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Successfully Buying Property at Auction
Please be sure to take legal and accountancy advice on any tax issues, particularly those concerning inheritance tax. The purpose of this article is just to make you aware of some options and the questions you should be asking.
It's a fact that no matter how cool the outward demeanor of the auction buyer, inside, her heart will be beating out of her chests when the moment arrives to bid on the lot she has her eye on. No matter how many times and no matter how well prepared you think you are, remember this and don't be surprised when it happens to you.
You can help to calm yourself by making sure you have all your ducks in a row before you get there and taking some simple steps during the auction.
Before you ever bid
- Thoroughly review catalogues from all the auction houses and familiarise yourself with how they present their properties;
- If necessary and desirable, view the property you're interested in. (I say, if necessary, because a lot of properties sold at auction are investments and are not necessarily even available for viewing - some of my best deals ones I never saw before purchase. To feel comfortable doing this, you really need to have a good knowledge of your area - prices, build prices, rental figures, etc.;
- Make sure your legal team and your finance are both in place and ready to be accessed quickly. If you need to find finance suitable or solicitors who are used to meeting auction timescales, either work on the personal recommendation of someone who's used the resources they recommend or look at the ads in the auction catalogues and have a chat with a few solicitors and brokers who are geared to at speeds to suit auction requirements;
- Arranging your finance might involve you having the property surveyed, or you might want to have it surveyed for your own purposes;
- Obtain the legal packs for any lot that interests you and check the special conditions. You might have to pay a small amount to obtain the legal pack. Once you've read through it, get it to your solicitor as quickly as possible;
- Attend a few auctions, stand at the back of the room so you have a good view of proceedings and watch what goes on (be careful not to twitch).
The auctioneer's job is to sell the property for as much money as possible and he'll bluff you where he can. If there's a reserve price on the property, he can't sell below the reserve.
The guide price is not necessarily the same as the reserve, although it could be close. Also, the auctioneer will not disclose the reserve before the auction but, you should notice when the auctioneer uses words like "the property is in the room" or "I will sell", etc. because this means the reserve has been met.
When attending auctions, you'll often notice that people can be reluctant to start the bidding. In this case, the auctioneer will take a bid from an imaginary bidder to get things moving. In fact, he's allowed to take bids in this way until the reserve is met. This is called taking bids "off the chandelier" (or "off the wall" in the less salubrious auction venues).
When you're standing at the back of the room, you might able to tell when the auctioneer is making things up AND the point at which he stops doing so and looks for real bids (remember, he can't make up false bids after the reserve is met). This gives you clues as to how much interest there is in the property and, if you're bidding, whether anyone else is actually in the running. Here's your reason for attending a few auctions before the one you intend to buy at, because you'll get to know how the auctioneer operates.
Ready to buy at the auction
Before you event attend, make sure the lot in which you're interested is still going to be offered on the day. Lots can be withdrawn for all kinds of reasons and you don't want a wasted journey.
Get there nice and early in order to complete the paperwork, get a good spot and familiarise yourself with the room. Also, the order in which lots are offered may change due to withdrawals and other factors, so don't miss out just because you weren't expecting your lot to be up so soon.
Before you can buy, you need to register and obtain a number. Not all auctions are run the same, so be sure to follow correct procedure for the auction you're attending - you'll find all the details in the front or back of the auction catalogue.
You will certainly need ID, usually including photo ID, and proof of residence. You'll also need a 10% deposit to pay over for your chosen lot if you are successful. The minute the hammer falls, you have exchanged on the purchase and are obliged to complete (now you see why it's important to have your finance in place!!).
Know your upper limit and DO NOT go above it. It's very tempting to think "Oh, I'll just go another 1K or another 500" and before you know it you'll have been inched up a few thousand away from your original limit. If you can't trust yourself to stick to your budget, get someone else to register and bid on your behalf.
If you can't attend the auction, the auction house may have the facility to accept proxy or telephone bids. Some of them are moving toward online bidding, too. The disadvantage to you is that you can't see the auctioneer's behaviour, nor that of your fellow bidders and bidding at auction does have similarities to a game of poker.
After auction, you'll usually have 28 days to complete, but this can be less - 14 days is not unusual (now you see why it's important to have a legal team that can move quickly).
Alternatives to buying at auction
Even after all you've made all the preparations and taken possible precaution, you might just find that buying at auction is simply too stressful for you. If it is, there are ways you can still tap into great bargains - maybe even better than you'd get in the auction rooms, so here are a couple of alternatives....
Consider buying before or after the auction, always remembering if you do secure a deal before or after, the auction rules and all the conditions relating to completion timescales, etc. still apply.
Making an offer pre-auction
If you want to do this, call up the auctioneer and ask whether pre-auction offers are being considered for your chosen lot. Some large publicly or privately owned organisations won't look at such offers because they have to be seen to be achieving the best price and can only truly do this if they go to auction. Some will accept, some will negotiate with you. Remember, they can only say no and you're still free to go back with a revised offer or to wait and bid at the auction. If your offer is accepted, nothing is legally binding until you exchange, so move quickly to avoid being gazumped.
Alternatively, you could buy AFTER auction. If a lot remains unsold when the bidding finishes, it's because the reserve price hasn't been met. That's the time to head to the back of the room and find out what the reserve was and make your best offer.
If you make an offer at the reserve and you're the only one, the chances are good that you'll get the deal. Of course, there's nothing to stop you submitting an offer below the reserve and letting the vendor consider it. After all, vendor is pretty vulnerable at this point, having paid for an auction submission without achieving a sale. The only thing that could go against you being successful if you do this is if another bidder offers more.
And you thought the auction was over!
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