For example at an auction this month, Nov 2016, a starter investor home, a Studio, Guided at 25-30k, so low Reserve?
Let at £ 3,600 PA, nice 13% GY on Guide, will cost you the best part of 10k to buy with cash (ex SDLT), add another 1k+ for a mortgage, so min cash requirement for 80% LTV on a 32k max bid would be £ 17.6k, 55% of your Max Bid!
I have always said that Property Auctions are not for Amateur Investors even though they often attract amateurs like bees to a honey-pot.
That is even more the case today, as the costs of buying auction properties both soar and are increasingly hidden from the un-informed.
I recently attended an auction where two amateurs hadn’t viewed the property and knew nothing of legal packs. They had just come along to “buy a bargain” and start a portfolio assuming the same rules/costs applied as applied to buying their home!
Suffice to say the cost of buying their chosen lot Guided at 70k was over 8k, thankfully they withdrew!
Briefly the 10k costs on the Studio mentioned above are, Auction Fees & Premiums £4,308 Legal Fees & Disbursements £2,400, Buyers Premium £2,995 Total £ 9,703 or 32% of Max Guide ignoring any Survey/Valuation Fees which would see the back of 10k.
This is another post on Seller Auction Costs and I will be publishing similar deals every week on www.BuyingAuctionProperty.com to try and alert amateurs and the un-informed to these hidden costs and drive home the importance of the Legal Packs which can be released as late as the auction day itself.
As a general rule if there are no “Special Conditions” in the Legal Pack, I expect it to be updated before the auction.
Breakdown & History
Purchase Date – 22.9.16 with Bridging Finance
Purchase Price – 35k
Re-Sale Guide 25-30k
Buyer to Pay (Legal Pack Special Conditions)
The Buyer will be responsible to pay the Auctioneers the sum of £995 plus VAT, in addition to the administration fee, which will be collected by the Sellers solicitors with the completion monies. Also the Buyer agrees to be responsible for the Sellers auction costs in the sum of £1800 plus VAT such payment shall be a condition of completion. – Total £3354
….and in addition with all deposits is to be paid the Auctioneers Administration fee of £795.00 + vat on each lot whether purchased prior during or after auction. – Total £954
Upon completion the Buyer will be responsible to pay the Seller in addition to the purchase price a buyer’s premium in the sum of Two Thousand Nine Hundred and Nighty Five Pounds, such payment shall be a condition of completion. – Total £2995
On the completion the Buyer will pay to the Seller in addition to the purchase price the Sellers solicitors fees in the sum of £750 plus VAT and disbursements and such payment shall be a condition of completion. – £ 900 + say £ 300 Disbursements, Total £ 1200
Buyers Legal Fees & Disbursements, say £ 900 + £300, Total £ 1,200 – These Legals are high in my opinion.
Total £3354+£954+£2995+£1200+£1200 = £ 9703
Max Bid £32000 80%LTV Mortgage – £ 25,600 20% Deposit £ 6,400, Mortgage Fees 1k+
Total Cash £9703+£6400+£1000=£17103