With the property market proving turbulent in recent times, is it the perfect time to bag a bargain at auction? We revisit the auction room to find out...
Back in February, I visited a property auction for the first time. The weird and wonderful delights in the auction room provided an experience I shall never forget, and you can read about them, as well as the mechanics of buying at auction in my article, How To Buy Property At Auction.
But, if media hype is to be believed (yes, maybe we have been guilty of it too), the property market is nothing but doom and gloom and the moment.
True, statistics don’t lie. According to the latest Halifax House Price Index, property prices fell by 2% in June, slightly less than the 2.5% drop in May, and you might think that would be enough to put both buyers and sellers from putting their hats in the ring.
However, you wouldn't think that the case if you were at the property auction I went to earlier this week. In fact, the room was so packed that when I arrived just in time for lot one, there wasn’t an empty seat in the house.
Were they all prowling for a bargain? Or was it all just one big show?
Déjà vu
The first thing I noticed when I arrived was the amount of faces making a reappearance in the auction room. I spotted at least five people I recognised from the previous auction. These were the high rollers -- all investors, and all very, very serious.
I also spotted no obvious first time buyers, another difference between this and last time. I managed to speak to two first time buyers during the last auction -- both with funding in place but easily outbid by richer rivals.
I could see why they might have been put off. It’s easy to be intimidated by investors, many of whom only start bidding when the gavel is already halfway down. And, if you’re a first time buyer on a budget, you can quite easily be steamrolled by an investor with far deeper pockets than yourself.
Unrealistic reserves?
There were also a lot more properties sold by local authorities and private companies -- 87 this time compared to 53 last. This could be attributed to a larger amount of repossessions, or perhaps less private vendors are willing to sell.
However, one other thing that I noticed is that the reserve prices remained high across all properties, and several failed to sell due to the high reserve price. However, unlike last time when a number of properties sold by private vendors failed to shift for this very reason, this time those sold by private companies and even local authorities had quite high reserves.
In my view, although there were quite a few bargains to be had, it was impossible to tell whether they were, in fact bargains.
Many were abstractly described as ‘requiring modernisation’, which could simply mean the property needs a lick of paint, or a complete facelift. Depending on which side of the line the property falls under, it could end up costing you thousands more than the price paid at auction.
It ain’t over ‘til the fat lady sings
A common misconception about property auctions is that if a lot ends unsold, your chance to purchase it has also disappeared. This isn't always the case.
If a property is withdrawn because the bids weren't high enough, it doesn’t necessarily mean game over. Nine times out of ten there can be some form of discretion, especially if the final offer was close to the vendor’s reserve.
On the day, several representatives from the auction house will be swarming around, all more than happy to discuss your options. Once the unsold lot has passed, feel free to approach somebody to ask if the property is still available.
The auction house will act as an intermediary between you and the vendor to try to agree a price. Remember though, if a deal is agreed, you must complete the transaction within the normal time scales associated with sales at auction (usually within four weeks).
Is cash king?
There’s also the question of funding.
As I stated earlier, many people in the room will be cash buying investors. Cash is undoubtedly king when it comes to buying at auction, and if you want to go down the mortgage route, bear in mind that an agreement in principle can take longer than the 28 days you usually have to complete a sale at auction.
In addition, if the lender doesn’t value the property at the price you have agreed to pay for it and you are left with a shortfall you can't meet – to put it bluntly, you’re in trouble.
So, the most important thing is to have your finances in place before walking into the auction room. Yes, you could end up shelling out for requirements such as a survey only to be outbid by someone else, but at least you won’t lose your deposit through not being able to get funding from a lender.
And, if you’re serious about a property, go and visit it. Often it’s hard to decode the difference between phrases like ‘requires upgrading’ and ‘requires modernisation’ simply from the text of a catalogue, and the only way you’ll really know its condition is by visiting the property yourself.
Hunting down a property auction
There are several ways you can find a property auction in your area. Quite a few are based in big cities such as London or Manchester. However, Fools highlighted several websites at the bottom of my last article, all listing auction houses in your area.
Remember, a reputable company will always have a catalogue of properties on offer which you can view online or as a hard copy, so don’t be duped by any get-rich-quick schemes.
Above all, if you’re eager to bid but are an auction virgin, make sure you go along to one to get a feel of it before getting down to serious business.
During the auction this week, I watched a man pay £701k for a house with a guide price of £350k. My guess was that he wasn’t planning to pay quite that much, and I could see how easy it was to get carried away.
However, trends which emerge at auction are extremely interesting, and if you go to enough, you can start to spot where the bargains are to be had.
So, if you are keen to start bidding, the important thing is to remain calm, don't bid more than your budget, and you may end up bagging a bargain.
More: The Time To Buy Property Is Now / Why Lenders Are Cutting Their Mortgage Rates
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