Property Auction Tips – A True Story!
Many vendors have the idea that selling at property auction go for well below the market value. Nothing could be farther from the truth. Yes, good deals can be sought from the auction room but the majority sell well above guide price. Below is a real story of a buyer’s experience of a London property auction. Without carrying out adequate due diligence and lack of experience, independent consultation the auction experience is not funny. The following story of buyer provides useful property auction tips of what you should be doing or not preferably without emotional value wrapped up within the process. Since this article was written I hope that this buyer is now thriving with in the wonderful world of property….
”So maybe, just maybe, that auction bargain is more elusive than we think and like misleading advertising, guide prices are there to tempt us into buying something at a price much higher than that advertised and that we can afford”
Tania Cagnoni – 12:01AM GMT 12 Mar 2005
When Tania Cagnoni found her dream home at auction, she decided to snap it up… but the expense and the uncertainties soon turned it into a nightmare We all love a bargain, but while some are happy with halfprice boots in the January sales, I hope to save tens of thousands of pounds on one of life’s most expensive purchases – my primary residence. After selling my one-bedroom flat in Shoreditch last year, I’m ready to buy another; hopefully at auction, at a knockdown price.
A few weeks ago, I found the one I wanted. In six working days I viewed it, got a mortgage, had the survey and legal work done, and went through a process which takes about six weeks on the open market. I’ve been following London property auctions for a year, viewing flats and visiting sales. I’ve done my homework and knew that when a recent newspaper article suggested first-time buyers “snap up a bargain” (a flat in Westminster with a guide price of £250,000), it was misleading. I’d seen a similar flat in the same building with a guide price of £260,000 reach £330,000 in December’s auction. But it was unpredictable… a lovely Georgian house in Mile End which I’d viewed in November 2004 went for 10 per cent above asking price while a one-bedroom flat in Camden, with a guide price of £150,00 and in need of major renovations, drew a ridiculous £240,000. Another studio I’d viewed in King’s Cross went for 10 per cent above asking price, so over the year I calculated that most flats went for 10-20 per cent above guide, unless they were in the best locations, or needed lots of work, causing developers to fight over them – in which case they could reach 40-50 per cent above guide. So, having done my sums, I’m not going to get bamboozled into wasting cash on something way beyond my reach. Or am I?
Wednesday, February 2 I received Savills’ catalogue advertising a studio in King’s Cross, three studios in Clerkenwell, and, most interestingly, a two-floor maisonette in Arundel Square, north of Barnsbury, north London.
Thursday, February 3 I view a couple of properties on the open market. A deliciously large studio overlooking the park in Myddleton Square at £230,000, which is far more than I can afford and they will not take an offer below £220,000. Clearly I will have to stick to auction properties to afford something I like and which is within my means.
Friday, February 4 10am Viewing of King’s Cross studio. Guide price £140,000. It’s not bad and King’s Cross is very UAC (up and coming) – but it’s too small for my needs.
11am View studios in Clerkenwell. Located in an unattractive modern building in the middle of high-rise council estates with £130,000 guide price – too grim for me to live in.
12 Noon View 50a Arundel Square, a Victorian maisonette over two floors of a house, being auctioned by Savills. Guide price £145,000. Individuals, couples and developers fill the place and appear keener than at any other viewing I’ve attended. I’m so excited, this is so perfect I’m already visualising my through kitchen-lounge and parties on the patio. It has been squatted, has damp, needs total interior refurbishment – new kitchen, bathroom – and the toilet is unspeakably disgusting. But it has massive potential to be a fabulous, two-bedroom garden flat. It’s in a lovely square, just eight minutes’ walk from the tube. Until now, everything I have seen has been too small, in an unattractive location or too expensive. This property fits all my requirements and even though it will involve three stressful months of building work, it’s an attractive old building in a great location and it’s big enough to let a room, have people stay and swing any number of cats. The party wall is damp, so I ask men working in the adjoining basement if there is a leaking pipe. “It’s a chimney breast, no pipes,” says the boss. He comes to look and quotes about £1,000 for damp-proofing the wall. I’ve finally found my dream home and must kick into gear fast. I order the legal pack from the vendor’s solicitor listed in the auction catalogue.
Saturday and Sunday I tell the world about my dream home and work out the figures. I can afford a £60,000 mortgage. With £150,000 profit from the sale of my previous flat in what became for me all-too-fashionable Shoreditch, I can bid for this flat in my preferred north London for £190,000-200,000, leaving £10,000-£20,000 for renovations. Most flats I have viewed at auction have sold for 10-20 per cent above guide price, so I’m in with an excellent chance.
Monday, February 7 After a successful auction bid you pay 10 per cent of the price immediately and the balance within 20 days. I need the money in place, but, as a freelance with poor tax returns, I will have trouble getting a mortgage guarantee. I visit mortgage broker Martin Davison, who finds a three-year, fixed-interest mortgage at 4.99 per cent, with “self-certification” of income. My priority is that a survey is done on Wednesday. Martin’s contacts are invaluable. He calls Standard Life and sets the wheels in motion. I realise that I must truly want this flat as a £299 mortgage fee is charged. There’s no turning back. Martin mentions a £750 brokerage fee, but seeing the look of horror on my face agrees, in this instance, to charge on completion. I phone my solicitor to tell her my plans. The race is on.
Spent: £299 mortgage fee
Tuesday, February 8 Legal papers arrive and my heart sinks. The land search shows a medium-to-high risk of subsidence and five radiation masts nearby. The mortgage firm calls to say a surveyor will visit tomorrow. They charge £369 for the homebuyer’s survey. It’s a lot for a property I’m not guaranteed to get, but I would rather spend this now than discover later that the house will be a liability because it’s about to fall down. Paying the fee shows that I am committed to this flat… surely I’ll be rewarded. I sign the acceptance form and I fax it over. Spent: £369 homebuyer’s report, £1 fax Wednesday, February 9 The surveyor is at the flat at 11am and can’t get in for the half-hour viewing until noon. He says he was not told this was an auction property and doubts he can do a full homebuyer’s report in the given time – the first blip in what has, until now, been a pretty smooth run. With all the structural problems, a mere valuation survey is too risky – I need to know all the pitfalls to account for renovation costs. I meet my solicitor, Charlotte, with the legal pack. She is worried about omissions from the lease. The flat is described as occupying the lower ground floor (it’s actually on the lower ground and ground floors). Also, “Plan 2”, outlining the property’s boundaries, is missing; as are some trees which are included under a protection order. Charlotte will contact the vendor’s solicitors to amend the layout and I am calm knowing it’s in such good hands. The good news is that the land search is fine – most of London has subsidence issues and five radiation masts are relatively few. The surveyor calls: my dream hovel has penetrating damp, sloping ceilings, possible timber rot/infestation in the reception, external tie-backs to correct subsidence; it needs rewiring, replumbing and a total interior refit. The glimmer of hope is that, with the work done, the surveyor values it at £300,000 – £20,000 more than I had estimated. But – and it’s a big but – the basement needs tanking, which could cost £10,000-15,000. This limits my bid to £190,000. For the first time I fear losing my dream home to a developer with more cash than me.
Thursday, February 10 Charlotte confirms, as feared, that the omission of the ground floor is a major issue. The vendor’s solicitor has not amended the wording on the lease, or provided the missing floor plan. I thought it was just a technicality, but Charlotte warns that, however unlikely, I could end up with the deeds to just one floor of the house. I’ve spent £669 so far and without a correction I cannot go ahead. I start to wonder if I’m involved in something way over my head but have faith that Charlotte will obtain that floor plan. A faxed response from the vendor’s solicitor offers further damning news that the garden is leased to the top-floor flat.
Friday, February 11 Legal fee outlines arrive: £650 to completion is very reasonable for all the work involved, but if I don’t complete, £150 an hour for work done is a costly loss. I hum my daily mantra: “I must speculate to accumulate.” Charlotte calls. We need two vital documents: planning consent for conversion of 50 Arundel Square into two flats and the building regulation certificate for structural works done. p>Luckily, I did not take up the offer of work today. I may need the money, but I can do without the stress of a last-minute panic. So, with time on my hands I head off to the Islington Planning Office to find the consent. My heart sinks when they tell me it takes a week to get the documents from the files. But Charlotte had mentioned looking through microfiche records – and those I can see immediately. An hour later my heart does a little dance as I find the planning consent to turn 50 Arundel Square into two flats. More good news follows as I notice that Clause 3 states that both flats share the garden. Calling Charlotte with the good news, she says that if I buy the property with no garden demised, I’m in breach of planning regulations. Meanwhile, the application to obtain building works takes 10 days and must be made by a solicitor. A property developer’s life is never easy. At 5pm, after three telephone calls to the surveyor’s office, I finally receive the survey. It describes a catalogue of horrors, but I’ve heard most of them by now. Spent: £3 microfiche copy of Planning Consent, £1 fax
Saturday, February 12 I attend the final viewing to check for those listed trees. There are actually two trees, but they’re at the end of the garden, so no great risk. My sister-in-law comes along, she loves the flat’s potential and, on seeing it again, I realise that, despite the survey and faults, I still want to live here.
Sunday, February 13 I fax Charlotte the homebuyer’s report. Finally get some work done. Flat-hunting has taken all month, but luckily I can finish my work at weekends if I need to go to viewings mid-week. How do full-timers buy property, let alone attend auctions? Spent: £7 faxing survey
Monday, February 14 – Auction Day I arrive at the auction at 10.50 am to check the final documents. My lot, 89b, won’t appear till this afternoon, but I’ve noticed in the past that final documents for popular lots frequently go missing. I’m here early to check the legal papers for any changes, and for that missing “Plan 2” which I have to see before I can bid. The vendor’s solicitor, Devonshire’s, promised it would be available today. But the papers have already gone. After half an hour of hanging around the documents desk, Savills’ employee Gary helpfully asks the auctioneer to request their return. But while Christopher Coleman-Smith may be charming on the podium, his “if they haven’t come to our offices to see them already, they’ve left it too late” response did not impress. An hour later, still no sign, and I’m probably being filmed seething by the BBC’s Under the Hammer crew who are here today. Coleman-Smith makes another announcement to return the documents. But why would any money-making developer bring them back when they can gain so much from hanging on to them? I phone my solicitor to ask her advice. “It’s a common ploy to hold back the documents,” she says, “but at least this way you’ll only be bidding against one other person”. Two hours of waiting and I tell Gary that I happen to be a journalist and that I, and the five or six others in the document queue, have spent £700 on surveys and solicitors, and are being prevented from bidding. Fifteen minutes later the file miraculously appears. But there is no change to the lease’s layout and surprise, surprise, “Plan 2” is still missing. Devonshire’s representative, who is at the auction, insists that “Plan 2” was there this morning – presumably the person who held on to the legal pack is still considering it. After a heated debate, Michelle Churcher, the vendor’s solicitor, agrees to get a copy faxed over; it shows two floors and half the garden. Why was this plan not released until now? And why suggest the flat did not have use of the garden in her fax to my solicitor? I’m too exhausted for any more conspiracy theories. It’s 1.45pm and I’m finally ready to bid. All the pleasure and excitement of bidding at auction is displaced by stress and anger. By 3pm the room has half-emptied. I had intended to stand up (an auction-buyer’s tip to get a view of the competition) but am feeling too tired and shaky, so I stay seated. Lots 88 and 89 achieve about 1 per cent above guide price, which bodes well. Lot 89a is withdrawn. As lot 89b is called, I get ready to raise my arm. “Will anyone start the bidding at £130,000?” asks Mr Coleman-Smith, the property auctioneer. Early bidders push up the price, so I decide to come in later. In less than a minute bidding is at £150,000. Six people are bidding across the room and I can’t see who they are. The price continues upwards and before I can even put my hand in the air it soars above my £190,000 limit, past £220,000 to a final bid of £250,000. I am exhausted, disappointed and almost relieved that I don’t have three months of building works ahead of me, but 72 per cent above guide price is too rich for my blood. And frankly, I think that a final, renovated, figure of £280,000 with three months’ work is above market value for a two-bedroom flat in Arundel Square: I saw a stunning two-bed church conversion a few doors along last week for just £265,000.
So maybe, just maybe, that auction bargain is more elusive than we think and like misleading advertising, guide prices are there to tempt us into buying something at a price much higher than that advertised and that we can afford. Spent: £346.63 legal fees, £3.60 phone calls TOTAL SPEND: £1,030.23 I hope you found this story interesting and that the property auction tips it provides will help you at your next auction. If you need some advice don’t hesitate to give us a shout: we specialise on helping sellers thrive at property auctions.