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Bargains at property auctions By Laura Brady
UK house prices rose by 10.5% during 2006, bringing the average price of a property up to £173,746. So it's not surprising that an increasing number of buyers - especially cash-strapped first-time buyers and savvy property turning their attention to auctions. The majority of auction goers are property dealers and developers. Properties that typically come up for sale at an auction tend to comprise of unmodernised local authority or housing association homes. What's involved Buying property at auction is exactly the same - in legal terms - as buying through private treaty (the conventional method). The process itself, however, is entirely different. Rather than heading to your local estate agents, your first port of call will be an auction house. The Essential Information Group has a useful list of these. You can then ask the auction house for a catalogue of property - individually referred to as 'lots' - which will be printed some weeks in advance. There will be a typical two-week block during which you can visit. At this point you should also view the property's legal (or 'auction' pack). Just like a Home Information Pack (HIP), due to become law in June, the legal pack carries all the information you'll need about the property upfront, apart from a valuation or survey. It's always recommended that you research the property. Each lot will have a corresponding auction pack. This includes the title deeds, local authority and environmental searches, fixtures-and-fittings list and a seller's information form. If it's a leasehold property, it will include a copy of the lease and details of service charges and ground rent. You then need to decide whether to commission a survey: you can expect to pay in the region of £500 or £600 - more if you want a structural survey. This can create something of a Catch-22. If you pay for a survey and your bid isn't successful, you could lose a lot of money. But equally if your bid is successful and you haven't had a survey completed, you will have no idea quite how big a project you are taking on and how much you are going to have to spend. Once you've decided whether or not you want to buy the property, rather than putting in an offer on the spot, your priority will be to decide the most you are prepared to pay for it and arrange your finance accordingly. Then it's time for the bidding. What happens next Once the hammer has fallen there's no looking back and you need to move fast. This is the equivalent of exchanging contracts when you buy in the conventional way and you'll need to pay a 10% deposit straightaway. You can pay with cash, cheque or banker's draft, and will need two forms of ID such as a passport or utility bill. You will also have to pay an administration fee to the auction house - typically between £200 and £300. You then have 28 days (or 20 working days) to complete the purchase - that's why it's vital to have your finance arranged first. Arranging finance It's much easier to buy at auction if you have the cash to buy the property, but it's still possible to use a mortgage. So long as a property is adequate security for its loan, you can obtain a mortgage from any lender on a property you buy at auction. But you should have the loan agreed prior to arriving at the auction house - an 'approval in principal' (AIP). If your credit status changes within the next 28 days, the lender may retract its offer. Similarly, if you do not get a valuation carried out before buying the property and it sells for less than the amount stated in the AIP, the lender no longer has adequate security for its loan. If you fail to complete within the required time, brace yourself for disaster. "Not only will you lose your 10% deposit, it's likely you will have to cover the costs of re-selling the property, as well as any shortfall between the price you agreed and the final selling price," explains Charles Smailes, president of the National Association of Estate Agents (NAEA). "You'll also be charged interest on a daily basis from the would-be completion date to the date the property is sold, at a rate of 4% above the current lending rate of clearing banks." This is why there are warnings plastered all over auctioneers' catalogues and on the door as you enter the auction room. Save and turn a profit For most people, the chief attraction of buying at auction is the ability to save money and turn a profit. The 'reserve' price is the lowest price that a seller will accept - and this is typically set around 30% less than it might be on the open market. According to the NAEA, the reserve is met or exceeded in around 80% of cases at auction. Furthermore, as the popularity of auctions increases, so do final selling prices. In the property frenzy we've seen in recent years, people are also attracted by the transparency of the process. Like estate agents, auctioneers do not need any specific qualifications to carry out their trade, although they do fall under the Estates Agents Act 1979. But, like estate agents, auctioneers can choose to become members of the National Association of Estate Agents (NAEA), which means they must abide by a universal set of standards - so, for peace of mind, look for an NAEA sticker on the door.
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