The housing market may be down, but property auctioneers are enjoying something of a property boom. Estate agents are experiencing their leanest period for 30 years, yet the auction houses are full of repossessed homes; many looking to buy a property are going to auctions in the hope of getting a home at a bargain price.
Usually, the estate agent is the first port of call for buyers. However, in January of this year the number of repossessed homes being sent to auction rose dramatically. The beginning of the year is traditionally slow in terms of property sales, yet 465 property lots were on offer in London during January – 364 of these were repossessions.
At the end of 2008, repossessions were 40% up on the year before, and this was reflected in the large number of repossessed properties sold at auction: an incredible 3078 in November and 813 in December. Auction property sales were 40% higher in 2008 than the year before, and repossessed properties made up one third of these.
With repossessions forecast to reach 75,000 this year, up 30,000 on 2008, the chances are that more people than ever before will visit property auctions rather than estate agents to find a home, especially those on a tight budget. These people will have a wide range of properties to choose from: at the beginning of 2009, auction houses were having to include extra slots in their sales to fit in all the lots.
It is no wonder that private buyers are flocking to the property auctions in droves: repossessed homes often represent very good value for money, selling for anything between 20% – 50% below their true market value. This is also a good way for established landlords to pick up cheap property to add to their portfolio; many lots are repossessed buy-to-let properties.
Although buying a property at auction, whether residential or commercial, can represent good value for money (and does so in many cases), it is wise to proceed with caution – especially if you are a novice bidder. Make sure you have seen a property inside to check it is in a habitable state and have a survey done if possible, set a limit and stick to it regarding bidding, and make sure you have finance in place – a 10% deposit will be required on the day and the balance payable within 28 days.
It can be hard to raise the finance needed to buy at auction: many high street lenders have tightened their lending criteria as a result of the credit crunch and require a large deposit of 20% or more: unfortunately, this can pose a huge problem for many first time buyers.
Robert Sinclair, director of the Association of Mortgage Intermediaries (AMI), comments:
“Properties marketed through estate agents sell better when occupied, in good repair, and well-decorated.
Repossessed properties often fail to meet these characteristics, therefore the auction approach provides an effective route to market for those prepared to consider purchasing such properties.
This also speeds completion, thereby reducing maintenance, interest, and marketing costs, so reducing potential residual debt – especially in a declining market.
Whilst the numbers are going to auction are increasing, this is usual at this stage in the cycle and does provide a valuable conduit to keep the number of unoccupied properties at a minimum.
Those looking to offer at auction do have to have a good idea of what loan they may be able to afford and working with a whole of market intermediary can help in developing a robust plan”.
There are both benefits and risks to buying a repossessed property at auction, yet with common sense the risks can be minimised and a bargain can be had. In the last 4 years, repossessed properties going to auction have increased by 400%, and with such properties priced keenly in order to make a sale, it can pay off to buy at auction rather than through an estate agent.