Underwriting at auctions explained

by Dan Trivedi

10:21 AM, 28th January 2019
About 2 years ago

Underwriting at auctions explained

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Underwriting at auctions explained

I’m sure if you’re like me you’ve seen constant adverts on Facebook from the newest guru. Promotions “how to buy property with none of your own cash”, or how to make ‘£2k per month without buying a property’ etc.

99% of the time you click through and it’s a video inviting you along to a webinar or a training day. The headline draws you in, but there is no content. Eventually there will be a sign up form to capture your data, then some form of sale.

There is absolutely nothing wrong with paying for training and content and there are some companies and people who do it well and have the experience and results to really deliver true content which will help people, but for every one worthwhile there are 99 which are not.

On Facebook there has been a surge of selling with no substance. One minute the individual is posting pics of their first day on a mentorship program and six months later they are selling courses “how to”?! When you scratch the surface there will be little behind it.

So this is the part where I say my training course which was £5,000 is now only £99 and is completely different and better 🙂 Joking!

For years I’ve watched people and strategies come and go. I’ve always toyed with the balance of enjoying sharing what we do, what I’ve done vs time, responsibility and monetising. Responsibility is something that gets lost in all this! I get the fact that if someone gets the content and doesn’t act on it, how is that the responsibility of the trainer? I guess it’s down to money and how much has the pupil paid.

I’ll give you an example – If I send my child to a private school and after the first year the teacher says to me: well I’ve shown Grace how to read, but she didn’t do what I told her, so it’s up to her and not my fault if she succeeded. I’d be pretty annoyed.

What I’ve always struggled with is, if I was to mentor anyone, and they paid good money for me to do so how could I ensure they succeed. How can I be sure that if they do what I’ve done the will achieve what they want? We even tried a training model back in 2015, but what was clear is people who want training/mentorships come in all shapes, sizes, personalities, positions and backgrounds.

I have to be honest, sometimes I don’t like a certain person so how could I mentor someone I didn’t like?

Having the NPN (Norfolk Property Network) helps, because I can talk to crowd for 1/2 hours every 2 months. I’m always happy to talk at peoples’ events, but because I don’t venture too far outside the Norwich bypass getting out of Norfolk is quite tricky.

Therefore, I’ve decided to start posting videos via YouTube giving the content behind the promise. Don’t get me wrong I deliberately post a head line tag, this is to show people that headlines can have content straight away. The content isn’t sexy, slick or stylish, but it’s ‘how you can achieve the headliner’ and in the video I hope people will learn something.

So some of you may have seen my first video, head line “How I made £10k at auction without buying a property”

Cheesy, but my video breaks this down. I did actually attend a property auction, which I’d pre-agreed to underwrite a property.

The bid went for £20k+ over the amount I had Underwritten the property for, which I received 50% of. Therefore, I made £10k+ at auction without buying a property.

So What is underwriting? There is a link to the YouTube video below which gives you the full explanation. If a property is underwritten, you (the buyer/underwriter) agree to pay a minimum amount for a property regardless what the bid it makes on the day of the auction. This gives a seller a guaranteed sale.

Here’s where it gets interesting. If the bid goes higher than the amount you’ve underwritten, the proceeds are shared 50/50.

Example: Property guide is £80k -£100k, Sellers reserve is £90k, You underwrite at £100k

  • Scenario 1: The bid gets to £110k and sells to another buyer. You (the underwriter) take £5k and the seller takes £105k
  • Scenario 2: The bid gets to £110k and you buy the property. You the underwriter pay £105k and the seller takes £105k
  • Scenario 3: The bid gets to £95k. You the underwriter pay £100k and the seller takes £100k

It has its own risks, and as I explain in the video you should only ever underwrite a property you want to buy. The detail given on the video, hopefully will mean more will start to share actual content straight away. Sharing the content for me delivers what I want (which is to share) in the way I want (without the hard sell or travelling the country)

I hope you enjoy.


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Comments

Ian Narbeth

12:04 PM, 28th January 2019
About 2 years ago

Definitely not for widows and orphans. Read the auction special conditions and the underwriting agreement very carefully! If the underwriter gets left with the property, he may also have to pay the Seller's solicitors' costs (typically 0.5% plus VAT but perhaps with a minimum of £1000 plus VAT). Some special conditions also make the buyer pay the commission the seller would otherwise pay the auctioneer. The underwriter will also have to pay the 10% deposit immediately and complete within 28 days.
Scenario 3 does not make sense. If the reserve is £90K and the bidding reaches £95K, the hammer falls and that bidder gets the property. On what basis does the underwriter pay £100,000? Surely it should be £5000 (£100K - £95K)?
In that case there is no need for a reserve as the deal could always be that the underwriter pays the difference money.

Dan Trivedi

14:30 PM, 28th January 2019
About 2 years ago

Reply to the comment left by Ian Narbeth at 28/01/2019 - 12:04
Ian - All goood points and the details of any auction should be consider as many costs may differ from auction to auction

In scenario 3. The under write price is set at £100k, so if bidding doesn’t reach £100k, the underwriter still has to buy at £100k

Ian Narbeth

16:58 PM, 28th January 2019
About 2 years ago

Reply to the comment left by Dan Trivedi at 28/01/2019 - 14:30
But Dan you said: "Sellers reserve is £90k, You underwrite at £100k". Does that mean the reserve at auction is increased to £100K? If not then the bidder has the property. If so, then that looks like a one way bet for a Seller who is prepared to sell at £90K. If the reserve is increased to the strike price the underwriter has just guaranteed the Seller a sale at £10K over his reserve. It would make more sense if the reserve stayed at £90K and the underwriter paid the difference money between what it sold for and £100K. If the underwriter is going to have to purchase every property that does not meet the strike price he is taking unnecessary risks and facing costs that may wipe out any profit he may make.

It seems the underwriter is getting most of the downside in exchange for 50% of the upside. If in fact the underwriter really wants to buy the property he can always bid at auction for it. In your scenario he might get it at £90K.

I skimmed through your video but didn't see any mention of downsides or risks or the extra costs. I would also be wary of the Seller (or his associates) secretly bidding up to just under £100K safe in the knowledge that the underwriter would have to buy.

Dan Trivedi

7:28 AM, 29th January 2019
About 2 years ago

Ian - watch the video in full as the risk are noted

The seller may not want to agree to an underwriter at the reserve price.

But yes a underwrite price superseeds the reserve

It’s not without its risk, and if you watch the video I explain that people/sellers/auction companies will try and push underwriting prices/properties that may not work for you (the underwriter)

It is with its risk which is why I advised DO NOT UNDERWRITE a property you are not prepared to buy.

If you underwrite for the sake of doing it then you will take most of the risks.

Think about the property, what you would pay for it, your market/the market and use it as a tool

Andre Gysler

15:31 PM, 29th January 2019
About 2 years ago

Reply to the comment left by Dan Trivedi at 29/01/2019 - 07:28
What about the strategy of underwriting for 100k knowing you are prepared to pay up to 110k. This would allow someone to bid up to 120k at auction on your behalf, if there is some competition, yet you still get it for your target maximum but with headroom to outbid other interested parties.


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