First-time investors and buyers are repeatedly asking us: “Is buying a property at auction risky?” Our answer is that with research and restraint, it need not be.
Business is fundamentally about weighing risk against profit. Armed with the right knowledge and due diligence, buying property, either to renovate or for investment income, is a great way for investors to make their savings work.
The turbulent time the property market has been through over the past six years is still fresh in our minds. Fortunes can be made and lost overnight with the rise and fall of the market. But lower-risk property investment strategies can provide a secure income along with capital growth in years to come, which will be ideal for those investing their life savings and pension monies as some are released over the coming months.
This is especially pertinent with the government’s pension reforms coming into force in April, giving savers more freedom over what to do with their pension pot. The over-55s will be able to take out a number of smaller amounts, instead of a single lump sum, and 25% of each will be tax free.
The reforms come at a time when all signs are pointing to a rising market and agents report properties selling in days. The auction room is the ideal place for savers to look for a property to renovate or invest in. And it is the only place that offers the certainty of knowing on the fall of the gavel whether or not you are the successful purchaser.
Many of the lots on offer require renovation, improvement or have potential for a prudent buyer to add value, along with producing a safe income for years to come.
So, with the old saying caveat emptor (let the buyer beware) in mind, how should we respond to those who ask us how safe it is to buy a property at auction?
We always say there are five golden rules for buyers that will result in a quick and successful transaction.
The first is to study the auctioneer’s catalogue for suitable lots. It will provide viewing details allowing potential bidders to book an appointment. In most cases the catalogue will also provide photos, elevations, location plans and, more importantly, a guide price.
Next, obtain a copy of the legal documentation provided by the seller’s solicitor. This can include special conditions of sale (which may contain extra fees and costs), local authority searches and, in most cases, all the documentation required for making an informed decision on whether to bid or not. Investors who are not fully au fait with property law should seek legal advice from a solicitor or licensed conveyancer.
Our third rule is to arrange finance, if required, before the auction. If a survey is needed, investors also need to have this carried out before committing to a contract.
Rule four is a reminder that if successful, buyers will be required to pay a 10% deposit in cleared funds to the auctioneers at the point of exchange (check the method of payments accepted, as these may vary), together with the administration fee in most cases.
And finally, we urge bidders to arrive at the auction in plenty of time. They may need to register and obtain a bidding number. They may also need to pick up a copy of the addendum, which sets out any amendments to the catalogue.
As these rules highlight, investors do not need to be property professionals to buy at auction. Rather, we continue to advise that they simply need to ensure they are prepared and have done all that a prudent buyer would do before entering into a contract.
James Emson is managing director of Clive Emson Auctioneers
