I took a lone day off work (something I’ve written about before) last week to attend my first property auction. My intention was not to bid, rather the idea was to observe and learn. The following post details my observations. If you are interested in investments, particularly property, you may find this intriguing.
Caveat: This is not a post about how to prepare for and bid at a property auction. The BBC has a good basic guide for that here.
First of all, it was extremely easy to go and watch. No registration, no hassle. I just rocked up at the time advertised on a local auction house (Barnard Marcus) website and took a seat. Now the fact is that I had actually done a lot more prep than that, since the properties being auctioned in this case were advertised on the auction house website two weeks before the auction. I’d created a list of properties that I would be interested in, and had done some due diligence (though had not been to the scheduled viewings due to time constraints/weakness).
This probably comes as no surprise, but the bidding process is fast-paced and high pressure, with some visibly nervous, and some looking like they’ve seen it all before. What stuck me was how often the bidding stopped at a fairly round number (like a 10 thousand unit). This demonstrates to me that the majority of bidders do not have a particularly financially logical way of deciding how much they are willing to pay (such as rent yield multiples or potential earnings growth over the next X years). Ha, maybe that’s a post for another day.
The auction house website offers the following information about the auction I attended:
|Lots Sold Prior||18|
|Lots Sold in Room||114|
|Total Lots Sold||134|
Average Percentage Change Between Guide Price and Sell Price (based on 106 properties): +24.02%
Percentage Change between Starting Bid Price and Winning Bid (based on 65 properties): +56.83%
Sale Price to Annual Rent Reserved Ratio (Based on 13 properties): 10.31
So these calculations show that the guide prices given before the auction (on the website or in the prospectus) are typically about 25% below what the property will sell for. Once you’re at the auction, as soon as the opening bid is given, expect to have to pay about 50% on top of that opening bid to actually win.
The above is certainly food for thought, though I still definitely witnessed some people pick up serious bargains.
It’s certainly worth going to a property auction and checking it out for yourself. Even if you’re not planning on buying property soon, it will give you an idea about the property values in your area (if you live in a big city where such an event would take place). You can just pop in for half an hour – it’ll probably make a nice change to your lunch break. Just make sure you don’t have a big stretch during the bidding!