Please see an interview with Gary Murphy of Allsop – one of the leading property auction houses in the country – where we discuss recent sales patterns; the ongoing popularity of auction buying; impending base rate rises; auction stock level predictions; getting the best deal possible in the current market; dealing with negative equity; placing the right guide price when selling; conditions of sale and recent emerging issues that investors should be aware of.
1) As we approach the half way mark of 2011, how have auction sales been bearing up? Allsop has been weathering the storm particularly well. Our residential sales are averaging 86% success. At the approach to the half way mark in 2011 we have raised £127.3m from 3 sales (796 lots, average lot size £160,000). The industry average is 67%.
2) Why do you think that auction buying has remained so popular during the turbulent market witnessed in te UK in recent years? Auction sales, when prepared correctly, offer buyers value for money. Lots should be available to buy at their published guide prices. (Less reputable auction houses may mislead bidders by quoting guides at levels lower than reserves). This is in contrast to private treaty marketing where asking price levels often reflect the aspirations of the seller rather than a realistic price to the buyer.
Buyers do not like to waste time or money investigating property that is overpriced. The method is entirely transparent and of course binding on the fall of the hammer. The process is final and leaves no room for renegotiation of the price after auction.
3) Are you expecting your auction stock levels to increase when the base rate eventually rise? We may well see an increase in the levels of distressed stock coming to market as borrowers struggle with increasing mortgage payments, yes.
4) How can buyers in the current market obtain the best deal possible? Make sure you do your homework so that you’re not surprised by anything after your purchase. For example, instruct a surveyor to do a full structural survey to ensure that you’re advised of any hidden defects such as subsidence or rot. Ask your solicitor to fully investigate the legal title and report on any problems such as restrictive covenants. And make sure that you have adequate funding to support your maximum bid. Unforeseen problems could turn a good deal bad.
5) What advice would you have to the significant amount of landlords that are currently in negative equity and would really like to sell? Think seriously about auction sale to get you out of a tight spot. Waiting for values to recover to boom time levels is not a realistic option for those who are steadily sinking further into difficulty. Often it’s better to cut your losses and move on. Look at the financial future of your property assets carefully and honestly.
6) Whilst the general view is that general values have been relatively flat for most of 2011 – for those that are selling, what would be your advice on placing a guide price at auction currently? Seek the best advice in the market…and follow it. Guides and reserves have to be modest to attract buyers. Once competition has been generated to the maximum, the auctioneer will have the best chance of extracting the highest price for you from the room.
7) What should a vendor look out for in the conditions of sale? There are so many banana skins. Make sure you don’t step on one! Look out for…
- Penal buyers’ fees. Some sellers are known to charge up to 5% of the purchase price;
- If conditions refer to other documents such as planning consents or leases, make sure you obtain copies and read them;
- Some sellers may impose a clawback clause on sites. You may have to pay more to the seller if planning consent is obtained at a later date;
- There may be outstanding arrears of rent or service charges for which you the buyer may be responsible.
The list is endless. It’s always best to ask a solicitor to guide you. If he/she gets it wrong, at least you have someone else to blame!
8)Similarly, are there any issues that have emerged recently that buyers should be aware of ?
- Watch auctioneers who quote guides below reserves to entice buyers. It’s contrary to RICS guidance and a criminal offence under the Property Misdescriptions Act 1991;
- Money Laundering is a hot topic and buyers should remember that cash deposits are not acceptable. Although auctioneers are not required to verify the buyers’ identity (only the sellers’), most do so as good practice. So remember to provide the necessary documents at the sale;
- Fixed charge receivers are increasingly prevalent as auction vendors. Often the information available to them is quite limited at the point of sale. The onus of due diligence by the buyer should not be under estimated in these cases. If you’re concerned about the information available, you must either accept the risks or withdraw from the bidding.
9) What would be your recommendations if a lot doesn’t sell? Always make an offer. You never know!