Over the next three months millions of pounds worth of London property will go under the hammer during the annual spring auction season.
With the Brexit shambles denting confidence and buy-to-let landlords squeezed out by higher taxes, buyers are facing less competition in the battle to secure the best homes in this year’s sales season.
Gary Murphy, head of the residential auction department at Allsop, says that where auctions differ from regular sales is that buyers can at least be sure that what they buy is not overpriced by unrealistic or greedy vendors.
“In a market that is softening, we have to advise our clients to set lower reserve prices before we will take them into our catalogue,” he adds. “You go to an auction to achieve market value.”
According to the Essential Information Group (EIG), which monitors auction sales across the UK, the number of London homes going on sale at auction has fallen by around a third year on year, as has the proportion that then go on to sell.
And while buyers spent almost £100 million on auction property in London between November last year and January of this year, they spent more than £121 million during the corresponding period the year before.
This means buyers will be looking for the double benefit of lower reserve prices and fewer rival bidders when they enter the saleroom.
David Sandeman, founder and managing director of EIG, explains: “In order to get a property listed in an auction you have to agree a reserve price in advance with the auctioneer … the auctioneer wants a reserve price which has got clear daylight between it and the perceived open market value of the property.
“For example, if a local estate agent thought the property was worth £100,000 the auctioneer would want it reserved around £80,000, so if there was only one person bidding on the property it will sell on reserve at £80,000.”
The great danger is losing your cool on the day and bidding too much.
“Every auction we have around 120 lots,” says Andrew Binstock, founder and director of Auction House London.
“At least five will sell for just crazy, crazy money. You can’t fathom human behaviour in the pressure cooker of the auction room. All the excitement is building up and I am shouting at you to offer another £1,000 and you don’t want to lose your property, and suddenly your maximum budget of £500,000 is £510,000 and then £520,000 and then you are not going to lose it for another couple of grand …”
However, in general, Binstock agrees the auction market has cooled. In the good old days 20 people might be bidding on a plum property.
“Now we are happy if it is just two or three,” he says. “It used to be quite ordinary for 90 per cent of the catalogue to sell. Now we think 70 per cent is great.”
Risking your deposit
Those who do win a property auction need to put down a 10 per cent deposit immediately and pay the remainder on completion, which is usually 28 days later. If they can’t come up with the cash, their deposit will be lost.
The good news, for those without sufficient liquid assets, is that there are plenty of lenders offering auction mortgages nowadays.
If you are going to bid on a property you can — and should — get an “agreement in principle” before the sale, so you know how much a lender would be prepared to let you have.
The bad news is that of course, these agreements are absolutely no guarantee. Binstock notes an “explosion” in buyers having to resort to expensive bridging loans because they can’t get a mortgage agreed in four weeks.
Be ready to do the work
The other financial black hole to consider when hunting down an auction bargain is that the vast majority of homes on sale are, in auction house parlance, “in need of modernisation”. This ranges from very grotty to totally uninhabitable.
Gary Murphy of Allsop says auction buyers should do plenty of homework before a sale so they know what is wrong with the property and how much it will cost to fix.
This means viewing the property with a trusted builder or investing in a structural survey, so you know how much work the place is going to need, how much it will cost to do it and how long the work will take.
You should also instruct a solicitor who can liaise with the owner’s solicitor in advance of the sale.
And if you are buying a flat it is worth contacting the managing agent and even approaching neighbours to ask about potential problems such as planned major works to the building or problems with noise or other blights. “You would be amazed at how many people raise these questions after they buy,” says Murphy.
However, he believes that owner-occupiers have the advantage over professional developers who are looking to snap up properties to renovate and sell on.
“Professionals need to make a living,” he says. “An owner-occupier does not need to build in an immediate profit, and if you love a wreck it is an opportunity to create a home which is entirely to your own taste.”