The True Cost of Property Auctions: Nick Curum Breaks Down Hidden Fees

In a recent LinkedIn post, Nick Curum breaks down the often-overlooked additional costs associated with property auctions, emphasizing that the winning bid is merely the starting point for the total expenditure. Curum highlights that the final bill can significantly exceed the initial auction price, sharing his personal experience where the total cost reached 128% of the bid.

Understanding the ‘All-In’ Number in Property Acquisition

Curum meticulously details the various components that contribute to this inflated final cost. He points out that the headline bid is a deceptive figure, and a more comprehensive understanding of the true investment requires examining the ‘all-in number,’ a concept he likens to the process in Mergers and Acquisitions (M&A).

“At auction, the bid is not the bill. On one house I bought, the bill came to 128% of the bid.”

As Nick Curum notes, this substantial difference is accounted for by several key expenses that are often not immediately apparent to new investors.

Deconstructing the Additional Property Auction Costs

Curum elaborates on the specific fees that inflate the final purchase price. He identifies:

• Reservation Fee: A fee paid to the auction house on the day of the sale, amounting to an additional 15% in his case.
• Stamp Duty: A significant tax on property purchases, which represented 6% of the total cost.
• Legal Fees and Searches: Costs for legal professionals to handle paperwork and ensure the property’s safety, adding 3%.
• Licence: Fees for necessary permits, such as a license to rent out the property, at 2%.
• Seller’s Costs Passed On: Expenses stipulated in the auction pack and borne by the buyer, contributing another 2%.

According to Curum, the stamp duty is a particularly surprising element for many. He explains that in his transaction, the stamp duty alone was equivalent to 5% of the bid plus the reservation fee, and notably, the reservation fee itself was also taxed.

“The one that surprises people is stamp duty. On mine, it matched 5% of the bid plus the reservation fee. The fee was taxed too.”

Curum leveraged AI to extract this detailed financial breakdown from two crucial documents: the auction pack and the completion statement, a process he notes took mere minutes.

The Auction Process: From Hammer to Paperwork

Drawing a parallel to M&A, Nick Curum argues that the initial bid at auction serves as the starting point for negotiations and financial assessment, much like a headline price in a business deal. The true financial commitment, however, is only finalized through the subsequent paperwork.

“In M&A, the headline price starts the conversation. The all-in number is what gets approved. The hammer is where the price starts. The paperwork is where it ends.”

Curum, who writes about building property portfolios with what he describes as “boardroom discipline,” uses this post to underscore the importance of thorough due diligence and financial planning beyond the initial bid. His insights aim to equip potential property investors with a clearer understanding of the total financial implications involved in auction purchases, advocating for a rigorous approach to evaluating all associated costs before committing to a bid.