What are Risks when Buying Houses at Auction?
There are many risks to buying a property at auction but they are all avoidable if you prepare, properly. The trick, as always, is to do your homework. Today, we look at a cautionary tale of a man who got a little carried away in the moment and ended up spending £500,000 on five houses he should never have bought.
Property Auction Horror Stories
Amy: Can you tell us any of your auction horror stories? Where have people gone wrong in this process and how can our viewers learn from these mistakes?
Andy: It's like anything. You'll hear the horror stories before you hear anything else. But it's really important to understand that the problems associated with buying a house at auction are all avoidable. They are always caused by the person who has the problem, not because the property, for example, has been dodgy.
Amy: So when someone has bought a bad property it's because they've not done their homework on that property, perhaps?
Andy: I'll tell you a quick story.
One of my roles is to advise buyers on the auction process. This might be a first-time buyer who has seen their dream home for sale at an auction but doesn't know how the process works. Well, I'll hold their hand through that process. It might be an investor looking to build and grow a portfolio. So, I'll help that person with their investment model.
So, there was one chap who came to see me called Mr Malik. He came to me the day before an auction and told me he had £500k cash but had never bought a property, apart from his family home, before and had never bought a property at auction.
He said, he'd inherited a bit of money, sold his business, had a total of half a million pounds, and wanted to invest it in properties.
I said, 'Great, you've come to the right place.' and told him about the auction we were having the next day. I always advise that people who are new to property auctions should do a dummy run so they know how things work and what it feels like in the room, itself.
Auctions can be packed, they can be intimidating. People can sometimes find them scary.
So I said to him, 'Come along tomorrow and sit at the back. Obviously, you won't be bidding on anything as you haven't researched anything or even looked at the catalogue.'.
You can see where I'm going with this.
Amy: Yeah, I can kinda see where this is going.
Andy: Then I told him that after the auction we could sit down together, talk it over, prepare for when the next catalogue was coming out and then we would be ready to do something at the next auction.
So, the next day was the day of the auction. Auction days are very busy for me, obviously. I'm pulled from pillar to post and having to attend to lots of different people.
Mr. Malik came over, nice and early, with his little son. I said, 'hello', to him, said, 'hello', to his son. I showed him where the bar was, gave him a little walk around and I told him I'd catch up with him later. So, that was that.
Auction days can be a bit of a blur. You're just constantly busy with people.
At the end, the room was getting cleared up and I looked over, across the room, and saw Mr Malik with a bidding paddle in his hand. Of course, I thought to myself, 'What's he got one of them for? He doesn't need a bidding paddle, he's not bidding.'.
He came over to me, looking a bit, a bit sheepish. I asked him if he was alright and he said, 'I've been silly, Andy.'.
I asked him what had happened and he told me that he'd just bought five properties and needed to back out and not buy them. Of course, this isn't possible. Once the hammer falls, that's it. The properties are yours.
So, to cut a long story, short. He had paid well over the odds. He hadn't looked at the catalogue. He hadn't looked at the properties. He hadn't read the legal pack.
He had probably overspent by £20,000k. Now, that's a horror story.
Amy: Buy in haste, repent at leisure.
Andy: Well, exactly. But it is a hundred percent avoidable. That is just him - no disrespect to him - being silly.
Amy: But it highlights, probably, something that is fairly common in your field of work.
And I know I would, probably, be a Mr. Malik, if I came to the auction. It must be so easy to get carried away. It's good to talk to you and hear about this because I'm sure we've got lots of viewers as well who'd be the same - like a kid in a sweet shop - when they got to the auction house.
Andy: Well, exactly. It's very easy to lose control. Because, ultimately, you want to buy property. You go to an auction because you want to. So, in that environment, with the rivalry and the competition, you're convincing yourself to play the game harder.
It's really important to set your maximum bidding price the day before when you are in your normal environment. It's a bit like if you go to the casino and you're sat in front of that roulette machine and you're watching it spin round and everything else goes out of the window until that point and then you leave and go, 'I should have cashed out when I had a hundred quid.', or whatever it might be.
And it's the same principle. You might say, 'Right, my maximum bid is a hundred thousand pounds. And in the room, you'll go, 'I'll go an extra thousand or... Her, over there. She's bidding so it must be a good one. He looks like an investor, he's keen. I'll go to one hundred and one two...three... And then, next minute, you've bought it for a hundred and ten.
You leave the room and you go, 'This house doesn't work for me. I've overspent.'.
So, it's really important to stick to your guns and remember, there's always another auction, there's always another property. It's a lot easier to buy at the next one than to try and get rid of something that you've bought by accident.
Amy: That's a great, great, great tip, I think, to end with there. Thank you.