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Play it cool as auction fever starts to hot up

This autumn's auction season is coming to the peak during the next few weeks and it's worth examining the advantages and pitfalls of this way for buying a home.

Today sees 74 properties going under the hammer at the Allsopspace auction in Dublin. Next week will see bumper auctions in Galway and Belfast in addition to a number of other auctions in Dublin and Co Meath.

While today's auction may not attract the hype seen for Allsopspace's two initial auctions it will be watched more closely by property experts anxious to see if the two positive aspects of the first auction are sustainable.

Strong prices and a high number of sales were the most welcome aspects for vendors or their banks.

Prices were on average 25pc over the guide prices and in some cases were over 50pc above the guides.

Somewhat surprising then, today's auction is quoting lower guide prices. The average guide has fallen from €152,000 to €142,000 -- a drop of 6.6pc.

But today's lower average guide price may be partly attributable to the absence of a €1m plus house. For instance in July's catalogue there was 35 Ailesbury Road, Dublin 4 with a €1.45m. guide price. It sold for €2.325m. -- a 60pc premium to the guide price.

Its premium is a clear signal to auction bidders that the message hasn't changed from the days of the boom as auctioneers' guide prices can often, though not always, prove well below the actual sales prices.

So bidders should be guarded and not influenced by the way the auctioneer waves his gavel or by the speed at which others are bidding. Decide on what's value for money and stick to it.

Many prospective bidders played it cool at auction after the market peaked and sat on their hands. As a result numerous properties were withdrawn from auction, some failing to attract even one bid. Instead auction properties during the early downturn were sold afterwards by private treaty.

Unfortunately from a buyer's perspective private treaty sales can prove more expensive than auctions in one key respect -- the selling price.

Private treaty are estimated to add as much as 10pc to a price above that attainable at auction. Such higher prices usually arise because there can be competition from more buyers who have more time which is increasingly necessary in order to persuade a bank to approve the mortgage for a particular property.

But while an auction price can be cheaper than a private treaty price, there are extra costs that can arise for unsuccessful auction bidders -- eg the due diligence and surveyors' fees which need to be invested before the auction.

With private treaty such expenses can be avoided until a deal has been agreed.

So auctions can prove a waste of money for unsuccessful bidders. Which is all the more reason to be realistic about the likely value of the property and not expect to get a Malahide mansion for the price of an El Salvador shack.

In the current climate most auction bidders are cash buyers who don't have to get bank approval. Which raises the question as to how big is this pool of buyers and will they continue to bid at such strong premiums to the guide prices?

If the auctions continue to attract overseas bidders then Irish owners may sleep more soundly at the value of their properties.

However only 9pc of the properties sold in the July auction were bought by overseas buyers. They appear to feel that Irish prices are still not low enough to achieve the yields that they desire from rental properties.

This leads to the question as to whether these overseas under-bidders' lack of success may turn them off the Irish market.

In the short-term this may not prove a problem for vendors as there are signs that demand is picking up.

A new survey from the Society of Chartered Surveyors Ireland has found that residential sales activity levels improved in the second quarter of this year with a 14pc increase in sales agreed nationwide after very low levels of activity in Q1. However in the south-east sales agreed fell 12pc and in the north-east by 10pc.

There was a 44pc increase in sales agreed in Dublin in quarter two. In Munster, sales agreed increased by 10pc and in the West by 7pc.

A key factor lifting demand may well be the December deadline for mortgage-interest tax relief. Vendors are also hoping the ECB will offer some assurance in the form of lower interest rates.

Indo Property