How to buy and sell a house in just one day

Putting property under the hammer can be a highly risky business, says James Daley

Saturday 17 September 2011 13:40
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Buying or selling a house at auction can be a nerve-racking experience. However, if you're looking for simplicity and a quick completion it beats a visit to the estate agent hands down.

Buying or selling a house at auction can be a nerve-racking experience. However, if you're looking for simplicity and a quick completion it beats a visit to the estate agent hands down.

If you decide it is right for you, there are plenty of pitfalls to watch out for. For a start, while the speed of an auction is one of its biggest advantages, it is also one of its biggest dangers.

Buying a house is a major financial commitment, and if you're not adequately prepared on the day - both legally and financially - you could find yourself buying a property with unforeseen problems, or even end up losing your entire deposit. Once the hammer comes down, you are bound in a contract to buy the property, and your 10 per cent deposit must be paid immediately. Failure to deliver this could be a costly business.

So what do you need to do before you bid - and what are the costs? Once you've found a property you like, you need to decide whether or not you are going to pay for a survey. It is worth checking with the auctioneer that the owner has not already had one done, but this is relatively rare.

Many owners carry out local, environmental and water searches, which will be available from the auctioneers in advance of the big day - usually for a fee of about £30. If a survey has been carried out, this will be included in this pack of documents, along with the property's title documents, the special conditions contract and possibly any relevant lease papers.

If you decide not to go ahead with a survey, you are taking your first big risk - especially if you are counting on a mortgage to finance the property purchase. All lenders will insist on carrying out a survey and valuation of your property, and may be unwilling to lend you the money if they find anything wrong with the property which may affect its value.

If you're getting a mortgage, it's also advisable to get an agreement in principle from a lender or broker before the auction. Once the hammer comes down, you'll have between 21 and 28 days to complete, which is a very tight timescale for sorting out your finance. If you find you can't borrow enough after the auction, you could lose your deposit. Some auction houses, such as FPD Savills, have their own private finance arm which can organise the best deal for you. Using a good broker who is familiar with auctions can help to secure your mortgage in time.

Once you're happy with the property itself, it is worth getting a solicitor to look over the legal documents to check that you are buying what you think you are buying, and to highlight any unusual terms in the contract. Some solicitors will give this advice free, in the knowledge that you will come back to them for conveyancing services if you win the bidding. Others may charge up to £200.

Perhaps the most important thing to remember is that you must have 10 per cent of the value of the property available in cleared funds in your bank account on the day of the auction. The auctioneers will usually accept a banker's draft or even a personal cheque; however, they will get this cleared on the day. Remember that if you have transferred money into your account only two days before the auction, it will not clear in time: UK banks take at least three working days to process transfers. If you have to leave it to the last minute, you can use CHAPS, an instant transfer service between UK banks, which will cost you £25 per transaction.

If you win the bidding, the auctioneer will usually charge a buyer's fee of between £150 and £200, which is also due on the day. As with any property purchase, don't forget you'll also be liable for stamp duty and the solicitors' conveyancing costs. But these, at least, are not due on the day of the auction.

Selling at auction is an entirely different game from going through an estate agent, and tends to be deemed too risky by most people selling their only home. What you get for your property at auction can vary dramatically, depending on how well the event is publicised and how many people decide to bid for your property.

The auctioneer will insist on you setting a "realistic" reserve price - the minimum the property can be sold for. A guide price will then also be set, usually slightly above the reserve, which will be printed in the auction brochure. Expect the reserve and the guide to be much lower than what you believe the property is worth. Auctioneers like to have low guide prices to attract people to the auction. Normally, what the property sells for has very little to do with the guide price: at FPD Savills' last residential auction in London, the average property went for more than 40 per cent above the guide.

The costs of selling at auction are similar to selling through an estate agent, or sometimes slightly higher. The typical fee is around 2 per cent of the property value. It is also worth providing as much information about the property as possible for prospective buyers - such as paying for local, environmental and water searches, and perhaps even a survey. Searches tend to cost between £30 and £100 each, while surveys will cost several hundred pounds depending on the level of detail you ask for. However, you can insert a clause in the contract which obliges the successful bidder to reimburse you for these costs.

In future it will probably be mandatory for sellers to provide this information for buyers, once the Government introduces its proposed Home Information Pack scheme.

Clearly the upside to selling at auction - and the main reason that people will consider selling their only residence this way - is speed. Completion can often take months in a traditional sale and, all too often, bidders will pull out at the last minute. At auction, your buyer is contractually committed from the moment the hammer comes down - and the deal will be completed within a month.

There are a handful of residential auction houses around the country, the biggest of which are the likes of FPD Savills and Harman Healy. On the internet, www.propertyauctions.com provides a handy listing of forthcoming auction dates, and links to auctioneers' websites. Most auctioneers publish their auction catalogue online a couple of weeks before each auction. Set viewing times for each property are also published on the auctioneers' websites.

Catalogues are typically published around two weeks before auction day, and if you're looking to sell at auction, you should ideally contact the auctioneer at least a month before.

'It was a really scary experience'

Bidding for a property at FPD Savill's latest residential property auction at the Royal Garden Hotel in London's High Street Kensington was one of the most scary experiences of my life, writes James Daley.

My partner and I had decided not to pay for a survey, as we knew that the most we could afford to pay for the property still left us with a good chance of missing out. Instead, we took a friend, training to be a charted surveyor, to take a quick look around for us - who could at least point out if there was anything obviously wrong.

The two-bedroom flat in Southfields, south London, that we were after was given a brochure guide price of just £150,000. But we knew that with similar properties on the same street going for upwards of £240,000, the bidding was bound to go north of £200,000. The flat did need some work, however, so we hoped our bid ceiling of around £210,000 would give us a good chance of success.

I was impatient, so I decided to kick off the bidding - with the guide price of £150,000. Within 30 seconds, we were through £200,000, and despite my attempts to slow things down at £205,000 the price soon raced on. At £211,000, there was a pause, and I couldn't bear the idea of letting the property go for just £1,000 above our agreed ceiling - so I bid another £500. But then it took off again, with the hammer finally coming down at £216,500.

The majority of people at property auctions are developers and buy-to-let investors, who are used to the experience and fairly composed, but my stomach was still churning for several hours afterwards. It was a horrible feeling to be outbid, but I consoled myself with the thought that the eventual buyers had paid more than I felt was the flat's true worth.

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