I’m sure you’ve seen the odd episode or 2 of the BBC daytime TV favourite, “Homes Under The Hammer”. It has been on our screens since 2003 and is the ‘go to’ mid-morning TV programme if you are a hungover student(!), off work due to sickness or holiday, or minding the children during their school holidays. In my opinion, it beats the other trash daytime TV (Lorraine, This Morning, Loose Women etc!) and no doubt it has inspired many people to buy and renovate properties up and down the country. In fact, whenever I tell somebody that I buy, refurbish and then sell or rent houses, the first thing they say is ‘oh, like on Homes Under the Hammer?’!
If you view Homes Under the Hammer with any regularity, you may be inclined to think that you can’t go wrong by buying a run down or tired property at auction, refurbishing it and then selling it for a higher price and in the process making a small (or chunky) profit. After all, day-in day-out we are shown almost 100% success stories of property investors (both new and experienced) doing just that on our screens. Sometimes they make a ‘modest’ profit of £10,000, but in other cases they make over £50,000 on one project alone, which for most of us is a significant, and even life-changing, sum of money. It looks so easy on TV, and surely it’s all real isn’t it?
I recently saw a new episode of Homes Under the Hammer (from February 2020) which featured a property in my home town of Leicester, so I was intrigued about whether it actually sold for the projected values and whether the developer actually made the profit that they expected. The results of my findings were interesting to say the least – see the end of this blog for the case study which shows reality of this featured property!
I wanted to write this blog to share my experiences and knowledge, and to explain why it isn’t as easy or as straightforward as they make out on the programme. I have personal experience of having successfully bought and sold properties at auction (and also having unsuccessfully bid on, and lost at auction, as well as unsuccessfully selling at auction), I can reveal the real truth about buying and selling at auction and why you should take Homes Under the Hammer with a pinch of salt…
The truth
There are so many hidden details or inaccuracies in the programme, that it’s about time we pulled back the curtain to expose the reality of property investing, refurbishment and selling for profit. I’ll take each element of the buying, refurbishing and selling process in turn and explain why Homes Under the Hammer is not quite as accurate as you think.
1. Buying at auction
Firstly, Homes Under the Hammer gives the impression that the sale price is the final price that the buyer pays for the property. This is never the case! The buyer will need to pay their own legal fees, SDLT (including a 3% surcharge if the property is going to be a second home or an investment property), as well as potentially surveyors’ fees and mortgage broker fees (or bridging lender arrangement fees). In addition, many auction houses (I’m looking at you, SDL!) charge buyers’ premiums/fees in order for the buyer to secure the purchase, and may even encourage their sellers to add the sellers’ legal fees, search fees and auction fees to be paid by the buyer under the auction contract. All of this means that buyers can end up paying £thousands on top of the actual purchase price. None of this is ever revealed on the TV programme!
Secondly, Homes Under the Hammer fails to mention that properties which are bought at auction are unlikely to be mortgageable – so you will either need to have substantial cash funds available, or you will need to partner/joint venture with somebody that does have cash funds, or you will have to obtain short-term, bridging finance, which can be very expensive. This all means that auction properties are out of reach for ‘Average Joe’.
2. Refurbishment of properties
Homes Under the Hammer shows developers refurbishing properties for comparatively low cost. In many cases, the developer carries out the refurbishment work themselves, or using close friends and family who are tradesmen or handy with DIY, and either offer their help for free or at mate’s rates. They often carry out the refurbishment in their own time, during evenings and weekends, and don’t pay themselves a wage for this work. This heavily skews the true refurbishment cost, which would be vastly more expensive if the developer used a reputable tradesman or building company to carry out the refurbishment. If you are not good with DIY, or are not a tradesman, or don’t have the time or inclination to carry out the refurbishment works yourself, then the reality is that the cost of refurbishment can be double or triple that shown on the programme. For instance, even a simple refurbishment consisting of a new kitchen, new bathroom, new flooring and full decoration can cost at least £10,000 if you use reputable contractors, but if you watch the programme you would think that it should only cost £5,000!
The quality of the refurbishments shown on Homes Under the Hammer is not always the best – I’ve seen plenty of so-called renovations which are quite frankly substandard and barely anything more than a lick of paint and some new carpets. In my experience, if you want to renovate an old Victorian terraced house properly, then the reality is that you will have to rip out all the floors and ceilings (there will be dated woodchip or textured wallpaper), deal with damp issues, check out the roofs and gutters, potentially fit new windows and external doors, potentially replace floorboards and rotten joists, re-wire and re-plumb the house, re-board and plaster all the walls and ceilings, fit a new boiler, kitchen, bathroom, renew all the joinery (skirting boards, doors, architraves) and then finally decorate and fit the floor coverings. All of this could easily cost upwards of £50,000 if you use reputable tradesmen, and it could take anything between 6-12 months to complete the work.
3. Holding costs relating to properties undergoing refurbishment
Homes Under the Hammer routinely fails to mention all the ‘holding costs’ associated with refurbishing and renovating a property. It’s not a simple case of buying a property for X, and selling for Y, and then making a profit which equals Y – X. When you buy a property, you will have to pay for buildings insurance, you may have mortgage or bridging finance costs to pay, you will certainly have council tax (and possibly double council tax if the property has been vacant for over a certain period of time, which varies between councils). Then there are other costs such as gas, electricity, water, and if you have a leasehold property, you’ll have to pay service charges and ground rents. All of these costs can set you back £thousands, and you will continuously be paying these bills out of your own pocket during the refurbishment phase and until the property is finally sold.
4. Selling properties
Despite what the TV programme shows, it isn’t always easy to sell properties for vastly increased prices after you have renovated and refurbished them. For a start, every property will have a ceiling price, which will be the absolute maximum anybody would pay for it based on its condition and location. This will be determined by the local property market i.e. how much similar properties have actually sold for in the same area over the last 12-18 months. Therefore, before you even buy a property, you need to know the ceiling price of the property in that area and work backwards from there.
When you come to sell a property, estate agents will frequently ‘inflate’ their valuation of the property, so that it boosts the ego of the developer and entices them to use the estate agent’s services. However, the actual valuation of the property will be determined by a RICS surveyor, or more likely a mortgage lender’s surveyor. Quite frankly, the estate agent’s valuation isn’t worth the paper it is written on if it does not accord with the mortgage lender’s surveyor!
Selling properties can take a significant period of time – a fact overlooked by Homes Under the Hammer. You have to appoint an estate agent (or do it yourself by selling privately or through an online only estate agency), conduct viewings, agree a sale price, and progress the sale with 2 sets of solicitors. This can take months, especially if there is a chain and a mortgage being obtained by the buyer. Often, a property can be sat empty for 6 months before a sale finally completes. During this time, the developer will have all the holding costs (mentioned above) to pay, and have zero income coming in from the property. Eventually, when the sale completes, the developer will have further legal costs and estate agency costs to pay, which again reduces the profits made from the transaction.
As you can see from the above, buying and renovating properties for profit is far more complicated, expensive, time consuming and difficult than that which is shown on Homes Under the Hammer. To illustrate this point, I would give you the following case study of a property which was featured in Homes Under the Hammer:
A case study
Series 23, episode 73 of Homes Under the Hammer aired on 18 February 2020 and featured a detached house in Leicester for sale at auction with a guide price of £140,000 – see details below. It sold at auction for £171,000 on 29 May 2019 – vastly above the guide price, which supports my arguments above. The developers that purchased the property spent approximately £30,000 on the refurbishment (according to the episode), plus the fees and expenses I’ve described above, which were not mentioned in the programme. The property was refurbished to a good standard, and the estate agents on Homes Under the Hammer valued the property at around £255,000 - £260,000. Nothing unusual there – another apparent success story on the programme, with the developer ‘making’ between £55-59k less all the expenses (legal, SDLT, holding costs, finance costs, estate agency fees etc).
However, the developers were clearly not happy with this valuation, and wanted more. So I decided to investigate whether this property actually sold for anywhere near £260,000. Through some detective skills, I actually found this same property still listed on the portals in March 2020 for a ‘now reduced’ price of £265,000 – reduced from the initial price of £280,000! It has now been listed with another estate agent for £265,000 and still remains unsold, as at 1 April 2020. You can see the listings from both estate agents below.
So as far as I can see, the developer has had an empty property for almost a year, costing them significant sums of money to purchase and refurbish, and it is still sat on the market unsold as at 1 April 2020, again costing them all the holding costs mentioned above. This is despite the apparent success story on Homes Under the Hammer!
I use this as a case study to show that ‘not all is as it seems’ on Homes Under the Hammer, and that there is far more to buying, renovating, and selling properties than you may think!