Property Auctions

  If you've even a passing interest in property development and investment, you'll certainly have heard some of the buzz surrounding the idea of buying property at auction.

  Once a fairly obscure way of buying property, auctions are growing in popularity from year to year - indeed, last year saw a jump of 16% in auction activity according to the Royal Institute of Chartered Surveyers, with the market being worth approximately £3.8bn.

Why are auctions so popular?

  The main reason for buying at auction is, and always has been, PRICE.

  You can get huge discounts on a property's market value by buying at an auction, which is obviously attractive to developers and investors alike.

  Although there are many reasons why a property will end up being sold at auction rather than throught the normal private selling process, the most common one is that the property is not being sold voluntarily: debts, repossession, or another set of circumstances will often have forced the sale.

  While this is unfortunate for the seller, it tends to mean that a quick sale is much more important than the final selling price, and so there are bargains to be found.

  Also, almost without exception an auction property will be a vacant possession i.e. not involved in a chain, another plus point for developers, for whom a quick return on investment is highly desirable.

Auction Drawbacks

  Sounds good so far, doesn't it? Well, it's not all plain sailing - there are drawbacks.

  Firstly, this is definitely a game for committed property professionals or serious investors. Once the hammer goes down and you've won the auction, you're committed to completing the deal. You'll be asked to sign a contract immediately, and to stump up a 10% deposit. Full completion of the sale is normally required within 28 days.

  This means that there is no time to arrange the normal parts of property purchase such as surveys, finance, conveyancing and searches etc after the event. All this needs to be prepared in advance. And this will cost you whether or not you win the auction.

  This consideration means that you need to be pretty sure that a property is worth bidding for, and that you've done all your homework re affordability and profit potential, before you set the wheels in motion.

  Another point to bear in mind is that auctioned property will often need renovation, or in extreme circumstances even complete rebuilding, and this may not come to light until you have a survey conducted.

Property Auctions: Worth the risk?

  There's no doubt that bidding at property auctions could cost you dearly if you pay for all the preperation work and then fail to secure the property at a price that makes it worthwhile for you. However, you need to set this against potential savings of 40%-50% on the market value of the property.