The Changing Face of Auctions
04th June 2016
The property we went for in the auction last Thursday went over and above the price we were willing to pay. Our top price was £925k, the actual strike price at the auction was £1.5m. This had a guide of £650k, which was hiked up to £800k a couple of days before the auction. A typical strategy by the auctioneers, the low guide serves as a carrot to generate interest. The guide cannot be too far from the reserve therefore the auctioneer brings the guide price up to reflect the reserve after ‘reconsidering’ the interest shown.
Now there are a couple of reasons why the price went ridiculously high. One is, perhaps we were too low, maybe there was more potential to the property than we could see.
Secondly perhaps the buyers have over paid and lost all sight of the actual value and let emotions carry them away.
Once the lot was over my colleague who went to bid informed me there was a mass exodus from the auction room. This was clearly a popular lot.
The comps from the road showed similar properties going for £725k and £765k. It was difficult to see why this property should have gone so high, especially as the property required full refurbishment. There was one angle which was to increase the square footage of the basement, all the other properties next door onwards had basements, this was the only property which did not.
Clearly this lot attracted a lot of interest, it was a great lot. This was a property which was facing the park and so attracted a premium. My conclusion is that there must have been a lot of retail investors who were purchasing a home and therefore, the purchase was less about the price and more about the lifestyle and emotion.
It is rare to find a Victorian house facing the park. Our interest was not based on whether the property faced the park or not, it was based primarily on the purchase price and the yield the property would generate.
This little example shows the market still has the appetite for the right properties. It also shows buyers are not averse to getting their hands dirty and doing major works to a property, and these buyers are attending the auctions.
This is as a result of the education and familiarisation provided by the media. Programmes run daily on auctions, restorations and building works.
Conversely, auction rooms from being a means for professionals to pick up properties only a decade ago, has now become a venue for retail purchasers to pick up homes. They have the surety of being able to do the deal then and there, rather than a long drawn out process where there is no guarantee of eventually getting the property. Now if you have a very desirable property, putting it in the auction may mean you get more money than the agents can achieve for you due to the end user segment of the market.
Despite the current market there is good news for the auction rooms, they’re getting record sales figures. This particular auction had a sale rate of 77% and a massive 170 lots were sold on the day.
Another property which was being looked at as a home for someone in Harrow, went for £620k from a guide price of £450k. I suspect the price was driven up by the ‘Brown Pound’, meaning Asians in the area. Harrow has the highest concentration of Indians in the UK, and they have property in their blood. What’s more is they love to buy property which is around the corner from where they live, with the object of one of their off spring living there some time in the future. Furthermore if something goes wrong with the property they can get someone related to them to fix it for cheap – maybe even for free. And there is much satisfaction to be gained from seeing your property on a daily basis.
Interestingly, a Pub which we purchased for £1.25m in West Kensington and sold on for £1.75m nine months later was sold on in this very same Auction House. This was a freehold property for which we got planning for flats above the commercial premises. We made money the easier way which is without getting our hands dirty; you get the biggest uplift with the least hassle by getting the planning through.
I met the new owners, who approached me to see if they could purchase the architect’s plans and other reports from me. The buyers were from the Middle East and do this on a full time basis, they saw the potential in developing this property. We couldn’t come to an agreement on the price of the reports and so they ended up doing the reports themselves.
They had completed the development works, developed three flats above the commercial premises, and then had put the property back on to the market. They had also put in an application to turn the commercial on the ground and lower ground into a residential.
The property was guided at £2.75m and remained unsold, which I found surprising. Perhaps the reason is this is not an end user stock and the investors in the market have become more discerning. There are more deals to choose from currently at the higher levels, and if you have money in your pocket you’re in the driving seat.
The market at these levels looks uncertain. But uncertainty also brings great opportunity. In the good old pre credit crunch days, if you bought well, you could a purchase property and then you could take your money straight back out of the deal. The property would also be cash flow positive.
What this means in a nut shell is you buy a property with no money in the deal and it produces money for you on a monthly basis. We were doing this for clients several times over.
We currently have a deal where in your money is expected to be returned within 12 months, and it will produce a sold monthly cash flow. This is the ideal investment as the deal is not based on future capital growth, but on a monthly pay cheque. The property will rise given its location, however this will be the cherry on the pie. Call the office now for more details.
The Real Deal
Bayswater, London, W2 Purchase Price: £380,000
- A nice studio flat on the ground floor of a period building located in a great location
- Share of freehold
- Properties in this location are being sold for around £1,200 per sq. ft. and we are getting this property for £1,000 per sq. ft.
- Close to the beautiful open spaces of Hyde Park
- Excellent buy and hold opportunity
Call us now to reserve!!
!Tips of the Week
It’s cheaper to raise funds by remortgaging your residential property than by raising on a BTL property, contrary to popular belief you’re still personally liable either way.
Investing in bricks and mortar means the investment is real, hence it cannot simply disappear, like non tangible investments such as stocks and shares. Moreover, property provides a good long-term gain and often you can expect it to deliver regular income too.