Each February, property auction houses send out their catalogues ready for the first sales of the year. All part takers with the same objective in mind, that being to sell their house fast. Last year was far from smooth sailing, with the introduction of additional stamp duty for investors making “flipping” properties less attractive, particularly to new would-be investors. Across the property market as a whole, activity fell by 10% in 2015, according to data monitor the Essential Information Group. Despite the many woes of stagnant wages in an uncertain Brexit economy, buying and selling property at auction remains a popular option for those looking for a bargain.
How buying and selling at auction works
One of the key attractions of selling at auction is the relative speed of the sale. It’s still unusual for private homeowners to put their homes under the hammer; sellers are typically landlords or portfolio owners who want to quickly cash in without the hassle of the full marketing process. Properties also appear at auction due to repossession (such as bank foreclosures), bankruptcy or to quickly clear debt, where the seller is normally willing to part with their property at a reduced price for the ease and speed of the sale. Beware, though, as a property appearing at auction isn’t necessarily a steal. The thrill of the bidding can drive prices up well beyond what you would expect to see in an estate agent’s window, leaving some auction buyers with a property worth less than what they end up paying.
Properties are usually listed at auction with a guide price and a reserve price – the minimum amount the seller is willing to part with it for, set in conjunction with the auctioneer. Note that the guide price in the catalogue shouldn’t be seen as an indication of the actual value of the property, and can be used as the starting point in the auction room, depending on how well the auctioneer expects the bidding to go.
Before stepping anywhere near an auction room, buyers have to sort out their finances. Note, prospective buyers need to visit the property, get a report from a chartered surveyor, appoint a solicitor and get a mortgage in principle from their lender. All before bidding on the property they like. The focus is really on the buyer to make sure they’ve covered all the bases and once the bidding ends there’s no time for second thoughts or cold feet on either side.
Buyers are successful if they are the highest bidder when the hammer falls. This legally commits them to paying the price they bid and completing the sale. They need to pay the seller at least 10% on the day, and then have 28 days to transfer the full balance to complete the sale. The instant initial deposit, quick timescales and certainty add a sense of security for sellers that the usual selling process simply doesn’t have.
Selling at auction can offer the speed and extra security of knowing that a buyer has to commit then and there financially to buying your property. Demand from multiple buyers can help to drive up the price on the day, particularly if the atmosphere intensifies with buyers in one room. Auctioning is also a situation where run down or unusual types of property that would otherwise struggle with conventional buyers can find specialist and expert buyers.
The speed of the sale is probably the key motivation for sellers at auction. It’s one method for those who need to sell up quickly can use, particularly if they need to move fast, have failed to sell via other means, or need the cash as soon as possible. As long as the auction house has secured enough interest and set a realistic guide price, your property should be sold by the end of the auction day.
The major drawback comes from the speed and convenience of sale: you’re unlikely to get a good price for your property at auction. Buyers know that auctions host unusual homes that may require work or need to be sold quickly, and many attend with the aim of getting a good bargain.
It may seem simpler than selling through an agent, but there are a few things you should know ahead of selling your property at auction. You’ll need to choose your auctioneer wisely. Fees vary but you should expect to part with around 2.5% (plus VAT) of the sale price, and there could also be advertising costs. You’ll still need to fork out for a solicitor who can handle auction sales.
Your success very much depends on having the right buyers in the room on the day of the auction. As a result, it’s prudent to invest in spreading the word about your property as widely as you can – and not just rely on the auction’s website and catalogue. There’s also a greater invasion of privacy, as you’ll be expected to host open house viewings and surveyors in an intense period leading up to the auction day. Consider other sell house fast methods if this idea isn’t suited to you.
Property auctions can go either way. Multiple prospective buyers can create a bidding war in the auction room, elevating the price well above its market value. Or, as is more frequently the case, a home may attract little interest which can mean that residential properties can sell for as much as 40% below their guide price. It’s an intense gamble that really depends on the atmosphere and mix of people attending the auction – and their financial situations. One way sellers can attempt to secure themselves against this is by setting a reserve price. It’s worth noting that if the reserve price is set too high, then the property may fail to sell.
Convenience, but at a price?
If you’re in need of a quick sale, putting your home under the hammer might seem like an attractive idea. The stories of fortunes won and lost at auction are compelling, driven by interest in shows like the BBC’s ‘Homes Under the Hammer’. However, when it comes to selling unless you have an unusual property or one in particularly poor condition, you’re unlikely to meet the sort of buyers who will pay anywhere near to the right price at auction.
It’s a tense gamble that can go either way on the fall of the hammer.