Understanding how property auctions can work for your clients

When it comes to investing in UK property, it can be a challenge to find the right asset for you. It must be the right type of dwelling, in the right location, for the right price. Matters are made more complicated when you consider all the different avenues buyers can explore, whether it be through a letting agent, independent buyer, or from a property auction.

Property auctions (UK) have seen a noticeable spike in the number of prospective homebuyers attending online auctions. With a completion period of just 28 days once a 10% deposit has been paid on the day of the auction, it is important that brokers understand how they can help their clients when it comes purchases at auction. This is particularly important when it comes to arranging pre-emptive auction finance, so that their clients can complete long before the deadline period.

Whilst this increase in interest was instigated by the initial lockdown back in March 2020, as a way for purchasers to continue to buy property whilst in lockdown, it hasn’t faded. Auctions have always been a popular avenue for seasoned investors looking to expand their portfolio.

The latest statistics from National Property Auction show that whilst March 2020 offered a higher number of properties (3,568 lots were offered, whereas March 2021 had only 2,670); March 2021 sold 80% of their lots, 1% higher than the previous year.

Source: National Property Auction

Like any auction, seller prices will be determined by the crowd in the room – or online due to the pandemic – giving you the chance to buy a property under market value.

Why auctions are a great place for your clients to look.

Not only do auctions protect the buyer from being gazumped whilst also removing the threat of broken property chains, but they also offer the chance to find a property bargain unlike anywhere else in the UK property market. Buying real estate through an auction can allow property investors to purchase otherwise unattainable or expensive properties at a reduced cost on a quick timeframe. Large, older properties in need in renovation that can be converted into flats are often more easily available via property auctions than om the open market.

We regularly receive enquiries from brokers asking how their clients can use our fast bridging loans to enable them to successfully complete on online property auctions.


Tips, tricks and fine line print

It’s important when purchasing an asset at auction, that your client conducts sufficient research before bidding. There may well be underlying issues that will need to be investigated and fixed. Without the correct research and understanding, this could cost your client thousands of pounds that they hadn’t factored in.

Make sure they conduct thorough research by completing:

  • Background checks.
  • Viewing the property.
  • Get a solicitor to read the document pack

But don’t let this put them off. They just have to be able to recognise the key ‘red flag’ indicators that a property may be hiding a problem.

Legal packs

It is a requirement by the auction house to supply a document pack with all the necessary legal paperwork and additional information potential buyers need to know about a property. This gets uploaded within a certain time frame, that can change depending on the auction house. Not all aspects need to be included in this document pack so be sure you have a solicitor check the document for you, who should be able to let you know if any elements are missing. If there are, they may give you an idea as to what additional potential costs may come after the sale of the property.

Delaying the upload of a document pack until the last minute is another indication that there are elements the buyer should consider carefully.

In some document packs, there may be a ‘special condition of sale’ in which seller states they take no responsibility for any issues found out after the auction. So do as many checks beforehand as possible, and build in a healthy contingency to the renovations budget.


Ask questions

Don’t be afraid to ask a lot of questions about the property. This will give the best insight into the condition of the property and therefore how much may need to be spent on it.

We’ve written a few key questions to help get you started:

  • If a leasehold, how many years are left on the lease?
  • If the property already has tenants, are they longstanding tenants that will become your responsibility? How many years are left on their tenancy?
  • How old is the property? Is there asbestos or has it been removed already?
  • Was it on the property market before going to auction and if so, for how long?
  • Has it fallen through before and if so, how many times and why?

If you have the opportunity, speaking to the neighbours can give you a better insight as to how many times the property has changed hands, if it has fallen through and potentially if they’ve had any building work done.


Viewing the property

Whilst it may have been challenging to view properties over the past year, seeing the property for yourself is an auction must!

Asking a tradesman to accompany you can be a great way to get a fresh pair of eyes to help spot any ‘hidden’ issues. This can also give you a good idea of any additional costs you’ll face once the hammer goes down.

  • If your location is restricted by lockdown rules, virtual tours could still be an option and although it’s not the same, it’s best to see the property – even through a lens – than not at all.
  • Be sure to check for any signs of damp, as well as uneven flooring.

What makes an auction finance bridging loan perfect for auctions?

Organising auction loans in advance will not only decrease the risk of the purchase falling through, but it also sets a clear boundary when it comes to bidding. When it comes to financing an auction property purchase, a lot of buyers can be caught out by the fact that contracts need to be completed within 28 days of the gavel falling – although this may vary depending on the auction house you use, so please check beforehand. This limited completion window makes it extremely important for brokers to understand the different finance options that can be used.

Using alternative finance such as bridging loans have the benefits of incredible speed and flexibility at which funds can be deployed, helping you complete long before the deadline. Knowing you or your client have confidence in your financial situation, is what matters most to us. Whether it be supplying an auction finance bridging loan, or providing refurbishment finance after the sale so you can buy, refurbish and then refinance.

Looking for more information on refurbishments or property renovation? Download the MFS guide here

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