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Buying property at auction can be an exciting but daunting prospect. Samantha Collett, author of How to Buy Property at Auction, spoke to three first-time buyers to find out about their experiences
In the auction room you need to stay calm and not be tempted to bid too much for a property – even if you are desperate to buy it. For a new buyer, though, it’s bound to be an nerve-wracking experience.
Chris (42) and Debbie Salkeld (47)
Chris was ecstatic with his first-ever property auction purchase – a two-bedroom terraced house in Levenshulme, Manchester, from Edward Mellor auctions for £78,500.
It’s not an area he knows well, but he did his research, sought advice from the experts and worked out how to make the most of an inheritance.
“Where I live, in Reading, we can’t get much for our money, but in Manchester we can buy cheaper and get a good rent – plus it has potential for capital growth.”
The property he bought was already tenanted at £500 per month, producing a gross yield of 7.64%. Not bad for a first-time purchase. I can sense him grinning ear-to-ear on the other end of the phone. And I can understand why: comparable properties in the area are selling for about £105,000, which means he is already sitting on a possible profit of £26,000. Although, like anything that’s too good to be true, there’s a catch.
“The one regret is I didn’t see inside beforehand.” I take a deep breath. “But there were other people bidding on the property and so I reckoned it couldn’t be that bad.”
I tut and point out that he really should try to see a property before he buys it. He tells me he did get the legals checked beforehand and the solicitor gave him the thumbs-up. So that’s something.
But Chris, despite being a newbie buying at auction, did have a lot of experience of the auction room – in his everyday capacity as owner and director of Cadmium Events, the audio-visual company that sets up and provides the equipment for running auctions.
“For 10-12 years I have been watching from the sidelines and seeing properties being sold, but I never did it myself until I came into some money – then, when that happened, I was ready to buy.”
Auction was always his preferred route, and having seen some of the bargains knocked down over the years, he was ready to bid for himself. He had also watched the seminars given by auctioneers about how to buy property at auction and so he felt prepared for the process.
I ask if it was it as he expected. “Better,” he replies. “Unlike with an estate agent, where buying is such a long, drawn-out process, here I went along, gave my bid, the hammer came down and the deal was done. I gave my 10% and 15 working days later the property was mine.
“I didn’t have to worry about the seller changing their mind or asking for more money – it was mine at the price I agreed to pay.”
Wasn’t he worried? “I’m not a natural risk-taker,” he says, “but I knew I didn’t have the expertise to play the stock market and get good yields, whereas with this property I had done the research and knew it was in an area of high rental demand. With it already being tenanted, that made the transition to me being a landlord easier.”
To make it even smoother, he says he will get the property managed.
Any plans for the future? “I’m already looking at more auction properties,” he says. “I want to buy another four or five by the end of the year and I’ve asked the auctioneers to let me know of ones that will suit my requirements”.
Which are? “I need them to be relatively cheap – about £70,000-£80,000, because of the extra 3% stamp duty – in strong rental areas and with potential for capital uplift.”
Future-focused, the properties have been bought in a company, to take advantage of the full finance interest relief available. While the first one may have been bought with cash, Chris is planning to refinance in the near future to help him grow the portfolio.
Advice for others? “Do your research and check the special conditions as that’s where a lot of extra fees and nasties can be hidden. Then go for it. At some point you have to take the plunge. I can’t wait to do it again and again!”
Eleanor (60) and Lawrence Cresner (68)
Since the stock market crash of 2008, Eleanor and her husband, Lawrence, have invested in three student houses in Birmingham to improve their returns.
Buying their own home at auction wasn’t something they planned to do, but when Network Auctions listed a house in Bricket Wood, St Albans, their life took a different course.
“We had downsized, sold our home and moved into rented accommodation to spend time looking for the right home… but several months later we were still looking,” Eleanor says.
“When I saw Rose Cottage online, I hadn’t realised it was an auction property. It wasn’t something I set out to do – buying a home at auction is risky from a personal perspective as you invest too much emotionally.”
So what happened? “I fell in love!” Eleanor laughs. “My husband was very nervous about it and so my daughter came with me on auction day. We arrived early and my daughter decided to nip out and get us a coffee – but there was a queue and before I knew it my lot was being sold and I was there all on my own, having to bid in the auction room.”
Did you expect to get it? “Not at all! I was so surprised, and we bought it for less than we expected – so that was a bonus.”
Any problems? “Buying the week before Christmas was very challenging, especially with the deadline because so many people were going on holiday so that was stressful. Also, we had a nightmare trying to get the previous lender’s charge removed – that wasn’t anything to do with the auction house, but it did prove difficult when we were applying for a mortgage to raise some money for the works.”
So what’s the plan? “This will be our home for the next 10-15 years. We have applied for planning permission to extend and we plan to renovate the property. We’ll probably spend about £100,000 to get it how we want.”
Do you feel you paid a fair price? “We bought the property for almost £130,000 less than what it had been on the open market for so, yes, I’m extremely happy – we feel we got a good deal!”
Advice for others? “You need to get all your information together in advance. It is worrying when you spend money beforehand and you don’t know if you’re going to get the property, but it’s better to be safe and know what you’re buying. It’s also useful to take a friend for a detached opinion.”
And the auction process? “It’s a lot more straightforward than with an estate agent. You get to know more about the property through the legal pack being made available. It’s good when you get it, because you know it’s yours and nobody can swipe it from you. I do feel brave at having done this, but I would definitely do it again!”
Kerry Williams (37) and Anthony Robinson (38)
Not having the 10% deposit or the funds from an agreed house sale almost meant Kerry and Anthony didn’t manage to bag the four-bedroom family home of their dreams in Failsworth, Manchester. But thanks to a loan from their mum and dad, a mortgage and a bit of luck, they have managed to secure a new home at auction with Edward Mellor.
“It made me feel sick,” Kerry says, as she shares the moment her dream house was going to auction and she wasn’t there to bid on it. “But we didn’t have the 10% deposit, which you need, and so we couldn’t go for it.”
Instead, she got her sister to watch the auction live online and call her once the property had sold. “When my sister called me and told me it didn’t sell, I called Edward Mellor straightaway to check. They said it was available to buy at the reserve price of £145,000.”
What happened next was a minor miracle. “We were so lucky: our parents stepped in and said they would lend us the 10%. We’ve sold our house, but the sale hasn’t completed yet, so we didn’t have the funds.
“We went to the bank and told them about the situation and to find out if we could get a mortgage on the auction property. I did tell them it would have to be a quick turnaround and they were OK with that.”
However, during that time, the auction property was still available for anybody to buy, and without an agreed offer and the 10% deposit, Kerry knew the property could be snapped up at any point by somebody else. “I needed to be confident before I put down the 10%”, she says. “That’s why I organised a full survey of the property before and got the solicitor to check the paperwork.”
I tell her I’m impressed, given she claimed she didn’t know what she was doing and was clearly in love with the property.
“I didn’t want anything to be wrong,” she explains. “We knew the sale would still be proceeding according to auction conditions and so we had to be sure about what we were doing”.
How was the auction process? “Because I didn’t know what was involved, that was the hardest part. I didn’t understand the process and so I was always on the phone to Edward Mellor asking them questions, but they were great. I kept calling them and asking: ‘What do I do? How do I do it?”
Sounds stressful, I say. “It was and I have had to learn a lot, but we got a great house we wouldn’t have been able to afford before.”
How so? I ask. “Before, this was on the market for £23,000 more with an agent,” she says. “And properties in that area go for well out of our price range. I still cannot believe the price we paid – we’re over the moon!”
Advice for others? “Read what’s involved in buying at auction and understand the process. You need to have the 10% deposit ready, and get a solicitor check the paperwork beforehand.”
How did the auction process compare with using an estate agent? “I like the fact the turnaround is so quick and now I’ve put the deposit down I’ve got peace of mind the property is ours.”
Would you buy at auction again? “Definitely, now I know what’s involved. I would make sure I had the 10% in my bank ready, a survey done and the legals checked. Now I know what money I can save – it’s worth all the stress!”
■ This article appears in the summer 2017 edition of EG’s Property Auction Buyers’ Guide. For free digital access to the guide, register here: http://forms.egi.co.uk/PropertyAuctionsGuide
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