3 Selling At Auction

In the past Property Auctions have been very much the domain of the professional Buyer.

This is changing however, due to increased awareness through the media, particularly TV programmes. There are also now a number of Auction companies who offer a variation on the standard auction sale terms that make it easier for a residential buyer to buy.

Pros

  • Good for unconventional properties, properties that are difficult to value, properties with structural or legal issues and properties that appeal to Investors
  • Certainty – the Buyer is committed once their bid is accepted at auction and penalised financially if they withdraw

Cons

  • Your property might not reach your reserve price or even receive a bid at all
  • Most residential buyers are not at ease or financially equipped for an Auction purchase, so the market is limited
  • Property auctions can be expensive, with upfront fees payable whether you sell or not

You might consider selling property at auction (or an Estate Agent with an Auction facility might suggest it) as an alternative to selling by “private treaty” (the term used when you sell in the normal way through an Estate Agent).

How it works

In most property auctions, once a property is sold (at the fall of the hammer), the Buyer is considered to have entered into a legally binding contract, just as if exchange of contracts had taken place in a non-auction sale.

The Buyer is required to pay a deposit of 10% immediately. Completion is normally set for 28 days hence. In the event of the Buyer being unable to complete within 28 days, onerous penalties will apply.

Selling a house at auction is a simple process. The Auction company will market the property, through their catalogue and online, for a few weeks prior to the auction, and conduct viewings. Often these are block viewings for a group of people. If there is a lot of interest at the viewing stage then this indicates that the property is likely to attract a lot of bidders at the auction itself.

When the property is marketed, a “Guide Price” will be stated. This is an indication of what the Auctioneer expects the property to sell at.

There will also be a Reserve Price, which is the lowest price that you are prepared to sell at. You will agree the reserve price with the Auctioneer before the auction itself (usually a few days before, when the level of interest at the viewings can be gauged). If the property does not receive a bid as high as the Reserve Price during the auction, it will remain unsold.

Some people make the mistake of assuming that selling a property at an auction will ensure a quick sale. This is only true if an acceptable bid is made at the auction. Many properties remain unsold after the auction either because there is no interest, or because the reserve price was set too high.

What if it doesn’t sell?

If a property does not sell at the Auction there are a number of possible scenarios:

  • If the property received bids, you could agree to sell at a lower price< immediately after the auction to the highest bidder. It is possible though that the bidder might reduce his offer at this stage, or the property might no longer be of interest to them, for example if they bought another property afterwards
  • Someone might approach the Auctioneer and make an offer
  • The Auctioneer might contact potential buyers he knows to see if they will make an offer
  • You could re-enter it in the next auction, although this is likely to be at least a month hence, and of course there is still no guarantee of a sale. Some Auctioneers will agree to re-enter it for either no fee, or for a nominal charge.

Setting a realistic reserve is therefore vital. This should be the realistic “worst case scenario” amount that you will take. Remember, in most cases there will be two or more bidders for a property and there is a good chance that a realistic reserve price will be exceeded, sometimes by a large amount.

Selecting an auction company

There are a number of different types of company who sell properties by auction:

  • Specialist Auction companies – these companies are experts at what they do and their auctions are well attended, particularly by professional Investors. Many of these Auction companies hold a series of regional auctions across the UK, in large venues such as sports stadiums.
  • Estate Agent Auction divisions – more and more Estate Agents are holding Auctions. These are local (as opposed to regional) and are usually held in a local hotel (or for smaller ones, in a room in a Public House)
  • ‘Modern’ Auctions – these companies typically offer at least some properties in every auction on what is called an unconditional basis. The terms can vary but typically would require the Buyer to pay a deposit of £2,000 and complete within two months.If the Buyer does not complete on the purchase the deposit is forfeited. Such auctions have evolved because there are a number of smaller Investors and residential Buyers who like the idea of buying a property at auction (usually because the prices are lower) but are apprehensive about paying a 10% deposit and being legally committed to completing the purchase within 28 days, and are more comfortable with 56 days to complete (as this makes conforming a mortgage offer much more realistic).They also know that in the event that they are unable to complete, they have forfeited a relatively small amount of money. More sales fail to complete in the modern auction system than in a traditional auction, but the vast majority of sales do complete, as buyers won’t pay what is still a sizeable deposit unless they actually expect to complete the purchase.

Whichever type of company you use to sell your property at an auction, you should ensure that they have the expertise to sell properties like yours. Look at previous and current auction catalogues (usually available online) and see if they have listed (and sold) properties of your type and price range in your location.

Just as you would if using an Estate Agent, get more than one company to value your property and see who you feel most comfortable with. However, remember that the most important part of the whole process is to set the right reserve price, which only you can decide.

Find out more about the ways to sell a house:

1 Using an Estate Agent
Types of Estate Agent
How Estate Agents Market Property
How Much is it Worth?
How Much are Estate Agent’s Fees?
Once the Property is Listed
Once a Sale has been Agreed
Estate Agent Tricks
Selling Without an Estate Agent

2 Selling to a Quick Cash Buyer
Watch out for the Unethical

3 Selling at Auction

4a Equity Release

4b Sell & Rent Back (SARB)

5 Creative Solutions
Exchanged with Delayed Completion

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By Richard Watters

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