Under the hammer: getting a good deal at property auctions

There’s no single way to approach property auctions. Although the presence of former Aston Villa and Coventry City battering ram Dion Dublin on Homes Under the Hammer​ shepherding seasoned and novice bidders alike through the process may suggest otherwise, the reality is that they’re tricky.

Far from the supposed spontaneity on show during the sick-day TV staple, auction visits take a lot of legwork.With property agents such as Christie & Co and Fleurets making optimistic forecasts for the year ahead in their annual reports, 2018 may be a good time to get a foothold in pub property or think about going multiple.

Stephen Taylor, managing director at licensed property agent Guy Simmonds, believes that despite all the characterful auctioneers, gavels and mahogany, property auctions still have an important part to play in modern property sales.

He says: “Pub auctions still have a valuable role to play when corporate companies have disposals of many licensed properties they wish to offload. 

“Often these ‘block’ auctions comprise of some failed businesses, often closed and frequently in need of huge investment to either become profitable again or realise an alternative use. In these instances, perceived bargains do exist for the experienced and savvy buyer.” 

Due diligence

Ian Tudor, head of commercial auctions at SDL Auctions believes that far from the off-the-cuff action you might see on Homes Under the Hammer​, property auctions are much more about having a plan and sticking to it. 

He says: “As the Scouts would say, ‘be prepared’. It’s very much about doing all your preparation and homework before the day, being comfortable that the property you’re buying is sound or at least you’re aware of any issues with it, and that the legal pack has been checked carefully so there are no surprises there.”

Pete Scholes, a surveyor on Savills’ licensed leisure team, advises: “Ultimately, it is about doing your homework. 

“Consider why a pub is being sold, including what may not have worked for it previously and why. Research the demographic in the area you are looking to buy to identify gaps in the market, and how much others may be willing to pay.

“Look out for new concepts and products that will make an impact and stand out from the crowd. Also think about alternative use before bidding because pubs with good development potential are likely to attract investors and developers, often inflating the price.

“Avoid overbidding by having at least a ballpark idea of resale value should you need to sell in the near future if circumstances change. Be sure to do in-depth due diligence, both in terms of legal documentation and your own checks of the building, area and potential legal and operational issues, such as asset of community value listings, late-night levies and business rates.” 

Do your research

Tudor advises it is essential to undertake your own research and to get your own solicitors and surveyors involved in the process ahead of the auction to review legal packs. 

He says: “A normal legal pack will comprise the contract of sale, the land registry documents, searches, title documents, energy performance certificates and special conditions of sale that will include any hidden fees the vendor may be looking to recoup from the buyer.

“We would also recommend anyone buying at auction has an independent inspection or survey made of the premises prior to bidding because it is a case of ‘buyer beware’. 

“They do need to do all their homework and preparation and get a feel for what they’re prepared to pay up to on the day of the auction so they come to the room fully prepared and not in a position where they get carried away and perhaps pay a bit more than they had planned to.” 

Against the clock

Taylor adds: “They’ve still got to be aware it’s a risky business in the fact that time is short depending on when they’re interested in it. In all probability, they’ve probably got a few weeks to get everything together depending on when they come on to the scene.

”He says the extra work that will be needed if you want to be sure the property you’re buying fits in with your requirements – such as assessing the competition in the area and carrying out surveys – will take time to arrange.

Hidden costs

Tudor says the most common mistake auction-goers make is glossing over extra fees the vendor may be looking to reclaim during the property transaction. 

“It’s becoming more and more of a trend where buyers write into the contract that the purchaser will pick up the cost of searches and the legal pack and, in some cases, even the auctioneer’s fees.

“It is absolutely critical that the contract has been read and is fully understood because we do get regular calls from buyers after the event saying ‘I didn’t realise I was expected to pay the vendor’s legal costs’ or ‘I didn’t realise I was expected to pay the vendor’s auctioneer’s costs’. It is becoming a common pitfall, and it’s all about reading that contract and fully understanding the content.” 

Funds available?

Making sure you have the funds in place sounds like an obvious step, right?

However, Taylor has seen cases where bidders have tried to enter the market with money they simply didn’t have.He cites an example of bidders following up their interest in a property before realising the funding had not been confirmed by their bank.

“A couple of years ago we had a bidder bid successfully and, on the fall of the hammer, they didn’t have the funds – so it never proceeded to completion. The poor old vendor didn’t have a purchaser at all. While everyone thinks an auction is absolutely certain on the fall of the hammer, there’s an instance where it wasn’t.

“Purchasers sometimes think they can raise the money, but you never know with a bank.” It must be confirmed beforehand with an offer subject to nothing, not just an offer of intent.

“The bank has probably agreed in principle. The bank has said ‘I’d be really interested to help you in principle’, the bidder gets carried away, and the money isn’t there anyway.

“If they’re relying on funding, which a lot of first-time buyers are, the bank’s surveyor needs to go round, the property needs to be valued, and the prospective buyers need absolute proof the bank will lend before they bid.” 

Judgment call

Taylor says when it comes to auctions “you’ve got to use your own judgment”. But he adds: “I would never recommend it to somebody who was not familiar with the auction scenario. I think a commercial-savvy investor knows what risks there are, knows they’re hopefully getting a hell of a bargain and builds that into their bid. 

“Somebody who’s naive in auctions would have to be very careful because there are pitfalls, a lot of hidden things you wouldn’t see. I’d urge everybody to be very cautious.

“Where the demand is are block auctions with properties that are often neglected, and a very commercially aware buyer who has probably budgeted £100,000 to £200,000 to spend.”        

To find out more about pubs for sale, lease and tenancy visit our property site. http://property.morningadvertiser.co.uk/​