Property auctions - all you need to know

The best ways to get a bargain when buying a new home at a property auction

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a wooden gavel and soundboard...

Affordable houses are like Opal Fruits: we remember them with misty-eyed fondness but never expect to see them again in our lifetime.

However, while Opals Fruits fans have to suck a Starburst and live with it, there is an alternative for those seeking a bargain property: a property auction. It's an unfamiliar way to buy a new home, but you can save up to a third on the typical cost of a house, so it's worth understanding how the process works.

Bargain properties?

Affordability through traditional routes is long gone. Nowadays there's only one local authority area where the average house costs less than three times the average annual salary - Copeland in the Lake District. There are no longer any areas in the South East, South West, London and the East of England where average house prices are less than five times the average wage. In parts of London the average home costs 30 times the average salary.

It's hardy surprising, therefore, that so many people have turned to property auctions. According to the EI Group, in July alone, 2,467 residential properties were sold this way - up 5.7% from July last year. And there are some real bargains available. There are no hard and fast figures on what you can save by buying this way, but as a rough rule of thumb it could be around a third of the total price, if you are careful about what you buy.

However, buying at auction is very different to buying through an estate agent, so it's worth understanding what's involved.

Before the auction

You'll need to start by finding the local property auctions. There's a list at www.ukauctionlist.com. It's also worth searching property websites and clicking the auction option, where you can dig out treasure you might otherwise have missed.

You can then get hold of the auction house catalogue, and study it carefully. These are usually available three weeks before the auction, so after this point you'll need to be quick.

You need to have a clear idea of what you're looking for. You're highly unlikely to find perfect properties through the auction process, but think about how much work you are willing to take on, the kinds of locations you can compromise on, and whether you are happy to accept a property with serious issues that need addressing.

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Research

If any of the properties look promising, do some background research. Compare the property and its condition to those in the area for sale with estate agents. You need to make a judgment as to whether the guide price is realistic, or has been set absurdly low in order to attract more bidders. Your aim is to gain an understanding of the true market value of the property. This will help you later when it comes to bidding.

If everything seems in order, contact the auctioneers and arrange a viewing: visit a couple of times if you can. If the building is in a poor state, it's a good idea to take a builder or architect with you, to get an idea of what can be done - and for how much.

The auctioneers should also give you the legal pack for the property, and you should read it in detail. If there's anything you don't understand, get a solicitor to check through it to make sure there aren't any restrictions which vastly reduce the value of the property. It's also worth getting property and land searches done by your solicitor, and a survey of the property in order to establish if there are any hidden problems.

Ask the auctioneers at this stage whether there is any chance of a deal being done before the auction - which isn't unheard of.

Finances

Before the date of the auction, you will also need your finances in place. You'll need a 10% deposit on the day of the auction: then you'll have 28 days to come up with the rest. This means you'll need to have agreed a mortgage in principle before the auction - or you'll risk losing the property and your deposit.

Not all mortgage companies are happy to lend on auction properties, so it may be worth approaching a broker to see what kind of deal they can get you. But whatever you do, you'll need to be quick, because the mortgage lender will need to visit the property before they make a decision about whether or not to lend, and you don't have a huge window of opportunity between getting the catalogue and going to the auction in which to get everything nailed down.

At the auction

It's a good idea to go to another auction first, so you can take everything in without bidding. That way, when you visit your own auction you don't have to feel daunted by the process and the place, and can concentrate on the property.

When you go to yours, you'll need to have your identification and the funds for your 10% deposit. Most auction houses will accept a cheque for the money, but find out in advance. In order to be able to bid, you'll need to register, and to take the stress out of the situation arrive early. This should help you get a seat too - so you can be certain that the auctioneer can see you.

You also need to keep a check on your emotions. It's essential to have a figure in your head that you will not go over - no matter what. It can be tempting to go over it if you have invested time and money in viewings and searches, but if you cannot afford it, it's bound to be a mistake. If you don't trust yourself, get someone else to bid for you.

Sometimes you go through all of this and the property doesn't meet its reserve price, so it doesn't sell. If that's the case, don't give up. Approach the auctioneer and make it clear you would be interested in doing a deal with the seller. The auctioneer can then act as an agent to get something agreed. If the seller realises their reserve was overambitious this could be a good way of getting a bargain.

Is it right for you?

Buying at auction can be exciting, and can throw up real bargains. However, it's not for everyone. There's a real element of risk involved, because if you do all the legal searches and surveys and approach a mortgage broker, you can easily spend £1,000 before the auction day itself. If you don't get that property - that cash is lost forever.

If you're not prepared to take a risk, then you'll end up spending thousands of pounds more than you intended in order to buy the property - purely because you don't want to see the money you have already spend go to waste.

But what do you think? Would you buy a property at auction?

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