Auction Stations For Homebuyers
Viewers are cautious but eager. There is an overpowering smell of damp in the four-bedroom house and it looks as though it could do with quite a bit of work, as does the rather ramshackle garden. But this does not deter the viewers, some of whom have come to the house in Penge holding clipboards and with surveyors in tow. From young couples to property investors, all appear to be here for one reason, and that is to buy a family home at a bargain price. The guide price for the property is £190,000 - less than half what you might pay for a similar home in the neighbourhood.
At the auction hall in the Royal Garden Hotel, Kensington, two days later, the room is heaving. More than 300 people have come to see the 112 lots sold, and there is a nervous energy in the air. First-time bidders huddle at the front, while more seasoned buyers head to the back, from where they can observe other people's bidding habits without being observed themselves. Many people here are developers or people trying to find a property to do up and let. One man says: “I'm sensing that the market could be somewhere near the bottom and I am thinking of buying but want to do my homework first.”
Auctions have become popular in the current climate, with buyers and sellers, because they offer a chance to secure a sale quickly, avoiding lengthy discussions with surveyors, agents and other interested parties. Properties tend to be run-down buildings such as cottages and mill houses, or one-offs that are likely to generate a flood of interest, such as a public lavatory in Fulham, southwest London - it fetches £403,000 at this auction, more than four times its guide price. A very run-down cemetery lodge in Hammersmith, West London, sells for £344,000 - its guide price was £275,000. Both were featured in Bricks&Mortar. While most people present are happy to talk to Bricks& Mortar, the successful buyers of both the more unusual properties decline to divulge their plans for them
Christopher Coleman-Smith, the auctioneer and director of residential auctions at Savills, says: “Auctions are where the real market is, because each one is a true reflection of what people are actually prepared to pay right there and then.” Auctions are also an opportunity for savvy buyers to nab a bargain, particularly while prices are down and sellers are keener to settle quickly. Coleman-Smith adds: “Some of the properties here are at the bottom of the barrel where prices are concerned. They just aren't going to get lower.”
John Mildred, 55, an assistant video editor at the BBC and a newcomer to buying at auctions, is ecstatic when he secures a two-bedroom flat in Sutton, Surrey, for £119,000, £6,000 below the guide price. He imagines that it will cost about £10,000 for a new kitchen and bathroom, after which he plans to let it. “Other buyers were probably put off because the roof needs to be redone, which will cost about £8,000. But at this price it's still worth it,” he says. “I'm amazed.” Other flats have recently sold for close to £200,000, he adds.
Guide prices can be set especially low if the property is a repossessed home that has already been on the market for a while, because banks are keen to sell it quickly. About 10 per cent of this auction catalogue is made up of repossessed houses, but the figure is often much higher. Individual sellers are flocking to auctions in increasing numbers because their properties have remained unsold too long via an agent. Some properties, such as Lot 11, the Penge house, are sold by housing associations who consider them too big and expensive to maintain. Broomleigh Housing Association, which is selling Lot 11 and has a stock of 12,000 homes in Bromley, southeast London, has sold six properties this year, plus eight last year, and has used the money to improve other homes or buy new ones. It hopes to get £250,000 for Lot 11.
Coleman-Smith directs the day's events quickly and charismatically, urging on hesitant buyers with comments such as, “You're going to let a bargain like this go for a lousy £1,000?” As the day continues, bidders become bolder and bidding wars lengthier. Veteran auction-goers have learnt to gauge the mood of their fellow bidders in order to outbid them.
Lot 11 is bought by one such buyer. Sandy Naggie, a property developer, is bidding for her brother, who wants to live in the house. She bids £351,000 for the house, beating another bid of £350,000. “My upper limit was £350,000 but I had an inkling that the other bidder had reached his limit too, so I bid once more. I couldn't lose a house like this for £1,000.”
Naggie, who attended several auctions last year, believes that even in the current climate the house would be worth about £400,000 if it were sold via an agent. “The bargains here are simply amazing,” she says.
Auctions can be risky. As a seller you set a reserve price under which you will not part with the property, but if you set it too high you are unlikely to generate very much interest. Lot 3 is withdrawn when the top bid fails to reach the seller's reserve.
About 73 per cent of properties sell at auctions, according to Coleman-Smith. “The key at any auction is to get the guide prices right. I suspect if we were all realistic about them we would have close to a 100 per cent sales success ... If you have a good product and go in there confidently it can be hugely successful.”
A lot of risk
First-time buyers beware: auctions offer a great chance to get on the ladder for less, but you will need to arrange your mortgage well in advance. Funds are required immediately: a 10 per cent deposit is payable as soon as the hammer has come down, the remainder 28 days later. Turn up without a deposit and your offer will be rejected. Even if you have a mortgage agreed, the deal could still fall through if the lender thinks that the property is worth less than you have paid, so do not go over your limit. David Hollingworth, a broker at L&C Mortgages, says: “If you bid way beyond the maximum, your lender may refuse to give you any more.” If the lender questions the valuation, it may refuse to lend - or withhold - funds until renovation work is completed. The tighter-than-usual timeframe (a normal purchase takes between six and 12 weeks) means that speed is of the essence. A broker can help you to find a lender that specialises in turning deals around quickly, but you may have to pay a higher rate for the privilege. The current downturn and tougher lending rules mean that vendors are becoming more flexible to accommodate buyers.
