5 top strategies to purchase a property at auction

If you’ve watched Homes under the Hammer, it can be tempting to set off for the auction room determined to snap up an absolute bargain.  However, real life is not much like you see it on TV!

To avoid ending up with a white elephant here are my top strategies for sourcing your property investments at auction.

1: Do your research first

Not just the day before, but well in advance.  Find out what lots are coming up and check them out thoroughly.  What state of repair is the property in? What kind of lease (if it is not freehold) does it have? What is the going market rate for similar properties nearby? Why is it being sold?

If you can view it, do that.  A virtual viewing is better than nothing. Opportunities to view properties virtually, rather than physically, are ever increasing now – which is great if you are not buying locally or won’t to do more viewings than your free time allows.

2: Get the calculator out

Just because a property is being auctioned doesn’t mean it’s going to sell for a knock-down price.  If you’ve done your research and know what the actual full market value is, you now need to work out:

• Cost of repairs/refurbishment
• Cost of purchase - legal fees, stamp duty, etc.
• Cost of finance - total cost, not just the initial cost
• How much profit you want from the deal

If you add that up and deduct the total from the full market value, commonly known as the ‘done up’ value - you’ve got your maximum bid.  Bid more and you’ll be eroding your profit - don’t lose your head and bid more than you know is reasonable, just because someone else has and is pushing the price up!

Double-check the legal pack available from the auctioneer.  Some sneaky vendors add extra buyer costs into the deal so you can end up paying the seller’s legal fees, etc.  These costs need to be factored in as well or your profit could take an unexpected hit.

3: Make a pre-auction offer

If a property is listed in the auction catalogue there’s no reason why you can’t make a pre-auction offer.  Sellers don’t often accept offers ahead of the auction as they hope that there’ll be a bidding war and that will drive the price up.  With experienced auction attendees, this doesn’t happen often, because they’ve followed tip 2 - but hope burns eternal!  

It’s worth giving it a try if there’s a property you really like the look of.  You never know unless you ask.

Remember that even if your offer is accepted, you’ll still have to complete the purchase under auction conditions.

4: Make an offer after the auction

 If a property doesn’t reach its reserve price it will remain unsold.  While the auctioneer doesn’t have the authority to sell below the price the vendor has set, there’s no reason why you couldn’t talk to the vendor and make an offer.  Again, you’ll have to carry out the purchase under auction conditions.

5: Get your finance sorted

Buying at auction using a mortgage is a very risky business.  It takes more than 28 days to organise a mortgage and get everything in place to complete.  That’s why most auction purchases are made by cash buyers - or smart investors who know how to use bridging finance effectively.

Most auction houses require completion within 28 days - there are variables, but you need to know what the time frame is before you even think about purchasing a property at auction.

Bridging finance is reasonably straightforward to put in place well within this time-frame - so, if you don’t have the full price in cash, it’s an excellent solution.

Check out the YouTube video relating to this

You can learn more here:

• Contact Kevin Wright over on his Facebook page.
• Browse the Recycle Your Cash online training library by clicking here.
• Attend an upcoming 1-Day Property Finance Masterclass event - Book in here.