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Auctions can yield up a bargain
By Jane Hall, The Journal, Newcastle
With house prices now out of reach for many -
despite signs the market is slowing in some areas - buyers are having to
look harder for bargains.
One alternative is to buy at auction, says Jane Hall. |
A glance through the daytime television
schedules reveals that Britain is in the grip of auction fever, with
programmes such as Bargain Hunt, Cash In the Attic and Flog It
highlighting our love of a bargain.
This love affair shows no signs of abating.
But for those hoping to emulate the likes of David Dickinson and pick up
a house "as cheap as chips", the auction room can be a nerve-wracking
place.
Yet a growing number of people are now looking to the auction room as a
means of getting their feet on the property ladder.
Buying at auction now accounts for an estimated 5pc and rising of all
property transactions, according to the Royal Institute of Chartered
Surveyors (Rics).
Recent figures from online property database Focus show the value of
residential properties sold at auction during the first six months of
2003 rose 12pc to £612m, helped by a 19.5pc increase in the average
value of residential lots to £113,599.
Buying at auction sounds like a dream, especially as the traditional
method takes an average of 12 weeks from the day an offer is accepted
until contracts are exchanged. During that time, buyers can be gazumped
or sellers may decide to stay put and chains break.
Almost one agreed sale in three now never makes it to exchange of
contracts.
A big advantage for saleroom buyers is that once the auctioneer's hammer
falls, the property belongs to them and neither they nor the seller can
pull out. The buyer hands over a deposit and may move in within 28 days.
Around 25,000 properties now go to auction every year at more than 200
auction houses nationwide.
Such sales - which are the norm in the United States and Australia -
really took off in the UK in the 1990s when lenders were having to
sell-off property they had repossessed, often at a loss, but couldn't
sell on the open market. They became a magnet for buyers who wanted to
take advantage of the lower prices and pick up a bargain.
Although there has been a reduction in the number of auctions being held
as the property market has picked up and fewer homes are being
repossessed, they are still going. And they still attract bargain
hunters.
The reason why auctions still produce mark-downs is simple. Most
properties being sold at auction are there for one reason. Their owners
- and this includes lenders with repossessions on their hands - need a
quick sale and are therefore often prepared to accept offers well below
the market value.
But despite the financial advantages of buying property at auction, many
people are wary of doing so. Not for the faint-hearted, an auction room
is an unfamiliar environment for most and is certainly not a
conventional way to buy a home.
As a result, it is seen by many to be a risky business. This is not
actually the case, says Andrew Entwhistle, associate partner of
surveyors and valuers George F White, which has offices in Alnwick and
Wolsingham and holds between 10 and 15 property auctions across the
region every year.
"There are two golden rules for buying at auction," Andrew says. "The
first is to do your homework and get an answer to every question you
have before the auction. This may cost you, but it will be cash well
spent.
"The second is to go to the auction with a fixed price in your head and
to stick to it. If you follow those rules, buying at auction need be no
more risky than going through an estate agent."
While George F White usually deals in properties with what Andrew
describes as the "wow factor," and buyers who pay in cash, he says in
general there can be bargains for the taking at auctions.
"A lot depends on who is there on the day bidding, and how the property
has been marketed. If it hasn't been marketed well or the seller wants
to get rid of it quickly, then there is a possibility you will get a
bargain.
"In the current elevated housing market, auctions are preferred by many.
It is a transparent way to buy. You have the advantage of being able to
inspect all the deeds, searches and contracts beforehand."
Richard Francis, head of auctions at estate agent Keith Pattinson, says:
"Every month it staggers me that, while some properties go for more than
anticipated, many go for much less.
"We are attracting first time buyers and those looking to trade-up as
well as investors, and have properties across all price ranges, from
£1,000 to £750,000."
Andrew Entwhistle throws cold water on the idea that an auctioneer may
mistake a twitch or a cough for a bid. "A property auction is not like a
lamb sale where a sneeze will buy you a whole flock. At a property
auction you generally have to wave your arms around very strongly.
However, my advice would be if you're not wanting to bid, keep your arms
folded."
A more common problem is bidding for the wrong lot. Make sure you know
exactly which lot you want and which lot the auctioneer is taking bids
on.
You should also check that the property is still up for auction and
hasn't been sold privately.
So while buying at auction can be nerve-wracking, it need be no more
risky than buying through an estate agent.
The only difference is that the selling price will be determined by the
amount of competition bidders are prepared to offer.
Most people who buy at auction are cash buyers who already have finance
available. But some inexperienced buyers do venture into the auction
market. If you decide to do so, then you must be certain that your
finance is in place before making an offer.
The auction catalogues are released usually two to four weeks before the
sale and give a guide to prices, so you will know roughly how much you
will need. But remember that the final price may be higher, particularly
if there are several bidders for the property.
The most important point to remember about this pre-auction planning is
that all of the paperwork, surveys, searches, and financing must be
carried out before the auction itself.
But one of the major advantages is that the purchase goes through very
quickly, therefore you bypass problems like chains or a long wait while
the vendor finds a suitable property to move to. |
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