Auction purchases, where do I start with due diligence?Make Text Bigger
Sam Collett is a property developer, owner of Gorgeous Homes, an avid property auction buyer and Winner of the Primelocation.com Blog Awards 2010-11. In this article Sam shares her top tips on buying property at auction.
Buying property at auction can be a great way to bag a bargain – but it can also be a minefield. Properties are entered into auction for a number of different reasons – some may be distressed sales, but others may have structural or legal issues. When thinking of buying a property at auction it is critical you undertake thorough due diligence and take professional advice to avoid any potential costly mistakes.
Remember when the hammer falls – that property is yours – for profit AND loss!
Determine the problem – every property is entered into auction for a reason. Finding out why will assist you in understanding how you can “fix” that problem. Buying an unmodernised house to “fix” is easier to cost than a property which has a sitting tenant or a mineshaft.
Read the legals – understanding the legal documents which accompany a property is critical as they tell you what you are buying. It is prudent to pay a solicitor to have these documents checked. There may be additional costs or issues highlighted from the local plan, or title deeds which may impact upon the potential of the property.
Cost the repair – problem properties can always be solved – but it comes with a price tag. Getting quotes from trades people and professionals to cost the works will enable you to know how much the solution is going to cost.
Assess the market – market research can be carried out by talking with local estate agents and on the internet using websites such as police crime areas, area profiles, council information and more. It is important to understand who your target market is for your property and assess local demand and the market dynamics in play (e.g. schools, employers, transport links).
Find the finance – on the day of auction you have to pay a 10% deposit and then completion takes place usually 28 days later. If you do not, you can be fined or sued – hence having the money is critical. If you require a mortgage it is advisable to get an offer in writing prior to going to auction.
Stack the deal – once you have researched the property, the problem, and the market you will be in a position to know if the property is worth buying. It is important to be honest with your costings and make sure the property you buy will be profitable. Cost for your time and make sure you feel happy about the risks.
Buying property at auction can be a fun and lucrative way to make money – but it can also be a scary and stressful way to lose money. Give yourself the best chance of success by doing thorough research before you buy.
If you want to read more about Sam’s adventures when buying property at auction check out her award winning blog by clicking on the Awards logo below.
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