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  • Auction Tribe

    Tips for buying property at auction with David Sandeman of EI Group

    David Sandeman of the EI Group shares his tips for finding property deals at auction. Filmed on location at the Woking Landlord event hosted by Tenants History. 

    Useful article with tips about buying at auction:

    Top tips for BTL investors in the auction room:

    1. Research before you bid

    If you’ve never been to a property auction it pays dividends to attend a couple before you make any bids. Property auctions are very different to their antiques and art counterparts; a visit will give you a valuable insight into the way the auction works and the tactics other bidders use. To make sure there are no costly hidden surprises following a sale, study the auction catalogue and the properties you are interested in before you bid. Visit properties to see what condition they’re in and to get an idea of what budget you will need to allocate for repairs and refurbishments.

    2. Check your rental returns

    It’s easy to get caught up in the excitement of bidding at an auction so make sure you’ve put pen to paper beforehand and know exactly what returns you can expect. Rental yield is an easy calculation expressing the rental income as a percentage of the purchase price and allows you to check whether your investment gives a viable rental yield. Also make sure you have a contingency fund for when the property is not being rented and loan or mortgage repayments still need to be met.

    3. Auction house jargon

    Don’t get caught out by not understanding the terminology used in the auction house. One good example here is the variation between the guide price and the reserve price. The guide price of a property is an indication of where the reserve will be set and what the property could be sold for. However, the reserve price could be above or below the guide price. The reserve price is the lowest price the vendor will accept and will be agreed between the vendor and the auctioneer before the auction. The final sale price will depend on the bidding in the room and the vendor's final instruction, not the guide price of the property’s market value.

    4. Arrange finance beforehand

    It’s imperative that finance is considered before a purchase. Auction buyers will usually only have 28 days to complete, sometimes it can be as little as 14 days, and you will need to put down a 10 per cent deposit on the day. This can be a problem if you have yet to secure a mortgage with a traditional lender. Short term finance can be arranged prior to an auction for a particular lot, up to an agreed bid price, so you can be sure you have the funding in place before you bid.

    To avoid a last minute panic, think about having an agreement ‘in-principle’ on any loans you will need before you bid on your lot, although these can be secured through short term lenders before, during and after an auction.

    5. Proxy bidding

    You don’t have to physically be in the auction house to bid, proxy bidding is where you authorise the auctioneer to bid on your behalf up to a maximum amount set by you. To do this you’ll need to give the auctioneer your instructions in writing and the deposit prior to auction using a form normally found in the catalogue. It is advisable to contact individual auction houses for specific information on proxy bidding at their auction. Many auction houses also now accept telephone bids and online bids - an option which is only likely to grow in popularity in coming months.

    6. Auction room checklist

    It’s the day of the auction and you’re ready to make your bid. To avoid all being lost at the last hurdle, ensure you have the following documentation with you

    -Your cheque book and bank details as 10 per cent deposit on the day will be required.
    -Your solicitor's details - the auctioneer will require details of which solicitor you are planning to use.
    -ID - you will need to have your original passport or driving licence and proof of residency to comply with Anti Money Laundering rules. Take at least two forms of ID along with you.

    Full/source story

    Other auction discussions:

    Elderly tenant inherited from auction purchase

    Bridging case study: Buying a property before it hits the auction room

    Recommendation needed for auction website

    Buying a auction - due diligence - Legal Pack

    Auctions, solicitors, legal packs, best practice?

    Buying at auction - tips from Clive Emson Auctioneers

    Paul Ribbons auction trading strategy

    Good to raise this topic when dodgy speakers are on the circuit trying to flog their failing deals bought at auction.....take on board the tip from David Sandeman about not buying at auction if you dont have the finance in place. Dont fall foul of a beginners error and then end up on costly bridging finance with no exit in place. It will suck all the profit out of the deal and leave you in a very risky position....

    I did have a little chuckle to myself when I stumbled across this post earlier today. Vanessa had prompted me to take a look at another thread on valuations (which I will do) when I saw this thread. It so happens that I too took inspiration from the same article and shared my own 'Golden Rules' for Buying Property at Auction.

    The video interview is excellent and I respect David Sandeman highly and Vanessa, as ever, you have brought together a wealth of resources on the topic.

    I can share a couple of my own Golden Rules here for you as a sneak peek:

    1. Learn to sit on your hands! Set your maximum bid price in advance of the auction and should the bidding exceed that just sit on your hands and watch...this will save you thousands and protect you from the inner-chimp Smile

    2. Do a dry run in advance. Attend one or two auctions before doing it for real. I remember doing this in Kensington a while back and the auctioneer looked at me just before the last lot and asked me if I intended to bid on this one! It was a lighthearted moment...it also shows that the auctioneer knows what they are doing.

    3. Remember that everything always takes longer than you think it will...probably with the exception of bidding at the auction! What I mean is, any financing, refurbishment, sale or subsequent refinancing often overruns the planned timings. Plan in some slippage time into every step to make sure you have enough wriggle room...in particular if using financing to buy...

    Very topical, thanks for sharing...
    Richard W J Brown
    Property investor, industry commentator & knowledge sharer
    Also now an author
    Thanks for those valued additional contributions Richard.

    I have been to an auction a few times to watch and found it pretty scary!

    The due diligence on the auction pack must be very intense and some properties are put into auction because they will not sell anywhere else!

    Of course, where there is muck, there is money, but for novices, it can be a minefield imho.

    Here is a list of property types I would personally avoid for investment, but I freely admit that I am low-risk.

    Auctions are for experienced people, with a great legal team, and with very deep pockets. There's certainly money to be made, but they are not for everyone and I believe that they should be approached with caution!

    Auctions are for everybody.

    People seem to think buying a property at auction is completely different to buying with an estate agent. It's NOT. It is exactly the same process.

    The ONLY difference with buying a property at auction is that when you bid you buy and there is a timescale in place. That means you should do your homework beforehand and ensure you have finance in place.

    At the moment when you offer on a property with an estate agent no money changes hands - even if the offer is accepted. There is also no firm commitment up until the day of exchange - despite a buyer possibly having spent thousands on legal, survey and mortgage fees. This can be very nerve wracking for all parties - both sellers and buyers. And people should be anxious - some 40% of sales do not complete.

    The only difference with auction is that when you offer (bid) and your offer is accepted, you exchange immediately and the property is yours and you complete usually 28 days later.

    As long as you do your homework there is nothing to fear from buying property at auction.

    I am very nervous but I think I will at least go along and see a property auction in progress. I imagine it is quite exciting and also a good place to meet new people and network?

    It must also give a very current snap-shot of the market sentiment, so useful for research purposes too.
    BMV Newbie - totally, totally!

    Please go along to a local property auction. I am sure you will find people friendly, welcoming and keen to give advice. You will have a great experience, I am sure and come away knowing so much more!
    Point 3 mentions the relationship between guide prices and reserves. Following a recent ruling by the OFT, at auction, a reserve cannot exceed a guide price. If a reserve exceeds a guide price then it is likely to be deemed as bait marketing because you have unfairly enticed a party to be interested in a property at a price you know they are unable to purchase at. I hope this helps
    Thanks for your input Ben.

    The EI Group has published their December report.

    Interesting highlight:

    Network Auctions achieved the second best auction result in the organisation's history, selling 93% of all lots at its December sale.

    The highlight of the day was lot 26 – a bungalow in Christchurch, Dorset which sold for £585,000, £205,000 over the guide price.

    See - The humble bungalow is on life support