A recent study has found that the cost of renting a home in popular parts of London has increased by nearly a third in the last year. Camden and Regents Park are two areas that have seen large rent rises and it is forecast that rents across the Capital in general could rise by up to 20% by 2016.
Such a buoyant rental market in the London is good news for landlords. Buying property at auction can be a good way for landlords looking to build their property portfolios.
The following article lists some essential rules to be followed in order to truly pick up a bargain at auction.
1 – Before auction day, find out when and where an auction is taking place. Most auctions will be advertised in local property papers/magazines or online. Once you have found an auction you should request the auction catalogue to find a property that takes your fancy. Auction catalogues are usually published about one month before the auction is due to take place. This will give you plenty of time to do the necessary homework on the property.
2 – Once you have identified a property that you like, you should contact the auctioneers to arrange a viewing. If possible, it is best to try and view the property more than once. If the property is in a poor state of repair, a good idea is to take a builder with you when you view the property to estimate the cost of any work that is required to the property. To work out how much to bid for the property you will need to do thorough research and compare the price and condition of the property to others that are similar or located in the same street or being marketed by a local agent. The auction catalogue will set a guide price, but remember this is often set low to encourage interest and bidders.
3 – You may also want to use the time before auction day to check out the surrounding area, speak to neighbours, and look into the amenities and transport links and the all-important catchment area for schools. If you are intending to rent the property, this would also be a good time to speak to local estate agents as to what rental returns you could expect.
4 – If you decide that you wish to bid for the property at auction you will need to obtain the legal pack from the auctioneers and arrange for your solicitor to check the legal papers prior to the auction day. If there is time, your solicitor may also advise you to carry out property searches. To avoid any nasty and expensive surprises once the property is yours it is always advisable to undertake a survey prior to the auction.
5 - Prior to attending the auction you will also need to ensure that your financial arrangements are in place. If you are successful at the auction you will be required to pay a 10% deposit on the day and you will need to pay the balance on completion, which is usually 28 days after the auction date. If you require a mortgage, you should have this at least agreed in principle prior to the auction date. If you are successful at the auction and pay your 10% deposit and then are unable to find the balance of the completion monies, you will lose your 10% deposit.
6 – On the day, the whole process can be quite daunting and it is often advisable to go to a few auctions as a dummy run to gain experience prior to attending an auction to bid. You should also ensure that you take your identification, as it is likely that money laundering checks will need to be undertaken. You should take your original passport and an original utility bill showing your current correspondence address, which is not more than six months old.
7 – At the auction, the auctioneer will describe each property and an opening bid will be suggested and perspective buyers will be invited to put their own bids forward. The price asked for by the auctioneer will usually rise in steps of £5,000, but could fall to £1,000 or £500 as bidding slows.
Once the highest bid is reached, the auctioneer will drop his hammer and this will signify a legally binding contract.
If the property fails to meet its reserve price, this does not necessarily mean the end of the matter. You should speak to the auctioneers, as they can still act as agents between yourself and the sellers. This is often a good way to pick up a bargain, as the vendor may have set an unrealistically high reserve price.
8 – If you are the successful bidder you will be asked to sign a Memorandum of Sale and hand over the 10% deposit. The deposit will need to be paid by a cheque or bankers draft, as most auctioneers will not accept cash. The Memorandum of Sale will then be forwarded to your solicitors and they will finalise the legal paperwork and deal with completion matters
Auctions can be great places to pick up a property bargain. However, this is only the case if you do your homework and have your funds in place prior to the auction and set yourself a budget and stick to it.
This article has been supplied to LandlordZONE by Osbornes Solicitors LLP, Camden, London NW1 0AE
If you require any advice about buying or selling a property at auction, please contact the property team at Osbornes who will be happy to assist you.
To contact the team please call us on 020 7485 8811 or visit us at www.osbornes.net