Ten property auction mistakes
Error 1: Not having a full survey
Always make sure that you get a valuation or survey carried out before you decide to go to an auction and bid. This is no time to scrimp on costs - particularly if the property is in disrepair or is an older building. At the very least, visit the property with someone who knows what they are doing and can spot potential problems. This way you’ll know what issues the property might have and can factor this into your calculations for renovation costs.
Error 2: Not working out a maximum price or exceeding it
Always set yourself a maximum price limit on any property and stick to it. It is very easy to get carried away at an auction, so it is important that you discipline yourself to only bid up to your maximum. To calculate your maximum, work backwards from the end value, having factored in renovation costs, finance and legal costs and a payment for your time.
Error 3: Bidding as an 'auction virgin'
If you are new to buying at auction, attend a few as an observer so that you can get a feel for them and the way they work. This way, when you actually go along to bid, it won’t seem so daunting and you'll be more comfortable with the process.
Error 4: Buying before being in a position to do so
If you are relying on the sale of another property in order to buy, don't bid on a property before you've sold yours, ie. before the completion has happened. You could find yourself having to complete on your auction purchase without the proceeds of your sale. You would then have to take out bridging finance to assist you until your first property is sold, with the associated costs!
Error 5: Buying 'blind'
Always view the auction property thoroughly before placing a bid. Buying without viewing the property is a risky strategy. Don't rely solely on the information in the auction catalogue.
Error 6: Ignoring the legal pack
Always read the legal pack in advance and discuss the contents with your solicitor. Make sure your solicitor has checked the title deeds and any special conditions of sale as well as any peculiarities associated with the property such as restrictions or covenants.
Error 7: Not budgeting accurately for works
Make sure you get professional quotes for any renovation or redevelopment work that you intend to carry out. Unless you are a very experienced property developer yourself, it is easy to underestimate the costs of refurbishment.
Error 8: Bidding too soon
Don't jump in with your bid until others in the room have almost finished. Bidding too early will only drive up the price. Wait until the bidding has petered out, or the auctioneer has started to say 'going once...'. Then bid with confidence up to your limit. If you really are nervous about the auction process you could get someone else to do the bidding for you.
Error 9: Not researching the eventual resale or rental market
Unless you are intending to live in the property yourself, you need to be sure of what the demand is for properties in the area (either for renting or sale) and their ceiling prices. Too many investors make the mistake of buying at auction believing they have scooped a bargain, and then struggle to either resell or rent at the price they anticipated once they have done the work.
Error 10: Not knowing how much mortgage you can secure
Unless you are a cash buyer, you will need to sort out your finances prior to bidding at an auction. Some mortgage companies will not lend on certain auction properties, while others may withhold all or part of the loan until certain 'defects' have been corrected. You may also discover that you can't borrow as much as you might like because of tightened lending criteria. The easiest way to avoid this mistake is to get pre-approved for a mortgage by a lender so you can know in advance exactly how much they are willing to lend.