Buying a house at auction
I was lucky, I got the home I wanted first go at my first property auction. There are some tips that I could impart but I’m not necessarily the best person in the world to take advice from. Mind you I am told that I was impeccable prepared and that all my homework and paperwork was on the money.
Watch “Homes Under the Hammer” for breakfast, dinner and tea, washed down with a helping of “Grand Designs” and “Restoration”. These will give you a feel for what the market wants, what’s available and pitfalls to avoid. Also they’ll let you know how to tidy up a house and make it fit for sale.
If you find a house then at least book a viewing. DO NOT EVER BUY A HOUSE UNSEEN, unless you are minted and have a team of brilliant builders to hand. Make sure you see all of the rooms and that you walk around the outside of the building too. Look especially for large cracks that might indicate collapsing walls or subsidence. Damp can be an issue, look for crumbling timber and fungal infections that could indicate dry or damp rot. There are plenty of other pitfalls too, things such as missing kitchens, infestations of Japanese Knotweed etc. will stop a mortgage in its tracks. So do your homework.
If you find the cash then pay cash, that’s the easiest way to get an auction property, however not all of us have this luxury and have to arrange a mortgage. What you must know about an auction is that there is generally a deposit that must be paid on the day of the auction, there is then a period of time in which to find the rest of the funding to pay for the property, this can be from a day to a month so do check. If you don’t settle in this time then you lose all of your deposit, that’s ALL OF YOUR DEPOSIT. Now that wouldn’t’ be soooo bad if it were a couple of quid but generally the deposit is 10% of the value of the property when the hammer fell and that is a lot of quids.
What you must do then is arrange a mortgage before the auction. This isn’t as easy as it first may sound as generally you’re arranging a mortgage for a property that the mortgage company might not be willing to lend money on. So first of all what you need is a whizz bang mortgage advisor/financial consultant who can do the negotiating with the mortgage companies and then once you’ve established what they might lend you based upon your income, deposit, credit rating etc. then you need to get a mortgage in principal. This will be an amount of money that the mortgage company will lend you on a property, but remember it’s the money they’ll lend you on a property that’s worth that amount of money. In order to be sure that they’ll lend you the money then it’s worth getting a surveyor to look over the property to confirm that it’s worth at least the amount of money you’ll be borrowing. It is worth pointing out that if you use your own surveyor then what they say isn’t necessarily what the mortgage companies surveyor will say, so it is worth getting your mortgage advisor to do a bit of work here on your behalf. What you need the advisor to do (assuming you know what you wish to buy) is to get the mortgage company to send in their own surveyor to assess and value the property, this will then guarantee you the amount of money that they will lend and if in the long run you do acquire the property it will save you having to fork out for the second survey (the one by the mortgage company) as it will already be in the bag. It does mean that if you don’t get the property at auction you will lose the survey cost, but think this way, if you got the property at auction and the mortgage company surveyor refused to lend money on the property then you could possibly lose all of your deposit.
You need to know too that some mortgage companies will only finance you on the amount outstanding on the property price after you’ve paid the auction deposit. So if for instance the auction property was £100,000 and the auction deposit was 10% then you will need to pay to the auction house the sum of £10,000 on the night. The mortgage company will then only finance the remaining amount of £90,000 and you’ll also have to pay them their agreed deposit of e.g. 20%, so you’ll have to pay another £18k deposit. So this would mean on your £100k mortgage you’d be paying a deposit twice with only the remaining amount financed, so this would be £28K deposit in total (£10k auction house deposit and £19k mortgage deposit) and only £72k on finance. If however you are shrewd and you have a good mortgage advisor and mortgage company then you can agree to have the deposit that’s paid at auction forwarded (once the mortgage is settled) to the mortgage company to pay part – or all – of the mortgage deposit. Hence in this scenario the £10 auction deposit would be forwarded to the mortgage company and you’d only have to pay the £10k balance of the £20k (20% of £100,000) mortgage deposit. So here you would be paying in all £20k deposit (20% of £100,00) and £80k would be in finance. This needs to be agreed well before the auction.
An auction house will demand a fee, this fee is usually paid on the day of the auction and it is set by the auction house. You will not get this money back.
Auction houses are very careful to avoid any scurrilous activities. One of the major problems at the moment is money laundering but there are many other shady deal techniques out there so they usually need you to provide various odd and sods if you are successful at auction. They will generally need photo id (I took my passport and my driving license), house bills (I took a handful, don’t skimp it looks good if you have a wedge of them), solicitor details – I think it’s best to use the solicitor that your mortgage advisor recommends as things go through much easier this way, also it keeps the mortgage advisor sweet as they get a cut of the fee – make sure you have a name and address for the solictor, and payment too. Payment needs to be checked but my auction house insisted on a cheque or bankers draft payment, I took along my cheque guarantee card (they didn’t request it) a print out of my bank account balance (they didn’t need it) and a couple of fat credit cards just in case. It seems to me that the deal done on the night is mainly sustained by ID proof rather than proof that you can pay the deposit. Though other auction houses may differ vastly…. I would mention, but it is a no brainer, that you must have the money in your account to cover the deposit once the cheque or whatever method of payment is presented to the bank.
Make sure you get there on time or very early (if there’s a traffic jam you might just pick up a bargain), peruse the catalogue, find a nice spot, but don’t bid on anything but the house you have agreed finance on, unless of course you are minted and you can buy houses like sweeties – which seems to be the case with some people.
Visit as many auctions as you can, this gives you a feel for them, if you’re not going to bid then you still could do with getting there early so as to get a good comfy seat.
Stand at the back in the middle, the auctioneer should still be able to see you (try rolling up the catalogue and thrusting it into the air if they cannot see you) and if you’re at the back then any other bidder should not be able to see you and second guess your bidding technique.
Do your maths, find out a maximum you can afford and stick to that, do not go over it.
Beware of stamp duty. The property I bought was £1 under having to pay stamp duty. Stamp duty is:
Purchase price/lease premium or transfer value SDLT rate
Up to £125,000 Zero
Over £125,000 to £250,000 1%
Over £250,000 to £500,000 3%
Over £500,000 to £1 million 4%
Over £1 million to £2 million 5%
Over £2 million from 22 March 2012 7%
Over £2 million from 21 March 2012 15%
Actually take this chart with a pinch of salt as I know the base of “Up to £125,000” should actually be “Up to £125,001” and I’m not too sure if that’s “Up to and including”. Sheesh and this is off the hmrc website too.
There is also a stamp duty for “properties bought in a disadvantaged area” where the thresholds are greater, 1% for example being applied at £150k rather than just (just ) £125k. Check out http://www.hmrc.gov.uk/sdlt/intro/rates-thresholds.htm for details.
Some people bid as the hammer is just about to fall, some bid once and drop out, some bid prematurely (well I think they do) and as a maiden bid secure a property with no other bidders – which can mean that they’ve bid over-the-odds. My technique is let the auctioneer drop the opening price, if he threatens to withdraw the lot then bid straight away, however someone else usually bids before then. When you do join in the bidding then bid with confidence, don’t hesitate till you get to your max price then drop out straight away. Bidding firmly will put off speculators and it worked for me.
Take a flask to have in the car.
Take the next day after the auction as a holiday, you can either spend it drowning your sorrows or organising such lovely things as buildings insurance, contents insurance, life cover, aborial reports etc..