It's 10.45 on a chilly Saturday morning in southeast London and about 30
people are hanging around in a quiet cul-de-sac, studying the outside of a
handsome Victorian semi. This is the final viewing for Lot 11 of a Savills
residential property auction that is due to take place the following Monday.
Viewers are cautious but eager. There is an overpowering smell of damp in the
four-bedroom house and it looks as though it could do with quite a bit of
work, as does the rather ramshackle garden. But this does not deter the
viewers, some of whom have come to the house in Penge holding clipboards and
with surveyors in tow. From young couples to property investors, all appear
to be here for one reason, and that is to buy a family home at a bargain
price. The guide price for the property is £190,000 - less than half what
you might pay for a similar home in the neighbourhood.
At the auction hall in the Royal Garden Hotel, Kensington, two days later, the
room is heaving. More than 300 people have come to see the 112 lots sold,
and there is a nervous energy in the air. First-time bidders huddle at the
front, while more seasoned buyers head to the back, from where they can
observe other people's bidding habits without being observed themselves.
Many people here are developers or people trying to find a property to do up
and let. One man says: “I'm sensing that the market could be somewhere near
the bottom and I am thinking of buying but want to do my homework first.”
Auctions have become popular in the current climate, with buyers and sellers,
because they offer a chance to secure a sale quickly, avoiding lengthy
discussions with surveyors, agents and other interested parties. Properties
tend to be run-down buildings such as cottages and mill houses, or one-offs
that are likely to generate a flood of interest, such as a public lavatory
in Fulham, southwest London - it fetches £403,000 at this auction, more than
four times its guide price. A very run-down cemetery lodge in Hammersmith,
West London, sells for £344,000 - its guide price was £275,000. Both were
featured in Bricks&Mortar. While most people present are happy to talk
to Bricks& Mortar, the successful buyers of both the more unusual
properties decline to divulge their plans for them.
Christopher Coleman-Smith, the auctioneer and director of residential auctions
at Savills, says: “Auctions are where the real market is, because each one
is a true reflection of what people are actually prepared to pay right there
and then.” Auctions are also an opportunity for savvy buyers to nab a
bargain, particularly while prices are down and sellers are keener to settle
quickly. Coleman-Smith adds: “Some of the properties here are at the bottom
of the barrel where prices are concerned. They just aren't going to get
lower.”
John Mildred, 55, an assistant video editor at the BBC and a newcomer to
buying at auctions, is ecstatic when he secures a two-bedroom flat in
Sutton, Surrey, for £119,000, £6,000 below the guide price. He imagines that
it will cost about £10,000 for a new kitchen and bathroom, after which he
plans to let it. “Other buyers were probably put off because the roof needs
to be redone, which will cost about £8,000. But at this price it's still
worth it,” he says. “I'm amazed.” Other flats in the building have recently
sold for close to £200,000, he adds.
Guide prices can be set especially low if the property is a repossessed home
that has already been on the market for a while, because banks are keen to
sell it quickly. About 10 per cent of this auction catalogue is made up of
repossessed houses, but the figure is often much higher. Individual sellers
are flocking to auctions in increasing numbers because their properties have
remained unsold too long via an agent. Some properties, such as Lot 11, the
Penge house, are sold by housing associations who consider them too big and
expensive to maintain. Broomleigh Housing Association, which is selling Lot
11 and has a stock of 12,000 homes in Bromley, southeast London, has sold
six properties this year, plus eight last year, and has used the money to
improve other homes or buy new ones. It hopes to get £250,000 for Lot 11.
Coleman-Smith directs the day's events quickly and charismatically, urging on
hesitant buyers with comments such as, “You're going to let a bargain like
this go for a lousy £1,000?” As the day continues, bidders become bolder and
bidding wars lengthier. Veteran auction-goers have learnt to gauge the mood
of their fellow bidders in order to outbid them.
Lot 11 is bought by one such buyer. Sandy Naggie, a property developer, is
bidding for her brother, who wants to live in the house. She bids £351,000
for the house, beating another bid of £350,000. “My upper limit was £350,000
but I had an inkling that the other bidder had reached his limit too, so I
bid once more. I couldn't lose a house like this for £1,000.”
Naggie, who attended several auctions last year, believes that even in the
current climate the house would be worth about £400,000 if it were sold via
an agent. “The bargains here are simply amazing,” she says.
Auctions can be risky. As a seller you set a reserve price under which you
will not part with the property, but if you set it too high you are unlikely
to generate very much interest. Lot 3 is withdrawn when the top bid fails to
reach the seller's reserve.
About 73 per cent of properties sell at auctions, according to Coleman-Smith.
“The key at any auction is to get the guide prices right. I suspect if we
were all realistic about them we would have close to a 100 per cent sales
success ... If you have a good product and go in there confidently it can be
hugely successful.”
A lot of risk
First-time buyers beware: auctions offer a great chance to get on the ladder
for less, but you will need to arrange your mortgage well in advance. Funds
are required immediately: a 10 per cent deposit is payable as soon as the
hammer has come down, the remainder 28 days later. Turn up without a deposit
and your offer will be rejected. Even if you have a mortgage agreed, the
deal could still fall through if the lender thinks that the property is
worth less than you have paid, so do not go over your limit. David
Hollingworth, a broker at L&C Mortgages, says: “If you bid way beyond
the maximum, your lender may refuse to give you any more.” If the lender
questions the valuation, it may refuse to lend - or withhold - funds until
renovation work is completed. The tighter-than-usual timeframe (a normal
purchase takes between six and 12 weeks) means that speed is of the essence.
A broker can help you to find a lender that specialises in turning deals
around quickly, but you may have to pay a higher rate for the privilege. The
current downturn and tougher lending rules mean that vendors are becoming
more flexible to accommodate buyers.
