Investing through Auctions: An essential guide for first timers

Measured against the world of private treaty sales, the auctions environment represents just a small slice of the pie. But as the global coronavirus pandemic forced all of us to switch in-real-life for virtual encounters, the sometimes behind-closed-doors feel of the auctions ballroom was shed as more and more traditional auction houses turned to online sales. And as those online auctions grew, so too did their accessibility and the number of buyers thinking they might have a dabble in a bit of property investing. But buying and selling at auction isn’t as easy a clicking a “bid” button on a website. A sale agreed at auction is final and immediate. And newcomers need to make sure they have done their homework or they run the risk of making an expensive mistake. “Whether it is online auctions or the traditional ballroom, once that gavel goes down, once your bid has been accepted, a binding contract has been entered into and therefore you are bound to complete that transaction,” says Vijay Parikh, managing partner at Harold Benjamin. “Failure to complete that transaction could result in financial loss so it really is all about the due diligence that you do in advance of bidding at auction.” Forget the old adage location, location, location. When buying at auction it is all about due diligence, due diligence, due diligence. “The first point is always due diligence,” says Max Mason, head of sales at 574. “There is no more important thing, frankly, when purchasing a property. One thing you cannot cut corners on is your due diligence. You must see these properties. When you are spending multiple thousands of pounds on a property, it’s a very small proportion in terms of expense to carry out your due diligence properly.” Vital homework In a much-changed real estate world in the wake of the pandemic, making sure you understand the business of real estate, legislation and how it all works will be vital for any new private investor to the market. But both Mason and Parikh say the need to know exactly what you’re getting yourself into shouldn’t put anyone off the exciting world of property ownership – particularly through auctions. “Fundamentally, real estate is different to any other asset, as you have control,” says Mason. “You have an ability to change the status quo of your property, whether it be by development, asset management, leasing, whatever it is you choose to do. So knowing your market is again fundamental because you have control over the value of your assets. If you pick the right tenant, with a strong covenant, you can press your yield and get a better result for yourself. If you know your market and you know what you are getting into, you can think about the opportunities you can create with each property you purchase. “The beauty of property is that everyone sees it differently,” adds Parikh. “An individual might see it as an opportunity to add value, owner-occupy it, extend it or convert it. That is the beauty of property.” So once you have done your due diligence and you understand the opportunities you have with the property or properties you have chosen, how does a new investor make sure they play the game of bidding smartly? For Mason, there are myriad tactics for this. His favoured option – especially for potentially overexcited or new investors – is to use a proxy bid. Using this method, a buyer would set a maximum bid and the auctioneer would bid on their behalf. “Auctions, at the end of the day, are a very emotional process,” says Mason, “and as a buyer, if you want to stop yourself getting carried away, setting a maximum price and simply leaving your computer alone and seeing if you win or not is a very simple way to stop yourself getting carried away and making sure you spend the money you want to spend.” Transparent process Mason adds that the proxy bidding process online has the added benefit of potentially chasing off other bidders. It will automatically and immediately bid after a rival bid (until you reach your maximum), causing other bidders to think you have a massive pot of money and duck out of the bidding earlier. It sounds counterproductive for an auctioneer to suggest such a mechanism, but says Mason, this also services the seller too, making sure that all final bids are kosher and really can be completed. Parikh says the method also helps the growth of auctions, as buyers will have a good experience – not a terrifying one – and will return to the auctions market as a preferred place to invest and trade. “It’s about providing the entire service of transparency and being open and helping people with the process,” he says. The ability to market and trade real estate online has opened auctions up to the Amazon generation and, for the host of new buyers out there, there is an opportunity to make some very clever investments. While for the auction houses there is a huge opportunity to attract a whole host of new professional investors to the real estate sector, just as long as they focus on due diligence, due diligence, due diligence. To send feedback, e-mail samantha.mcclary@eg.co.uk or tweet @samanthamcclary or @EGPropertyNews In partnership with                   Image © Jeshoots/Unsplash