WITH the housing market bloated with unsold homes and repossessions climbing, business is booming for property auctioneers. But how easy is it to pick up a bargain at an auction and what are the pitfalls?
At a recent auction in Glasgow, it was clear many bidders were private individuals buying a home for themselves rather than professional speculators or developers, according to Paul Bridgeman of Countrywide Property Auctions. Even so, only four out o
f 10 lots made their reserve price and sold, with those that did going for close to guide price.
Professionals are having even bigger problems raising cash, so auctions are open to ordinary homebuyers. "Edinburgh property proved to be particularly attractive to individual buyers," says Bridgeman.
Properties which sold ranged from a one-bedroom tenement in Paisley, at £48,000, to several two-bed flats in Edinburgh for £160,000. A three-bedroom Edinburgh flat sold for £170,000, a three-bedroom detached bungalow in Airdrie fetched £135,000, a two-bedroom flat in Dumbarton sold for £40,000 and Glasgow flats went for between £70,000 and £205,000.
However, a three-bedroom house in the coastal town of Eyemouth going for £80,000 didn't sell; neither did a detached villa in Stewarton for £150,000, nor a two-bedroom flat in Elderslie.
Willie Hunter, a partner at Hunters Residential, argues that buying at auction is good for buyers, but not sellers. "Most property is in an auction because of the need for a forced sale, either because of repossession or because someone has to sell quickly, so it is possible to pick up a bargain. Auctioneers maintain you get as good a price at auction as you do on the open market, but that isn't true. Property will go cheaper."
He adds: "There is no chance of overbidding and paying too much, which can happen under closed bids."
Finally, you sign the deal on the spot, which has the attraction of certainty. However, the process is full of dangers, and Catherine Taylor of HBJ Gateley Wareing suggests buying at auction is not an easy option.
"You need to understand exactly what you are doing and be streetwise," she says. "I would never recommend first-time buyers or novices go anywhere near an auction."
Solicitor John Fotheringham, of Fyfe Ireland, agrees that caution is a must but says those strapped for cash should not necessarily rule it out.
That said, Hunter believes that, in the current market, picking up a bargain should be easy enough without resorting to an auction. "We have so much property for sale that we will shortly reach the point where there are a number of people who need to sell and need to sell soon. If you have a mortgage offer in your hand, and are in a position to proceed, you will be able to get a bargain just by making an offer in the normal way."
If auctions still appeal, your first move should be to study the catalogue and get the title pack and any extra information for the property or properties you are interested in.
How are properties priced? They have a guide price, which is the lowest price the seller might accept prior to auction. You can make an offer before the set date, so it's worth remembering some lots will be sold beforehand.
About a week before the auction, a reserve price will be set. This is the lowest price the owner will accept, and is based on the anticipated demand, given the number of inquiries and requests for packs.
Before the auction If you are serious about bidding for a property, there is a great deal more homework to do before the big day. Visit the property before even thinking about attending an auction. "You hear of people buying property at auction they haven't even seen. That is taking an enormous gamble," Hunter says.
If you intend to buy without a mortgage, you are still advised to engage a solicitor to check out the title, to make sure those selling it have the right to do so. You also need to know what liabilities you are taking on. For example, if it is a top-floor flat, it might be cheap because under the title you could be acquiring the cost of repairing the entire roof for the building.
In the case of a recent new-build, there may be other items you want assurance about, such as building guarantees.
It is also advisable to get both a valuation and survey before the property reaches auction, not least because such units are frequently in very poor condition. You must reassure yourself that the property is insurable, because without insurance it is unsaleable.
Sometimes homes are put in auctions because there is a structural fault the owner cannot afford to repair. Similarly, repossessed homes are sometimes deliberately wrecked by those evicted from them.
Finally, you should conduct local authority and other searches. Once the hammer goes down on your bid, the property is yours.
Buying with a mortgage Before the credit crunch, it was possible to turn up at an auction with an offer of a loan in principle from a bank or building society and be reasonably confident that the money would be forthcoming.
Now, however, borrowers are advised to have specific mortgage offers for any property on which they plan to bid. This will mean commissioning surveys and being reassured by the lender that it will make an advance based on the surveyor's confirmation that the property is sound security for the loan.
The lender will also require that the title is checked out by your solicitor, and will want to have sight of other guarantees such as NHBCs before they will grant the loan. This must all be done ahead of the sale and will cost a great deal of money, in order to bid for a property you may not get.
The day of the auction You must set a top figure, based on the advice of valuers, and not get carried away. If you win, you must immediately sign a contract and hand over a 10% deposit. Should you fail to complete within the agreed time, you will forfeit the deposit, be required to foot the bill for all re-advertising costs and have to pay daily interest until the property is sold.
Fotheringham says: "Some people take their solicitor along to sign because there is often speculation that individuals can't sign missives. This is not true. You can. If you haven't done your homework, there won't be much a solicitor can do about it at that stage anyway.
"You can sign without having finance in place, but if you can't go ahead you will have to pay all the extra costs in reselling as well as extra interest."
In today's climate it is likely to be too late to arrange a mortgage after you have signed the missives. Indeed, you may not be able to secure finance at all.
Nationwide reveals fall in property values
HOUSE prices in Scotland have begun to fall, according to Britain's biggest building society the Nationwide, although average figures for the country mask wide regional variations, writes Teresa Hunter.
As these pages predicted last Sunday, the Nationwide revealed that average values had fallen by 1.8% over the past three months, the first quarterly fall for four years.
Elsewhere the picture is more gloomy, with values across the UK suffering their eighth monthly fall in a row, leaving prices 6.3% lower than a year ago.
If prices continue to fall at the same rate, 2008 will end with property deflation of 12%.
Scotland has bucked the trend for annual house price falls to date, but as we predicted last weekend, the 0.6% positive price increase compared with this time last year pushes prices roughly back to where they were in the summer of 2007 before the credit crunch hit.
But the speed with which annual house price inflation has collapsed in Scotland is of concern. At the end of the first quarter of 2007, prices were 22% higher than a year previously. This tumbled to 5% at the end of March and roughly 0% in June, says HBOS.
Yet within the Nationwide statistics strong regional variations appear, although it may be wise to caution about the accuracy of this data, given low levels of transactions.
According to the building society, prices continue to boom in Aberdeen & Moray and are up 7% compared with this time last year. Aberdeen City, too, is still in the money with prices up 3%. Prices in Edinburgh have yet to feel a chill wind, climbing 1% compared with 12 months ago, with Dundee & Angus also holding its own, up 2%.
However, values in other areas are suffering. Prices in Glasgow are now 2% lower than a year ago, as are those in Highlands & Islands. Renfrewshire & Inverclyde was even worse hit, with values tumbling 3%. Southern Scotland and Fife both fell 1%.
Nationwide chief economist Fionnuala Earley said: "There are probably two main factors making house prices in Scotland somewhat more resilient than in the rest of the UK. Firstly mortgage affordability is less stretched in Scotland than elsewhere, as house prices did not increase as markedly during past house price booms.
"Secondly, Scotland's oil-producing regions have benefited from the sharp run-up in the price of oil. This has created pockets of strength in regions such as Aberdeenshire."
But the Bank of England warned a further tightening in the availability of credit over the next three months could push prices lower.
Capital Economics, one of the gloomier forecasters, believes this housing market correction will be sharper and deeper than previous downturns. It expects UK house prices to fall 15% this year, and to continue falling in 2010 and 2011. It believes average UK values will fall 35% from their late-2007 peak.
Global Insight predicts UK prices could fall 12% this year and next, and UBS says 2009 could end with property deflation of up to 20%
