Property Traders and Auctions in Liverpool, UK
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House Auction Tricks of the Trade
This excerpt is from a chapter in the book, THE TRUTH ABOUT PROPERTY, written by NRLA trainer, Henry Davis, www.henrydavisproperty.com.
I asked some of my contacts in the auction industry for their take on some of the sharp practice on the auction business, and in particular some of the tactics property traders get up to. These are the auction attraction & auction killers. These guys don’t buy investment properties, they buy a commodity to sell and even if they sell at what they paid for it, they would still make a profit via fees with no capital gains tax payable. So, they only have to get what they paid for it, and then can add thousands in fees to the hammer price, yet still make a profit.
If a property has been sold multiple times, the reason for this is generally that a trader has bought before, after or during auction; they tend to like to buy before or after as the figure it sold for is not disclosed. By doing the deal pre-auction, there is no sales price history.
Another reason it is recycled is that the seller bought at £25,000, plus costs, then they enter it into the auction for £5,000 with £20,000 fees, but if the bidding stops at £20,000 they will either bid on their own or get a “friend” to bid on their behalf and effectively buy back the property. Therefore, the only cost to them is the auctioneers’ selling fee and they will try and sell it again at the next auction.
My advice concerning the legal pack is to check who is selling the property, if it’s an individual sale of an inheritance, if it’s a liquidator or asset manager, if it’s a part exchange company (growing), or if it’s a limited company. If so, you can do a check on them and see what they do. I think this is an important part of your due diligence. Do be extra cautious if it’s a property development company or a trader who’s selling.
Also, with the legal pack, it’s great that you read it as soon as possible. However, what about the special conditions the unscrupulous sellers add the day before auction? I have seen many first-time buyers view ten houses, their solicitor reads the legal pack and declares it all to be legitimate, only to then get ten update emails that they don’t read, which will inevitably catch you out.
One general trick of the trader is to put their lot behind a very popular genuine lot, and if thirty people are bidding where only one of them can win, there will then be twenty-nine bidders ready for your lot who probably haven’t read the legal pack.
Auctions generally sell 70-80% of their auction lots, so always beware of the auction house which sells 99%. Ask yourself, is the really true?
Beware of words used in the legal pack rather than numbers, when referring to fees. As with a more trustworthy auctioneer, all fees are in numerical format because they have compliance officers (ex-solicitors) who check every single legal pack. If the auction house you are using has worded fees, it highlights that their clients are complicit in the deception, and, my advice is to avoid the auction house, or you will be stung. These are also the auction houses that have a huge amount of ridiculously cheap properties in their catalogue.
One of the most important aspects to focus on is that you need to start your due diligence ahead of the competition by being ready the moment the property is listed on the auction website.
Perhaps there’s a right of way through your property or maybe even the property should never have been built on this land in the first place. Once you have understood the legal pack, it is advisable to take out Covenant Risk Insurance through a specialist Covenant Risk Insurance company.
It’s important that you’re the first to get the details of the property for sale. By doing your own unofficial viewing first, you’ll be way ahead of the competition if you start your due diligence before everyone else.
It’s paramount to understand the legal pack, and you’ll be putting yourself at risk if you were to buy any auction property without this knowledge. Most people would never buy a property through an estate agent without getting a solicitor involved. Some would, of course, and many do buy a property at the auction without getting a solicitor to read the legal pack. But the auction sale is the one most likely to give you problems in terms of the legalities. This area has high risks if you fail to learn about the hidden clauses and any arising issues that could pose problems after sale.
Henry is the CEO of We Buy Any House and Genii Developments Ltd and a developer for over 32 years. He is also an accredited Property trainer for the National Residential Landlords Association.
Copyright, Henry Davis. www.henrydavisproperty.com