I’m a property auctioneer – the REAL reason why homes are cheaper and how to secure the best deal
RISING house prices mean that getting onto the property ladder might seem impossible for some.
New figures from the Office for National Statistics (ONS) show that average UK house prices have increased by 12.8% over the past year to a whopping £283,000.
So it's no wonder that many aspiring buyers are looking for alternative ways to bag their dream home.
Stuart Collar-Brown, director of , says property auctions can be a great way to find a bargain when buying your first home.
And there is a hidden reason why auctions can often be cheaper for buyers than if they go through an estate agent.
You do have to be careful with auctions though, as there are some pitfalls such as hidden costs and resisting the urge to over bid - so be sure to do your research first and set a strict budget.
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Stuart reveals some top tips and what to look out for.
Get your finances in place
There are lots of places to buy properties through auction including live, in-person auctions and also online auctions.
The key thing to remember is that if you bid on a property, that is a binding commitment with the same legal implications as when you sign a contract on a house.
So, you should only ever bid if you know you have the money.
If you can’t come up with the money you will usually lose a ten per cent deposit.
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Payment is normally due within 28 days of the hammer coming down.
Stuart said this shouldn’t scare you off, but you must have your finances in place first.
“You just have to make sure you’ve got the money or you can afford to buy it and have the money lined up before you bid,” he said.
You can go to a mortgage lender or a company that specialises in bridging loans to get the money ahead of the auction - you can use mortgage comparison tools like .
A mortgage provider will be able to assess whether you can afford your payments.
Bridging loans are very expensive - so they may not be a long term solution to your cash flow issues.
Why you can bag a great deal
Stuart said that often people think there is something wrong with the property if it is listed for auction, but this isn’t necessarily the case.
“There’s this negative impression that auctions are for properties you can’t sell on the open market and there must be something wrong,” he said.
“Auction is a specialist marketplace, for selling certain types of properties and they sell better than they would do on the open market, because of the types of people that we deal with from a buyer side.”
Property developers often buy through auction because it is easier for them than if they go through an estate agent - so auctions are tailored to their needs.
This is why normal people could get a great deal.
“An auctioneer will value properties with a built in profit margin for a developer,” said Stuart
“So if I have got a three bed semi-detached house, and the end value is £300,000, and it needs £50,000 spent on it, an estate agent will probably put that on the market for £250,000,” he said.
But when it comes to a property developer they will be looking for properties at a price where they can make a profit - often of 20%.
“If you have an end value of £300,000 and I price it with the developer in mind, I’ll have a 20% bracket in there. That is £60,000, which is 20% of 300,000,” said Stuart.
“That takes me to £240,000. If I have to spend £50,000 on it, that takes me to £190,000. So already there is a £60,000 difference.”
These sorts of properties could need work, as that is usually what developers are looking for to increase value.
But if you are prepared to move in and do this work, you could be benefiting from the amount that a property developer would usually be looking to take home as a profit.
It’s worth remembering that this will only be feasible for some people.
If you have a young family, moving them into a building site will be difficult.
Lawyer up
Stuart said it is crucial that you surround yourself with the right people when buying at auction.
This means you’ll definitely want to get a solicitor, many of whom can be found on the high street or if you search online.
A solicitor will give you advice on the legal pack that comes with information on a property that is going to go under the hammer.
Sometimes there can be a nasty surprise hidden in these documents, and a solicitor could help you spot if it's going to end up being a money pit.
You should also speak to the auctioneer according to Stuart.
“We are here to help you. If there are things we think are red flags, we’ll tell you. And we’ll advise you as best we can,” he said.
“As we want a room full of people who are confident and fully aware of all the legal packs, and we want them to be bidding with confidence.”
Another tip is to make sure you are on the look out for buildings with cladding or non-standard construction - this will be detailed in the documents and you might want to avoid those traps.
You should also get a surveyor to look at the property if you can, so they can spot any potential problems like structural issues.
Remember, if you decide to get a survey, you won't get the money back if you decide not to buy a property or you are outbid - but they could be useful in spotting big errors.
Sought after areas
Simpson Millar Solicitors makes the point that properties can , particularly if they are in a sought after area.
They suggest it's worth talking to local estate agents for their views on what the property is worth.
This should help inform your sense of what people might be willing to pay for a property.
You should factor all this in, to make sure you don't bid more than you were planning.
Hidden costs
You have to be careful of some hidden costs when you buy at auction.
“Most auction houses will have slightly different fee structures. So if you are buying from a traditional live auctioneer… will charge the seller a fee, and they will usually charge a buyer an admin fee of anywhere between £1,000 and £1,500,” said Stuart.
But one thing to watch out for, is if you buy through an online auctioneer.
This is because a lot of the online auction companies, the fees for buyers could be 4.2% to 6% including VAT.
You should always look through the legal pack and if you have any doubt about what sort of costs you’ll be paying, ask your solicitor or the auctioneer.
And when you are bidding, make sure that the amount you bid is taking into account any costs.
Don’t over-bid
You should always work out what your maximum bid is and then stick to it, according to Stuart.
This can be hard when you have your heart set on a new home, but it is important to take the advice of the professionals like your solicitor.
Remember, if you bid and that hammer comes down, you have to buy the property or face risking a lot of money.
So you need to keep a cool head and stick to your plan.
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