Buying flat at auction - advice please!

Ellie007

Hello all,

I am after advice on behalf of a colleague - he is looking at buying a 3 bed flat in North London at auction but has no experience of the process. The guide price is between £180k and £230k, but similar flats (albeit refurbished) are selling for £375k plus. It is being sold by a housing association and is in a bit of a mess.

What does he need to consider? Does he need to carry out a home-buyers survey before auction so he knows the true value in its current state? Or is this potentially a waste of money if his bid isn't successful? Say his bid is successful, but then the mortgage company won't lend on the property because the valuation survey comes up at a lower value than the required mortage? What about the buyer paying for HIPS, surveys etc - is this normal at auction?

Is it worth buying at all in this climate? Even if there is potential to do up the property and sell for double? Or has he been sucked in by all the property shows on the tv???!!

All advice / tips gratefully received!

silvercar

The guide price is between £180k and £230k, but similar flats (albeit refurbished) are selling for £375k plus.

Alarm bells are ringing!

It is being sold by a housing association and is in a bit of a mess.

A mess can be sorted what else is wrong?

Say his bid is successful, but then the mortgage company won't lend on the property because the valuation survey comes up at a lower value than the required mortage?

He needs to have his fianances sorted out before he bids. Wining at auction means he willhave to have his 10% deposit ready and his finances to complete lined up. He will have 28 days to complete, so he needs a mortgage lender that can process an offer in that time or bridging finance ready.

Flats have the added problem of leases to sort. As the asking price is low, I would be worried that there may be an issue with the lease, maybe it is short and will need extending. Maybe there will be a problem with securing a mortgage. Is the block a defective build? Are there other privately owned owned flats in the block? How high is the block? These are all things that could make securing a mortgage difficult.

Whatever the reason, the housing association are not giving away half the equity just because the flat is in a bit of a mess!

Ellie007

Thanks silvercar. I agree the guide price seems worryingly low.

By 'mess', apparently the bathroom needs to be replaced, carpet ripped up and replaced, re-painted, possible electrics to be replaced. All in all, every room needs to be re-decorated.

The flat is the upper two floors of a converted house, with just the ground floor flat below. The lease is 125 years.

With regard the mortgage, he has a mortgage offer in principle. Would the mortgage company have to carry out a valuation survey between successful bid and handing over the funds 28 days later? That is the concern, that the flat may not be valued at an acceptable level and the mortgage refused? What is the mechanisms of mortgage offers in relation to buying via auctions?

silvercar

The fact that you have a mortgage offer in principle is a start. The property will need to be valued in its current state and the amount the lender is prepared to lend will be based on its current value. It will also be limited by the lenders criteria. So if the max loan to value is 90%, then the lender will only give you 90% of the valuation. You also need to check that the lender can move quick for you to secure the funds within 28 days of the auction, or have a bridging facility in place.

Jorgan_2

Ellie007 wrote: »

The lease is 125 years.

Are you sure the existing lease is 125 years and that it isn't a 125 year lease from new?

Ellie007

The details state 125 years from completion of sale...

silvercar

So its a new lease. I would suggest you get a solicitor to look over it before auction.

SouthCoast

Bear in mind that your friend will be competing against professional dealers who will have the cash available and tame solicitors.

SquatNow

Don't be stupid, no professional bidders are going to be buying in the current market! They arn't idiots, they will wait out the crash, just like the OP should.

SouthCoast

We could continue the discussion after this auction on Thursday!


http://www.barnardmarcusauctions.co.uk/

PasturesNew

Maybe the price was set deliberately low to drum up as much interest as possible.

If they expect it to go for, say, £270k then putting that in the Guide might get only 1 person turn up and it'd go for peanuts. Instead, if they say £180k then maybe 20 people will turn up to bid and it will achieve the highest price possible.