The excitement is mounting as I watch the bids fly across my computer screen, reaching thousands above the guide price. I am witnessing a live property auction, and a vendor is just about to make a lot more money than he or she no doubt expected.
Property auctions are an excellent way of buying – or selling – property. But the whole mechanism is a long way from the one employed by your average high street estate agents.
The benefits of selling in a purely open market, however, often greatly outweigh the drawbacks, a point that the vendor of this property, a house in Streatham, south London, comprised of two tenant-occupied flats, is now experiencing first hand.
As the auction value – transmitted live to my computer – reaches around 30% more than the guide price, the frenzied bidding begins to cool. The hammer eventually drops at £374,000, a full £114,000 above the guide price.
|A house in Streatham, South London, sold today for £374,000|
The auction I am watching is being transmitted by a company called Essential Information Group (EIG). As the name suggests, EIG is a provider of information essential to anyone considering buying or selling a property at auction.
While the property auction industry is enormous – in 2003 properties worth a total of £3.5billion were sold at auction in the UK – it is still relatively ‘underground’, and many are unfamiliar with the procedures involved. Auction houses across the country sell dozens of properties every week, and yet most homebuyers do not even know of their existence.
EIG aims to improve this lack of awareness by collating information on every lot of every property auction across the country. All lots, past and future, and most with photographs and maps, are listed on their website, www.eigroup.co.uk: ‘It’s a very fragmented market place. All we do is bring it all under one roof,’ said David Sandeman , Managing Director of the Essential Information Group.
The Streatham lot is an excellent example of at least two auction truths. Firstly, the guide price is usually, as it should be, well below the value of the property in question. Secondly, in the auction world, there is a lot of money to be made, and a lot of money to be lost.
For all auctions, there must be a reserve, which is a minimum value the vendor is willing to accept, and a guide price, which is an approximate value at which the property is likely to sell. The guide price, by definition, depends directly on the reserve price, and the lower those values are, the more likely buyers’ enthusiasm is to be kindled, something I also witnessed in three preceding lots, all of which were left unsold at the end of bidding, having not met their reserves.
As Mr Sandeman explains: ‘Many people believe that when they are unable to sell their property through an estate agent, they can add £10,000 to the guide price and make that their reserve at auction. It just doesn’t work like that. You need something to light the fire of enthusiasm.’
Where estate agents usually sell privately owned, conventional homes, any kind of commercial or residential property can be sold at auction. Most buyers are looking to make an investment rather than buy their next home, but some homes are sold for private residence.
As Mr Sandeman explains, buying at an auction may not be for everyone: ‘It’s suitable for three types of people: cash buyers, homebuyers who are not held back by chains, or people wanting to make an investment. For example, one type of buyer may be parents looking for something for their children to live in whilst they are at university.’
Vendors are often local authorities, investors, or banks looking to make fast, efficient sales. Private vendors also sometimes choose to sell at auction: ‘Vendors sell at auction because they will get a quick, definite sale. Also, there is the opportunity to achieve a price higher than the market value,’ said Mr Sandeman.
The vast majority of properties that come up for sale are situated in urban locations at the bottom end of the property ladder. However, prime properties do sometimes make an appearance. Often they are executor sales, where the owner of the house has passed away and the executor of the will chooses to sell.
For example, Heathwood is an excellent private residence in Surrey. It is in need of renovation, but it was originally valued at £1.3million by the selling estate agents. However, it did not sell, so the owner decided to sell it at auction. Bidding stopped £890,000, well below the reserve price, so the lot was left unsold, and is still available. For more information contact the auctioneers, Countrywide Property Auctions, on 0870 240 1140.
In many cases, properties that are sold at auction are unusual and impossible to value. In such cases, the open market that the auction represents is the only place where a true value can be ascertained.
One unusual lot that Mr Sandeman encountered recently was this windmill in Surrey. It would have been impossible to sell it through private treaty, because it was impossible to value. So it was sold at auction, fetching £325,000: ‘How do you value something like that?’ said Mr Sandeman.
While it is often possible to buy a property at a price well below its market value, there are many traps when buying at auction. The best advice to buyers is to be as prepared as possible.
Once you have identified a property you are interested in, research the house and the surrounding area as much as you can: ‘Once the hammer goes down, the contract is drawn, and you have to exchange, usually within 28 days. There is no turning back. It is up to you to check planning permission submissions in the area, and to ensure that the property is structurally sound,’ said Mr Sandeman.
On the EIG website, for every property up for auction throughout the country, you can link directly to the Land Registry to see average prices for all types of property sold recently in the same postcode. You can also link directly to Hometrack, which gives recent, area specific market trends and information, and houses sold at auction in the same area in the past can also be viewed.
All of this allows you to set yourself a reasonable bidding limit based on the values of similar properties in the surrounding area: ‘You should set your limit and stick to it. Don’t exceed your limit, because another property you like will always come along,’ said Mr Sandeman.
Users can even subscribe to EIG’s AuctionElert, which emails you the details of upcoming auctions of lots in your area, and emails you the details of sales in your area as they happen.
Preparation is absolutely essential. Once you have chosen your property and researched the area, telephone the vendor to request a full catalogue and a viewing of the property. Also you should find a solicitor who is able to work within the timeframe, as sales are usually completed within a matter of weeks. Finances should also be arranged as far in advance as possible.
If you are considering placing a bid, or even selling through an auction, the Essential Information Group website is a good place to start. Whether you are looking for a property investment in Streatham, or selling your house in Surrey, buying at auction can be a worthwhile and financially rewarding experience.
Countrylife.co.uk has teamed up with Essential Information Group to bring the latest information on property auctions taking place throughout the country. For more information, click here.