As a first time buyer you would be excused for feeling dizzy on the roller coaster ride of property prices. From Jan 2001 to Dec 2007 average UK prices spiralled up from £83,450 to £182,080, and have since fallen to £147,746 on the Nationwide property index. If you are a first time buyer you will naturally worry about when to buy. Is it good to buy now? Or wait for further falls? How much further will it fall?
The natural instinct for those buying now is to get a bargain - as it would protect you from further falls and help you get a better place for your money. Auctions are one way to get a property cheaper than the average price, and in this article we discuss the main advantages and disadvantages from the F.T.B. point of view. So lets start on the positive side with the advantages...
The Advantages
1. Getting a bargain
The main advantage of buying at auction is that you may get a significant discount, compared to the price you would pay through an estate agent. Sometimes winning bidders may get a property at 20% below the market value or better. This level of discount requires two things to happen – a low reserve price to be set by the seller, and for there to be little competition from other bidders.
2. Fast closure
You will probably know someone who has gone through a lot of hassle and delay trying to purchase a home. The buying process can be marred by long chains, gazumping, divorce issues and other problems. This is certainly not an issue at auction. As soon as the gavel falls the winning bidder is guaranteed to have the property (subject to paying the deposit and final balance) and completion usually happens within 28 days. No messing around then.
3. No gazumping
Gazumping is a practice that sometimes happens with traditional property buying through an estate agent or direct from a seller. It happens when another buyer offers a higher price for the house after you have agreed to buy from the seller. You are gazumped if the seller decides to go with the better offer.
Having put your heart and a decent amount of money into the buying process it is frustrating and aggravating to have this happen to you, and your options are to walk away of offer an even higher price. Gazumping cannot happen at auction. The highest bid wins and once the gavel falls that decides the winner.
4. No negotiating
You won't have to haggle or bargain with your potential seller at auction. Just do your homework, come up with your maximum price and then bid up to that price. If it goes higher then let it be, but if it sells for less you have a bargain. Of course this could be a disadvantage if you are a good negotiator, because you wont get a chance to use your skills (unless you try to put an offer in before the auction, which is allowed and is often accepted).
5. No chain
Properties sold at auction have no upper chain, so you don't have to worry about the chain falling through. If you are the winning bidder completion usually happens within 28 days and the property is then yours.
6. First time buyers advantage
As a first time buyer you have no house to sell and no existing mortgage to pay off. Therefore you will be in a better position to buy at auction than someone who already has a house to sell to finance the purchase at auction.
The Disadvantages
1. Less choice
There are far fewer properties for sale at auction than via estate agents. In the 3 months to Feb 2009, there were 7761 properties up for auction, where as 75,140 properties were added to Rightmove in a 4 week period in January. Buying the conventional way can almost allow you to choose the street you wish to live on (or at least the postcode), but at auction you may have to be far more flexible in where you are going to live.
2. Be ready to renovate
Many of the properties offered at auction need some degree of TLC, be it a quick makeover or complete demolition and reconstruction. If you are not prepared to do this work, you will find the choice of properties you can bid on very restricted.
3. Tight timescales
The auction catalogue is often available just 3 or 4 weeks before the auction. In that time you will need to view the property, research the property, get any required survey done, arrange finance and a solicitor. Once you have won a property you need to pay the deposit immediately (usually by banker's draft) and pay the balance in a 28 day period. If you can't or don't pay the balance you will lose the property you could be sued for the difference if the property eventually sells for a lesser price.
4. Upfront Expenses
Each serious bidder at auction will need to pay for solicitors fees, surveys, travel expenses and arranging finance. This can add up to £100's out of your pocket with no guarantee of winning the lot. Not doing this preparation will save you money beforehand, but it would be a foolish risk as you could lose £1000's if you win the lot and find out something later that will cost you or devalue the property.
5. Obtaining Finance
Not all mortgage companies will offer a loan for purchase at auction, which limits your choice and chance of getting the very best rates. If the property needs serious renovation or has structural problems it may not be possible to get any finance at all.
6. Property is offered "as-is"
Once you win a property you accept responsibility for it immediately. You will need to insure it from the day you own it, and if there are any further defects discovered you will have no legal recourse against the seller or auction house.
Conclusion
Property auctions are not for the faint-hearted, or the blasé. There is a lot of research and preparation to be done. There are risks. However there are great rewards - the chance to get your first property at a great price, and be set up for life with less debt as a result. Now that must be worth the effort.