Property Auction Guidance
Warren Buffet the famous investor and world richest man is responsible for one of the greatest investment quotes of all time. He famously said in connection to investment psychology:
“be fearful when others are greedy and be greedy only when others are fearful.”
If any sentiment might correctly describe the approach landlords should take in the residential current climate this is probably it.
We have spoke in the past about the opportunities afforded to landlords by property auctions.
Property auctions don’t necessarily need to be the preserve of the professional landlord. They can provide regular property investors the potential to bag a ‘real property investment bargain’, so don’t worry. Despite the myths you will not end up buying a block of apartments by an unsolicited nod at a property auction.
How to buy at a property auction
Firstly a landlord / property investor needs to identify a potential investment property. There are several ways of doing this:
- A landlord can keep their eyes peeled and find potential investment property in their local property guide
- Register with one of the auction houses such as Savills to get on their regular mailing list so they receive details of their property auctions
- Increasingly landlords are turning to the internet to track down auction properties. Websites such as eig established for professional investors are now available to small scale investors to help them track down bargain properties
Pre –auction preparation
Unlike the traditional method of purchasing a property through private treaty; buying at auction requires you to have done all the preparatory legal work prior to the exchange of contracts. This involves a significant amount of up front and ‘at risk’ expenditure as obviously there is no guarantee that you will be able to secure the property through the bidding process. There are a number of steps a landlord should take prior to auction.
A landlord should appoint a solicitor who will be able to do the legal checks to make sure the property you are hoping to buy is what you anticipate it is. Because the tight deadlines involved in the auction process, it is advisable to appoint a solicitor or conveyancer that:
- has experience of property auction procedures
- can act quickly
Solicitor’s fees for conveyancing work for auction properties is slightly more than for the equivalent work for a private treaty transaction. Once appointed the conveyancer or solicitor should carry out the following prior to the auction taking place:
1. request the contract, searches and replies to pre-contract enquiries plus a copy of the auction catalogue
2. investigate title and raise any appropriate enquiries and also raise such pre-contract and personal searches as may be necessary, for example coal authority search, local authority searches, etc
3. report to the client on what they have ascertained from 1 & 2 and also advice them of the deposit amount they must take to the auction
4. a few days before the auction, see if there are any amendments with the sellers solicitors or auctioneer and if so relay these to their client
5. recheck the details from the sellers solicitors and see if the are any amendments and if so notify the client.
Conditions of sale
Landlords should make sure that you and your solicitor inspect thoroughly the conditions of sale. These are the terms on which the successful bidder will buy the property. They regulate not only the bidding, but also any obligations the bidder is under. They give a full and definitive description of the property and prescribe what happens after the bid is successful.
What types of condition are there?
There are generally up to 4 types of condition that apply to the sale:
- General conditions
- Additional general conditions
- Special conditions
- Other conditions
Purchasing a potential investment property at auction is not a difficult as a landlord and novice property investor may think. Have a look at the Landlords Bible for details of how to go about it.
The one aspect of purchasing a property at auction that makes it a challenge is that access to immediate finance essential. This is because a 10% deposit is required on the day of purchase. The remainder is required within 28 days of the ‘gavel’ going down.
This means that a traditional buy-to-let mortgage is not suitable as completion times will frequently stretch beyond these tight deadlines. Therefore, unless you have direct access to cash funds (a situation always preferable to having to rely on financiers who will charge you interest and fees for their trouble). A landlord will need bridging finance. This is a short term loan facility where interest is well above normal mortgage rates and is also charged on a daily basis. It is important to realise that bridging finance is not regulated by the Financial Services Authority and therefore the usual consumer protection rules do not apply. Therefore you will need to be very careful in selecting the right bridging finance company to ensure that you have a competitive rate and reliable provider.