Would you ever buy a house you hadn’t actually seen? The reality is, when buying through property auctions, you could find yourself in a situation where seeing the property before you put in an offer won’t be an option. But, don’t worry. As long as you do your due diligence then you can minimise the risks.
In the UK it is normal for investment properties to be bought and sold at auction.
Property auctions offer a lot of great opportunities. Everything is available there, from development projects through to straightforward buy-to-lets that can be already tenanted and generating an income.
So, property auctions can be very appealing to investors, but there are some downsides you should be aware of if you are considering using them.
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Buying A House You Haven’t Actually Seen
The truth is that there are risks involved in buying a house if you haven’t actually seen it. And, sometimes, if you are buying property through an auction, you might not be able to go and view it in person.
To give you two examples, let’s look at derelict houses and properties that are already tenanted.
1. Derelict Houses and On-going Refurbishment Projects
It could be that the property is derelict or part way through a refurbishment, meaning it is not safe, from a health and safety point of view, to visit.
In instances such as this, you would have to put an offer in based on your own due diligence and assumptions you can draw from the refurbishments costs from floor plans, measurements, possibly an external viewing of the property and of course how the costs break down including any fees attached to the sale.
2. Tenanted Properties
You might also be looking to buy a tenanted property where there might be problems with arranging access.
This could simply be because the tenants or landlord don’t want to be disturbed.
If the property is an HMO (House in Multiple Occupation) it could be very difficult to arrange a viewing as there are a lot of tenants who would need to be consulted.
The truth is, very often, when HMOs are sold through property auctions, they are sold with no viewing access at all.
Property Auctions and Pre-Purchase Due Diligence
Not being able to view a house before you buy it, doesn’t mean that you shouldn’t buy it. Ultimately you can cover yourself by doing two things. If you can’t view a property, you will want to pay less for it than if you can. And secondly, you want to pay very close attention to the Legal Pack and, if it is tenanted, the tenant profile.
1. Offer Less Than You Would Do Otherwise
Ultimately, if you can’t view a house before you put an offer in you should try and factor that in by offering a lower amount than you would otherwise.
When we are working with clients, looking for properties at auction, and we are unable to view that property, this what we do. We will offer slightly lower, or a lot lower, than we would have done if we had been able to see the house.
Exactly how much lower depends on the terms of the deal and the specifics of the situation but by offering less we are covering ourselves for the unknowns contained in the deal.
2. Pay Close Attention To The Legal Pack
You also want to pay close attention to what is in the legal pack.
If the property already has a tenant in place, how strong is that tenant? How strong is the lease?
You need to ask yourself, whether you think, if you buy the property, the tenant will still be there when you become the owner; if you think they are going to stay there for months or for years.
Asking yourself questions like this are very important if you are thinking of buying a property that you were unable to visit beforehand.
Putting It All Together
Would we purchase a property through a property auction, that we were unable to view first?
Yes, we would; if the purchase price was right; if the terms and conditions looked genuine; if the legal pack covered all the kinds of details that we were looking for and if it was tenanted by someone who fitted the right tenant profile, who looked like they were going to be there for the long-term.
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