Buying property at auction

[mjb1]

Not totally sure this is the best section to ask, but couldn't see anywhere else more appropriate.

I've seen a property that I'm interested in that's for sale at auction. It is local to me and has a low guide price (40k), which would make me a cash buyer. Obviously it's in need of work to bring it up to any sort of decent standard. It is part commercial, part residential, with a retail shop downstairs and flat above, along with a reasonable garden, outbuildings and garage and vehicular access over a right of way.

I don't own any property at present (currently renting privately), and can't afford to buy anything big enough to live in, certainly in our current town. My primary idea is to renovate the auction property and let it out, hopefully as separate lets (shop and flat). Even better would be split the upstairs into two smaller flats to rent separately, but I think that might be too ambitious to start off. The rental income could then offset the rent on my current place, enabling me to continue living where I can't afford to buy. Having said all that, I'm pretty flexible, the auction property would be big enough to live in and I could use the shop as a showroom for my own existing business or rent it out.

However, I've never visited or taken part in a property auction before, and this one is tomorrow! To say I'm nervous is an understatement. I've viewed the place at an open house viewing last week, I've enough in my current account to cover the deposit, and I spoke briefly to a solicitor this afternoon who is looking through the legal pack for me. I haven't got anywhere with engaging a surveyor, none of the ones I contacted got back to me. Frustrating, as there are some potential structural issues I'd have liked an opinion on.

I've no idea how realistic the guide price is, but it probably isn't the most attractive proposition for your typical developer (the frontage is grade 2 listed), it's a repossession, and it needs a lot of sorting out (I guess most developers would want to get change of use pp to residential downstairs). I have an idea of the price I'm prepared to go to (not much over guide to be honest), but I've no idea what the selling price will be - could it not even make reserve/guide, or it might go for double the guide price. I'm keen to have a stab at it, and even though it's pretty unlikely I'll win, at least it'll give me a bit of a feel for any future auctions. I've had my eye on the auctions for a while and this is the cheapest good size property that I've seen, so there might be a huge amount of interest.

I've read the auctioneer's guide, but any advice would be appreciated.

[mike9009]

I cannot directly help, as I have never been to an auction either.

However, if there are potential structural issues and this is your first auction I would advise caution. I would go to the auction purely to observe and get used to the environment and not bid on this property. How much money do you have put aside for the renovation. What happens if it needs £10k extra spent to solve the unquantified structural issue? Also, not being aware of the value once complete, sounds like this is a punt which could turn sour.....

Sorry for not providing some wanted optimism, but......




Mike

(PS I am potentially getting stung for approx. £10k to replace a moving retaining wall at the moment, so I am feeling some pain.... )

[Claudia Skies]

I have bought properties at auction. If you are going in blind you are, quite frankly, mad.

I have just clicked online and seen the property you are looking at. That auctioneer often uses artificially low guide prices on very poor properties to attract more interest than they deserve.

If you are the successful bidder you will pay the 10% deposit and £650 fee immediately in the auction room - there's no turning back. You then have a fixed 28 days to pay the rest of the price.

• You can't be sure the property can be split into two separate units unless there is a grant of planning permission to that effect. IF you have spoken to the planning department and been given an informal nod even that doesn't mean you will necessarily get what you want.
• You may be a cash buyer without survey etc but if and when you sell the property it's highly likely to be sold to someone who needs to get a mortgage. How do you know that the property will be mortgageable at all? You said it has structural issues. For practical purposes if it's unmortgageable it's unsalable. Which may well be why it's going to auction in the first place.
• In that location, will the renovated property even be worth as much as it has cost you to buy and renovate?

Be careful.

[Claudia Skies]

If you do not already have this information you may wish to know that,

Number 12 in that road was sold for £75,000 in August 2014

Number 16 in that road was sold for £87,000 in May 2013

[Charmless man]

Never purchased but been to a few. Re the pricing. You can probably look through the previous auction results of that agent, normally on their own websites to get a guide as to how sale prices vary from the estimates/guides.

When I looked the average was around 15% over guide price. Though at one auction the house we were interested in had a guide price of £140k then sold for £184k. Some may be come get me estimates, some may be hopeful, add to that the uncertainty of an auction, bidding battles etc and it all gets a bit variable.

[anonymous-user]

It sounds like you are in great danger of going into this half cocked.

Properties that are part residential, part commercial can be hard to get a mortgage on, which may be fine when if you don't need a mortgage, but may make it difficult for you to sell on. Also, commercial property can be a bit of a minefield for the uninformed, if this is your first crack at property, then, personally, I would stick to pure residential.

If you suspect it has structural issues and haven't had these checked then you would be mental to even consider bidding.

Talking to your solicitor on the phone about the legal pack the day before the auction? Stop, do your homework, don't rush, it's just a recipe for disaster. There will always be other properties coming on to the market. By all means go to the auction, get to know the process, how much over the guide price properties tend to go. Keep looking and a suitable one will come along.

If a property is that cheap then, as others have said, it's either an artificially low guide price, or it's just not worth very much. The auction will show you what its market value is.

[Hainey]

Another one here who goes to the auctions, although not bought there as yet. All the above is accurate, but I would reinforce the point about the 'guide prices' some auction houses publish. They are utter, utter fiction.

As an example, I've seen properties with guide prices of £20k go for £50k and more, time and time again. You can always spot the newbies as they are there thinking they are going to get something for the £20k in their back pocket, and then look crestfallen when it screams past it seconds into the bidding starting.

A lot of money is pouring into property around here at the moment. Where that money is coming from, I couldn't possible comment, but I do think there are some parallels with car auctions, if you get me.

[Claudia Skies]

mjb1 said:

I've seen a property that I'm interested in that's for sale at auction. It is local to me and has a low guide price (40k).

I see it sold for £64,000 a few minutes ago - a whopping 60% above the guide price.

• Did you attend the auction?
• Did you bid?
• Were you the buyer?

Either way, I hope you found the input from PH Finance Forum helpful.

[Claudia Skies]

I see that about half the lots which actually made it to the auction room (several had been sold privately beforehand) went unsold. In other words, either no bids at all or only bids below the reserve price.

This means the sellers are stuck with properties that nobody wants. These sellers are often banks which have foreclosed on a mortgage or deceased estates where the executors just want "out" as quickly as possible. There are sometimes very good deals to be done by contacting the auctioneers and making low-ball offers which give the seller a chance to escape from their plight.

[mjb1]

Claudia Skies said:

mjb1 said:

I've seen a property that I'm interested in that's for sale at auction. It is local to me and has a low guide price (40k).

I see it sold for £64,000 a few minutes ago - a whopping 60% above the guide price.

• Did you attend the auction?
• Did you bid?
• Were you the buyer?

Either way, I hope you found the input from PH Finance Forum helpful.

Yes I went, registered to bid, but 64k was beyond my price (although probably a fair price for the property - if I had that much cash along with reserves to renovate it, I would have paid that much myself). Didn't get involved in the bidding, only two people did - a youngish bloke who started the bidding and didn't even lower his hand until he won it, suspect he would have gone quite a bit higher. But it could easily have gone for lower if no one had bid against him.

Guide prices are just that, if the auctioneer's always got them all spot on then there wouldn't be any point in having an auction. The room was packed, but bidding was fairly subdued. Most properties went fairly well within the guide prices - although the couple with the smallest guide prices went higher, the more valuable the property, the less interest there was, and closer it sold to lower end of the guide.

Even though several didn't make their reserve (but no where near half as you suggest), they all had reasonable bids on - somewhere in the middle of the guide price, and most were very close to their reserve. The high bidders on those were invited to enter negotiations after the auction, and it wouldn't surprise me if most of them did a deal. At least that shows that they weren't taking bids off the wall.

The auction didn't phase me at all, pace was quite steady so was quite easy to follow, unlike some of the smaller non property auctions I've been to.

Claudia Skies said:

If you do not already have this information you may wish to know that,

Number 12 in that road was sold for £75,000 in August 2014

Number 16 in that road was sold for £87,000 in May 2013

Those properties were completely different to this one though - they were small terraced houses (12 is 1 bed, 16 3), they are on small plots, and cosy inside. The building on this place was at least twice as big - 4 bedroom flat just just on 1st floor, retail shop and offices downstairs, stairs already up to the attic, with good scope for converting that beyond storage space. Not to mention a reasonable amount of land, with off road parking and decent sized garage. There simply isn't any meaningful comparison of their prices.

There's a 4 bed house a bit further down the same road currently for sale for £210k, and that is about the same size as the 1st floor living accommodation on this auction property.

[Claudia Skies]

Excellent. Sounds like a worthwhile trip to learn the ropes.

Note my comment earlier in this thread that this auctioneer sometimes chooses very low guide prices to attract additional interest to properties which might otherwise attract very little. Seems that was the case here. The vital thing at auction is to decide what a property is worth to YOU, and stick to it. If anyone is going to get carried away with adrenaline in the auction room - make sure it's not you!

[nikaiyo2]

What auction was it? Do you have a linky? Just being nosy tbh I have looked in all my usual suspects but cant track this property down!

The auction market is weird at the moment, Allsop sold some flats in November or October, that I had my eye on, they had been for sale as Repos on the open market for ages, 3 in the same block, priced from £70-£90K (great flats but eye watering service charges) the sold at auction for between £105 & £115k. WAY WAY WAY over the market price for them, I still cant figure it out, all I can think is either foreign investors did not know the local market or someone did not read the legal pack (the sale price would be about retail if it was not for the service charges.)

If I am seriously going to bid on a property I don't look at the guide price it will be in an area that I know the market and know exactly what I value the property at. I also sit on my hands if something looks "cheap" as there is normally a reason for it!

[Hainey]

nikaiyo2 said:

What auction was it? Do you have a linky? Just being nosy tbh I have looked in all my usual suspects but cant track this property down!

The auction market is weird at the moment, Allsop sold some flats in November or October, that I had my eye on, they had been for sale as Repos on the open market for ages, 3 in the same block, priced from £70-£90K (great flats but eye watering service charges) the sold at auction for between £105 & £115k. WAY WAY WAY over the market price for them, I still cant figure it out, all I can think is either foreign investors did not know the local market or someone did not read the legal pack (the sale price would be about retail if it was not for the service charges.)

If I am seriously going to bid on a property I don't look at the guide price it will be in an area that I know the market and know exactly what I value the property at. I also sit on my hands if something looks "cheap" as there is normally a reason for it!

People are washing money through property, I'm sure of it.

[hidetheelephants]

Hainey said:

People are washing money through property, I'm sure of it.

How do you wash money through property; it's not like you can turn up with a carrier bag of used notes to pay for it?

[blueg33]

I was going to bid at al Allsop auction today. I have a team of people who did the property due dilligence in 48 hours on monday and tuesday. This showed up some fundamental issues that made the property unfundable and unsaleable.

I am sure that the property will have sold, and it will have sold by mistake as the purchaser will not realise what he/she is getting into.

Buy at auction with your eyes wide open, not with half a blindfold on, especially if you are inexperienced in property matters.

[Hainey]

hidetheelephants said:

Hainey said:

People are washing money through property, I'm sure of it.

How do you wash money through property; it's not like you can turn up with a carrier bag of used notes to pay for it?

Same way you do it with buying cars at auction. You don't turn up with a carrier bag full of used £20's there either.

[hidetheelephants]

Hainey said:

hidetheelephants said:

Hainey said:

People are washing money through property, I'm sure of it.

How do you wash money through property; it's not like you can turn up with a carrier bag of used notes to pay for it?

Same way you do it with buying cars at auction. You don't turn up with a carrier bag full of used £20's there either.

Okay; how do you wash money through cars at an auction?

[Hainey]

If you're really asking, can we do it via PM?

[blueg33]

Hainey said:

hidetheelephants said:

Hainey said:

People are washing money through property, I'm sure of it.

How do you wash money through property; it's not like you can turn up with a carrier bag of used notes to pay for it?

Same way you do it with buying cars at auction. You don't turn up with a carrier bag full of used £20's there either.

Much harder with a property auction as the depoist and balance are paid to solicitors or the large auction house. They both have a focus on anti money laundering.

[hidetheelephants]

Hainey said:

If you're really asking, can we do it via PM?

PM by all means.