An auction is – at least in theory – beneficial to both vendor and purchaser. For the vendor it’s a quick way to prise out any local interest and get to the price they want in the quickest possible time. By setting a reserve price they are able to avoid selling their plot/renovation opportunity for too low a price, and they are guaranteed a completion – assuming the reserve is met – within a month of the auction date.
For the plothunter, auctions offer the kind of transparency that enables them to leverage a certain amount of control over proceedings. In the traditional private tender process, you’ll never really know what level of interest there is in the plot, and what other people are willing to pay. The auction process enables you to see how the market feels about a plot and because it’s so transparent, no one has an advantage over anyone else.
Pre-trading and Homework
If you’re even a casual follower of the auction market, you’ll have noticed that when a catalogue is published – or shortly after – some of the lots might be withdrawn due to prior sale. The key to ensuring you don’t miss out is to register your specific interests with the auction house outside of the regular auction cycle. They will know about plots becoming available months before they go into the auction and you can make sure you don’t miss out by being in touch with them fairly regularly.
Of course, pre-trading can work in your favour, and if you are interested in a plot that you see in a catalogue, you’ll need to make all the key decisions in terms of price immediately and contact the auctioneer to make an early offer. Some may not accept pre-sale bids; others will. Go in with your best price and an ability to complete the sale swiftly.
Regardless of what happens, if you are interested in a property, be sure to get hold of a copy of the legal documents that the auctioneer will be able to provide at the viewing stage. Run them past your solicitor and explore as many of the issues (planning permission, access, services, rights of way, title, etc.) as possible in the time preceding the auction itself.
Guide Prices — and What to Pay
Guide prices are a lot more accurate than they used to be. At the height of the housing boom in 2006, bidding often used to start well in advance of the top guide; these days, it’s a much more realistic assessment of what you might end up paying for the plot. Bear in mind that there could well be a reserve price set in place by the vendors which, if not met, means that the lot will not be sold. The auctioneer will usually start prices below the reserve in order to help build a bit of momentum in the bidding process.
One of the basics of buying at auction is to set a limit price, which must be a price you’re happy to pay and which makes sense. In order to come up with this price, you’ll need to assess the value of the plot. Work this out by establishing an end value for the completed project, subtract your estimated build costs (using the H&R Build Cost Calculator as a starting point) and an extra 10-20% (for profit), and the figure you’re left with is the true value of the plot on offer.