David Sandeman joins host Clive Bull at LBC radio for the property hour, talking about the latest property news & taking your calls
You can listen to the interview podcast (28 April) on LBC radio now at:
Leading Britain’s Conversation (LBC) talk radio for the UK, letting you have your say on the big issues of the day affecting London and the UK.
28th April 2016, 9-10pm (Interview Highlights)
"With me to talk about the latest property news & take your calls is David Sandeman who is Managing Director of the Essential Information Group, Property Auctions Specialists and Paul Shamplina, Founder of Landlord Action."
David to bring you in on this, with your auction hat on. Are you finding that people go to auction mainly to buy somewhere that they will then rent out?
Yes, this is very popular with buy to rent people. One of the reasons being they can buy an unmodernised property, refurbish it to a good spec & then get it straight back on the market to get the income. It’s very popular. We also see a lot of properties being sold at auction which have the benefit of a tenant already in them & the current yield is about 5 or 6% for property sold in London.
We’ve all seen the landlord & the auctioneers, potential landlords on tv. They are trying to buy something cheap & turn it around, how close to reality is that? What getting the properties cheap at auction? Yes, & being able to turn it around, is that what happens? It seems like a simple process.
So long as you buy right, I mean the profit is in what you pay for it. You’ve got to set your limit & don’t go above that. But yes a lot of people are buying, doing up to rent or selling on for a profit.
Is it something that people are slightly afraid of because they don’t know how it really works?
Yes, it’s very different to buying at an estate agent for several reasons. The main one being that on the fall of the gavel you have actually bought the property, you’ve exchanged contracts as opposed to just have your offer accepted. So you are then bound to complete in a month’s time.
That must be quite nice in a way, I mean one of the awful things about the way things work at the moment is that you can have an offer accepted & then it’ll be unaccepted the next day, it means nothing! Yes, you cannot be gazumped if you buy at auction, it’s a fixed contract it’s made on the fall of the gavel & people love that.
What actually happens David if someone purchases at auction but they can’t complete, what’s the penalties that are incurred?
That’s definitely something you need to avoid. If you did buy at auction you hand over 10% deposit on the day, you would lose that & if the vendor then put in into another auction & sold it for less money than you paid then he could sue you for the difference & that does happen so you’ve got to be absolutely sure you’re in a position to complete on the full purchase and on time.
What’s the top tips for someone who’s never bought at auction before, what should they be doing?
First of all, make sure you’ve got a wide a choice as possible, really research & find out what properties that suit your criteria are coming to auction. Secondly, understand the guide price, this is probably the area of most confusion.
What is a Guide Price?
A guide price is a very good indication & close to where the reserve is going to be set by the auctioneer & the reserve is the minimum price that the auctioneer can sell it for on the day. But of course it may be that the vendor might put a low reserve on it to make it attractive to get people interested in going to look at it. But the other thing you need to know is what’s it likely to sell for because it is pointless chasing a property thinking you’re going to buy close to the sale reserve of £200,000 if in fact it’s worth £300,00.
Well one thing I wanted to ask you that is really important & you’ll know this with all your years of doing this. Is you must have seen some horror stories at auction, what’s the worst story that you’ve seen with regards to purchase at an auction?
I got told by an auctioneer a couple of years ago about a house he offered, it was bought by somebody who made the fatal mistake of not going to view it, he thought this looks cheap & so he bought it. What he didn’t realise was that there were some severe structural issues inside & the local building inspector went past it, looked in & he could see that some fairly important spine walls were missing and the building was falling down and he ordered its immediate demolition & the whole house went down to landfill in a load of tipper trucks.
Clive - There’s an answer to this isn’t there if it’s too cheap! David - Well quite, yes.
What level of survey should you have, what level of research should you do before you go a long to buy something so you know you’re not getting something that is completely dangerous?
There is no sort of fixed level that you have to do but you’ve got to be completely comfortable with it. You’ve got to do what you would do if you were buying it through an estate agent. Now traders will look at a catalogue, or they’ll know the property or have a quick look around, they read their own legal documents but you are buying what you see & what the position is with the legal documents.
So that is the risk that you take then but you actually have to pay for a survey before you even start bidding.
Yes, so if you are going to do, and that’s why it’s really important to know what it might sell for so you are not wasting money on a property you’ve got no chance in buying.
Let’s take some calls, if you have a question about buying at auction or if you’ve thought about going to auction...
Why do Sellers choose to sell at auction, is it because they are having trouble selling it in another way?
No, the main reason for selling at auction, or one of the reasons is the speed and certainty of sale. So a catalogue will come out generally 3 weeks before the auction date & so long as it is sensibly priced & the reserve is correct then it will probably sell. 70% of all lots sell and they have the certainty that on the auction day when the hammer falls they are going to complete 28 days later. We’ve all been in a situation of selling a house you get an offer & somebody says I’m a cash buyer and it turns out they can’t afford the 100% mortgage which they can’t get & it falls out of bed. With Auctions it does not happen because of the fact you have the sale on auction day.
Could it be that it is a difficult to shift property, or they don’t mind selling it a bit cheaper?
Yes, if you’ve got structural issues or there is legal issues then you’re putting it out and the person buys it warts & all. If you have troubles getting a conventional mortgage, auctions are a good way of selling a property.
Simon from Croydon, I purchased a flat from auction about 8 months ago, didn’t check the legal pack properly & then found out it had one of these, an escalating ground rent that doubles every 10 years and the ground rent is currently at £700 a year & then it will double in 4 years to £1400 & so on and so on doubling every 10 years. And I understand selling it on it may be difficult for people to raise a mortgage on it and what might be the best place forward for me?
That’s a tricky on that one is Simon. One of the things you have to do is your due diligence and read these sorts of things.
Clive - Is that a common thing with group rent where it doubles? David - Increasingly, is it a fairly new build?
(No it isn’t) Ok that’s quite rare because new build flats they quite often start with a ground rent increasing rapidly because they can then, they sell all the flats and then they sell the head freehold & that sells for a lot of money if it’s got a good rental income or future income. I think you are really stuck with it Simon, you need to think about what you are doing sooner rather than later with it.
Clive – Get some legal advice on it, it’s another example though of why you’ve got to do your homework before buying something at auction isn’t it?
David - It may well have been in the auction because of that.
If people want more information about how to do it at auction what do you recommend?
If they want to see what is coming up for sale in their area and what properties have sold for at auction come to our website www.eigpropertyauctions.co.uk or put EIG auctions into a search engine you’ll be able to come to our site, register to have access to our website & see all the information you’ll need.
Great, well David thank you very much indeed for joining us from the Essential Information Group.