Housing auctions are becoming a more popular way for all buyers, not just landlords, to purchase properties, with the attraction of a quick exchange of property and transparency for buyers and sellers. Rebekah Commane attended an auction and recounts her experience, first-hand
I was a little apprehensive about attending a housing auction for the first time, imagining a room full of angry men in suits yelling at each other, something akin to the floor of the Wall Street stock exchange, bidding far over the odds for a rundown property worth half of the figure on the price tag. I couldn’t have been more wrong.
Arriving at the auction room (this one was held in the artistically designed Cumberland Hotel at Marble Arch in London) I was greeted by a very calm and welcoming atmosphere where those dead-set on certain lots for sale mingled with interested passers-by who were just curious to witness the process of a housing auction in progress.
This particular event was held by NetworkAuctions, an agency that sells to private buyers as well as asset managers.
Why buy at auction?
Being unfamiliar with the property auction process, I spoke to NetworkAuctions director, Toby Limbrick, who was very helpful in answering any and all of my questions.
He informed me that one of the main reasons why people buy and sell a property at auction is for the speed and certainty of the transaction.
As Limbrick explained, the contract is formed on the fall of the gavel; “no fall-throughs and no time-wasters”.
This made perfect sense to me, having witnessed many friends go through the lengthy process of finding a house, securing a mortgage and paying out fees for surveys and other expenses, only to have the property withdrawn from sale or sold to someone with a better offer, just before completion.
Increasing popularity
It also explains why more and more people are buying and selling property at auction. Limbrick has seen a marked increase in bidders in attendance in the last six months and figures from Essential Information Group (which reports on all auction results in the UK) found that there were 21,395 residential lots sold at auction in 2013, 2.3 per cent up on the previous year and only marginally lower than the highs of 2006 and 2007.
“The general residential market appears to be growing rapidly with our estate partners reporting growth in sales across the country,” said Limbrick. “We expect those figures to translate into increased sales in auction rooms in the UK for 2014.”
Mortgage in principle
As a buyer, you must have a mortgage in principle ready on the day of auction and you need to have 10 per cent of the purchase price available as a deposit, which you will put down on the day of auction.
“The buyer must ensure that they have the funds to complete,” Limbrick added. “Failure to do so will result in the loss of their deposit and fees. Plenty of buyers at auction purchase when they are dependent on mortgage funding but the best advice is to make all arrangements before you bid, including a survey, if required.”
I was curious as to whether there tends to be a larger number of landlords in attendance at auction, rather than those buying for personal use but Limbrick explained that numbers of first-time buyers and owner occupiers have been on the rise over the last 12 months.
Prepare
All information on the properties for sale is available online at the various auction houses websites well ahead of the auction day.
You will generally need to register to gain access to all of the details of a property, including the legal documents that you will need your solicitor to look at before placing a bid. You should also be able to subscribe to a mailing list where you can have catalogues of properties for sale in forthcoming auctions sent to you. Naturally, you’ll want to get access to the property prior to buying it and contact details to do so will also be available in the catalogues or on the websites of the various auction houses.
The legal packs were all available for further perusal on the day of this auction, while the auctioneers were on hand to answer any questions from interested parties before the lots went under the hammer.
Lots withdrawn
After my very informative chat it was time for the auction to begin. Unfortunately, or fortunately for some sellers, several of the properties due to go up for bidding were no longer available. Some had been sold prior, others withdrawn.
One particular property, a fine-looking three bedroom house in Essex, which had a reserve price of £190,000 to £195,000 was sold prior to the auction for £285,000, close to £100,000 more than asked, so of course the sellers took that bait!
The auctioneer taking the gavel was the lively Guy A. Charrison who managed some banter with the crowd, while also keeping track of bids. I tried my best not to move a limb for fear of entering into a binding contract that I wasn’t prepared for, but luckily Charrison did ask those making involuntary movements whether they were actually bidding or not. Lucky for me as I tend to find it difficult to sit still at times.
Those in the room seemed calm and sure of how much they were willing to pay, although on one or two lots there was a lot of back and forth between bidders and I strained my neck looking from one face to another as often as I would were I at Wimbledon.
Some bids went up by a mere £500 each time, while others jumped as much as £50,000, depending on the guide price on the property.
Interestingly, there were lots for sale with no reserve. A retail unit in Hertfordshire with a guide price of £425,000 sold for £50,000 less.
Other properties failed to meet the reserve and were unsold, but Charrison pointed out that those who had bid could speak to an auctioneer afterwards to discuss a possible negotiation on the price.
Remote bids
There were also bids in the room that were made by telephone and online, known as ‘remote bids’, so it’s not necessary to attend the actual auction if it’s not possible for buyers. However, it seems far easier if you can actually attend the venue, due to the unreliability of technology.
“You can never replace the buzz of the auction room by bidding remotely,” said Limbrick, “but we do recognise that for some a telephone or internet bid is a convenient alternative. We introduced internet bidding last year and it is rapidly growing in popularity. In terms of numbers I estimate that around 20 per cent of all lots sold last year by NetworkAuctions were sold to remote bidders.”
Immediately after a successful bid is made the buyer is escorted by an auctioneer to sign the contract and pay the deposit. According to Limbrick it can then be a mere matter of days before the property is exchanged – seemingly far smoother than buying a property through an estate agent.
Overall, I found the auction to be a true eye-opener. Far from a cattle mart of stressed out landlords, the experience was extremely relaxed and well organised and there was a wide range of property on offer with some true bargains to be had, which would rarely be seen in the window of an estate agents. Of course there are downsides also; you could have your heart set on a property and it could be sold prior or you could be outbid, but it seems worth for risk.
One final, and essential, word of caution from Limbrick though; if you’re not sure, don’t bid!
