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NEVER BEEN TO A PROPERTY AUCTION? HERE'S YOUR STEP-BY-STEP GUIDE TO PAPERTRADING SUCCESS
If you're a property buyer, auctions should be sources that you monitor regularly and buy from now and again. Incredibly, many entrepreneurs have never even been to one - they're put off by the hype, myths and silly stories...
1. Get the bottom line. The fashionable view is that auctions generate higher-than-market-value prices. That's based on 'Chinese whispers' from people who have attended one or two London events. They see a crowded room. They hear London prices. They haven't papertraded half-a-dozen relevant lots to make a proper judgement. They've not viewed, researched, looked at similar properties etc, and established market values. The market value is not the same as the guide price. Many first-time visitors are unrealistic - they expect £100,000 properties for £10,000. In my view, properties sell at auction for various reasons; they are unique and in-demand (and sell high); they are forced sales (which can sell-low); they are odd, need renovating etc (which are unpredictable). I have bought three forced sale properties at auction over two-and-a-half years. They were the right properties in the right places. The buying time was short and hassle factor was low. I'd estimate I underpaid the rising market values by about 11% on average. That put about £47,000 into the equity pot to start with.
2. Build your database. If you are papertrading, you should start by creating a contacts list of auctioneers who may sell what you want. This list comprises local auctioneers, nearest big city auction houses and the London auctioneers. Locally, monitor the local press, and especially the property sections. Talk to estate agents who may auction or know who does. Note that, often, only choice properties will sell locally. Some properties are sold in the nearest big city. Birmingham, for example, for Warwickshire. These auctions can include more forced sale properties. London auctioneers pull in the most, and from all over the country. Always monitor these. London events can be daunting for first-timers and misleading (crowded room, glitzy style, London prices for London properties). Far-off properties that slip through late offer more realistic deals. Build relationships with the auctioneers, getting to know the closing dates for entries. This is when property particulars may be released (and sometimes earlier); or at least summarised prior to catalogue publication.
3. Assess the properties. When papertrading, pick out six lots you might want to buy. In reality, time- and money-constraints might limit you to one or two but six is more interesting and gives you a better overall picture. You'll drop two or three along the way anyhow. Base your choice on photographs, catalogue descriptions and fuller, asked-for particulars as available (or call the auctioneer to talk through their notes). Be aware that photographs can be misleading. They won't show the burnt-out car on next door's driveway. A catalogue description is only a summary. A floor plan helps if you are used to turning these into a 3D image in your head; not easy to start with. Always view each property - a drive-by is not enough. The auctioneer may arrange individual viewings, although block viewings (anyone can go along on Thursday afternoon from 5.00pm to 7.00pm, for example) are commonplace. Compare the provided information with the reality. Note room sizes, conditions, any noticeable positive or negative features. Talk to the member of staff who shows you round.
4. Do your background research. Unless you know these types of property and the local market really well, you need to find out the market values of each of the properties. You should not rely on the auctioneer nor guide prices. These are supposed to be the estimated selling prices. It is said that the reserve price will often be at or just above the bottom guide price figure. Both points are debatable. Background research is simple but time-consuming. You talk to every estate agent locally. You see what else is on offer. You view. You compare. For each property, you ask the estate agent if the asking price is negotiable and what the seller's bottom line might be. If you were going to go ahead with a particular property you would, by this stage, also; obtain the legal pack from the auctioneer (containing all the property paperwork); bring in a surveyor (to value the property); employ a solicitor (to check bumph, general and special conditions of sale etc); arrange your finances (10% at hammer, rest in 28 days).
5. Learn most by attending the auction. If you were bidding, you'd need to register, get your paddle, check any last-minute changes, collect addendum sheets and have your mobile phone ready (to call your solicitor about new special conditions of sale etc). As you're papertrading, you can simply watch with a note of the lots that interest you and what you think they are worth. Arrive early for a good position - you want to see the auctioneer. Standing towards the front is good for people-watching. Know the address of each property as well as the lot number. Late changes do occur due to withdrawals. Orders can be reversed, although lot numbers should stay the same. If you are there from start to finish and have, say, six lots to assess you will learn a lot. Early lots tend to be more prestigious and sell high. Later lots are from out of town and sell lower. Most people attending do not bid. A crowded room does thin out. Not all lots sell and can offer cut-price, post-auction deals.
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