finance before the sale. Auction buyers will usually only have 28 days to complete, sometimes it can be as little as 14 days, and you will need to put down a 10 per cent deposit on the day. This can be a problem if you have yet to secure a mortgage with a traditional lender. A decision in principle on short-term finance can be arranged prior to an auction for a particular lot, up to an agreed bid price, so you can be sure you can bid in confidence.

5.    When things don’t go your way

If a reserve price is not met, then the auctioneer will withdraw the lot from the auction. However, at the end of the auction the vendor may agree to sell the property at a lower price. Ask the auctioneer if you can register your interest for such properties.

6.    On the day checklist

There are three main items you must bring along to an auction if you’re planning to buy:
-    Your cheque book and bank details
-    Your solicitor's details
-    ID - you will need to bring your original passport or driving licence and proof of residency to comply with Anti Money Laundering rules.

There’s a lot of information on the internet which can be quite overwhelming. I hope this blog post will provide anyone considering their first auction with some valuable insights and help you get started on your property journey.

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