Buying Property At Auction
Most people know that bargains are found at property auctions, but many property investors are too frightened of the perceived risk, so they pay retail prices for their investments rather than wholesale.
What does it mean?
Dominic Farrell from Distressed Assets explains that ‘Retail’ property investment involves buying through estate agents, while ‘Wholesale’ involves buying through auctions or genuine off-market. It is like buying groceries from the high street or visiting Costco or another large wholesaler and buying at lower prices.
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In a recent auction example in Liverpool, a three-bedroom terrace was purchased for £75,000 prior to auction (auction conditions apply). Other properties were advertised on the same road for sale through estate agents at £100,000 and £125,000, respectively, but there was a big difference, not just the method of sale. The other two properties were two-bedroom terraces.
In May 2024, the same property was conservatively revalued for mortgage purposes at 53% higher than the original purchase price. So, £75,000 became £115,000 without any work whatsoever. It was a Buy, Refurbish, Refinance and Rent (BRRR), with the second R!
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This type of acquisition is not a one-off or an outlier. Many properties like this are available at auctions up and down the country, whether in Liverpool, Manchester, Birmingham, or London. It is just a matter of knowing how to find them and having the knowledge and confidence to act.
The Property Auction Action Plan
Like any business or military operation, you need a plan. Dominic suggests breaking down the auction buying process into stages or phases so that it does not overwhelm you.
Phase 1
Learn as much as you can by reading books, listening to podcasts/Audible, researching on the internet and visiting property events, such as the Property Investor Show, which gathers auction experts together twice a year who can help you.
Phase 2
If you feel you would benefit from training or even mentorship, then research the market and make a choice. Ensure that the trainer/mentor has bought and sold many properties personally at auction and has not just read a book or two.
Phase 3
After arming yourself with knowledge, you must act quickly. You must formulate a property auction strategy and focus on a particular area and type of property you wish to invest in.
The Property Auction Action Plan
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Phase 4
Arrange your team—you will need an experienced auction solicitor, bridging and mortgage specialist, building contractor, and lettings and property management agent to look after your property post-acquisition.
Phase 5
You can analyse and filter auction lots by visiting auction house websites or using software such as Essential Information Group (EIG). Ensure that you understand the numbers and read the legal pack, but you must have a solicitor report on the legal pack before making an offer as the ramifications of not taking appropriate legal advice can be very serious.
Phase 6
After conducting desktop research and narrowing your options, viewing the property (or having someone competent to view it for you) is essential. This is as critical as reading the legal pack. If you are unsure what to look for, take a professional with you. If you want to finance the property, you must ensure it is mortgageable.
Phase 7
If, after viewing, you find that the property is suitable for your purpose (flip, BRRR, buy-to-let, development), then work out your maximum bid (based on the percentage below market value you are targeting) and think about your tactics. Do you offer prior to auction, live (online and in the room), or wait to see if it does not sell and make a post-auction
offer?​​
Buying Property At Auction
No matter your tactics, you must undertake anti-money laundering checks with the auction house. On exchange of contracts, which is immediately after you sign the contract, you will normally pay a 10% deposit and the auctioneer’s fees. You will also become responsible for insuring the property.
Completion is set out in the Special Conditions of Sale, which is found in the legal pack, but in most cases, it takes twenty-eight calendar days or twenty working days.
In conclusion, there is no better way for investors to buy below-market-value property than through auction. You must understand the process and the risks, but the rewards are substantial and relatively quick. Good luck, and if you have any questions, please feel free to contact us.