To date, property auctions have accounted for just 2% of UK property transactions but you have to ask the question, why?
At a traditional property auction a legal pack is prepared beforehand so that all interested parties can avail themselves of all the usual legal documents, draft contract, local search etc long before the day of the auction. So when the hammer falls at the end of the auction the buyer exchanges contracts within minutes, a deposit is paid and legal completion will usually happen within 28 days.
This is music to the ears of vendors, agents and for the most part to buyers too - speed and certainty are at the heart of the process, two very important factors that are becoming increasingly rare in regular private treaty transactions.
Why doesn't everyone sell by auction all the time? Well, hitherto, the limiting factors have been that you really need two or more buyers to be chasing each property, not always easy to guarantee, particularly in difficult market conditions and furthermore, those buyers who intend to bid have to be able to complete the transaction within 28 days of the auction and to be able to pay a 10% deposit on the fall of the hammer. This has meant that those relying on funds from the sale of their own property, usually involving a chain and those requiring a mortgage are very largely excluded from the auction process. For this reason, property auctions have been best suited to unusual or damaged property that can appeal to a lot of developers and investors.
Thus we have come to think of auctions as best suited to investment properties, (block of garages) and tainted property, fire damaged, flood damaged, imperfect title etc but there is now a strong fresh breeze of change in the property auction world.
In the past, finding two or more prospective buyers likely to compete at auction meant investing in a lot of expensive pre-auction publicity but now the Internet makes this publicity both affordable and easy.
Traditionally all interested parties had to buy or at least, be provided with a hard copy legal pack by the solicitors acting for the vendor. This was expensive and time consuming but it is now, thanks to the World Wide Web, the work of a moment for any interested party to download the entire legal pack from the auctioneer's web site.
The advertised price plays a very large part in determining the interest generated in any particular lot so the old saying we hear so often, "you can always come down" is very much less applicable when taking a property to auction. The guide price has to be genuinely attractive in order to generate the required interest and then the auction and the auctioneer will work their magic on the day. The competitive streak in us all can lead to some spectacularly good prices being achieved.
While technology has helped enormously with advertising the property and getting it seen by thousands if not millions, there still remains, to a degree, the difficulty that there are only a relatively small number of buyers with available funds to be able to purchase at auction.
So a very interesting and innovative new form of auction has been created, the conditional auction. This simply means that at the fall of the hammer as an auction is concluded, unconditional contracts are not exchanged within minutes, instead the buyer lodges a non-returnable 5% deposit and has 28 days in which to exchange unconditional contracts. Importantly this gives buyers a period in which to get mortgage finance in place and thus opens up the property auction system to a dramatically wider audience of potential buyers. After the fall of the hammer the vendor cannot sell to anyone other than the agreed buyer in that 28 day period and he is obliged to sell to the buyer at the agreed price provided contracts are exchanged within the set period.
This means that the competitive element is still their driving the price quickly to the best that the market can stand and still gives buyer and seller the all important and much needed speed and certainty. Again almost all the legal work will have been prepared beforehand so the exchange of contracts within 28 days of the auction should be dependent only on finance and unlike 'normal' property transactions the buyer will have put down a very meaningful non-returnable deposit so the risk of contracts not being exchanged in the given time is very small indeed.
The Internet and technology have made one more very significant contribution to the appeal and practicality of the auction. Traditionally an auction would have been held in a hotel ballroom, a pub, a hall, a large room where many can gather and inevitably there is usually a significant cost to the hire of such premises and whatever the geographical location you can be sure that it will be very inconvenient for more than a few interested parties as well as the fact that prospective buyers often have to travel some distance to partake may mean them having to take time off work. So, clever folk have now created the "online auction" - no need to physically attend a venue at all, you can monitor the progress of the auction on line and bid from the comfort of home, office or holiday resort. The legal pack is still there, all the legal conditions remain the same and even the competitive element remains. There had been a fear that without the 'buzz' of an auction venue, buyers would not get caught up in the excitement in the same way but the evidence is there that bidding gets more fast and furious as the deadline approaches. Most auction sites even have a clever extension mechanism built in whereby, if there is a bid within the last 60 seconds of an auction with a predetermined deadline, an extra 60 seconds is added and that will go on until a full 60 seconds passes without any further bid. One online auction house reports that 25% of all bids received on its site are within this ‘extra time’ period, which rather goes to show that the buzz and competitiveness of an online auction is every bit as effective as that of a traditional auction.
Some might think, “ah ha, I don’t need a local agent at all, I’ll just pop the house on the market with an online auction house!” – “Not so fast” comes the swift reply. Very accurate pricing is crucial to the success of the operation so there really is no one better placed than your local agent to guide you to the optimum asking price in order to generate the levels of interest that are necessary for success. While the buyers will be attracted by the carefully chosen price, each and every buyer will need a lot of help, advice and encouragement as they approach the auction and so answering their questions and keeping them positive as the deadline draws nigh is an essential role performed by the local agent and key to the success of the auction.
It may be a while before auctions become the norm but the Internet and a few innovative auction houses have massively broadened the appeal of this method of sale. The price cannot be guaranteed, of course, but a reserve can be set and there will be those who find the speed and certainty offered by an auction are preferable to what can sometimes be a drawn out marketing process in the hope of, but with no certainty of, selling for a fabulous price.
With this in mind, WEST–The Property Consultancy will, from the start of 2019, be offering online auctions, both traditional and conditional, as a perfect alternative to the conventional private treaty marketing style, ideal for those seeking speed and certainty above all else.
If you think an auction of one sort or another might be of interest when it comes to selling your property please do give us a call to discus the options.