With the rise in alternative and modern ways to sell your house – including online estate agents such as myonlineestateagent.com and DIY home listing services, there has been increased interest in use of auctions to sell properties. This blog looks at how property auctions work, and the pros and cons, answering the questions you may have about how to sell property at auction.
The property auction process
Most house sales use an estate agent to market a property, awaiting offers from prospective purchasers, and then agreeing terms that are acceptable to both parties. This can be a time-consuming and uncertain process. Using an auction process can work in a faster timescale, with the typical process as follows:
• The property is advertised as being sold at auction, on a given date.
• Ahead of this date potential buyers are given the opportunity to view the property and conduct surveys, legal searches etc.
• On the day of the auction the auctioneer will invite increasing bids for the property. If a reserve price is met or exceeded the highest bid wins.
• Immediately, the purchaser must sign a legally binding contract for purchase of the property, and pay a 10% deposit.
• Completion occurs within 28 days of the auction.
Specialist estate agents can be used to sell a property at auction. They will act in a similar way to normal estate agents, including providing an indication of value, and their charges are much the same, often around 2%. The specialist auctioneer may also require a fee for their services.
The advantages of selling property at auction
By far the biggest advantage of selling your house via an auction is time, and hence why auctions are most commonly used for vacant properties. The date of the auction is set in advance, usually only a few weeks from when marketing starts. Although a reserve price can be set (and hence it is not certain a sale will complete) the date for exchange and completion is known.
This is much quicker than a normal sale, where it can take months and sometimes years to agree an offer, and then more time to complete the conveyancing process.
The time advantage is why auctions have been popular with banks who have repossessed properties and want to realise cash to cover interest arrears. However, it can also be relevant in other circumstances, such as death or divorce, where there is a necessity to sell quickly.
The disadvantages of selling property at auction
If time is the biggest advantage, the flip side is value. By only giving a short period of time for potential buyers to conduct due diligence (remember, they sign contracts as soon as the auction is over, all surveys etc are done beforehand, at their cost) there is a commensurate reduction in the price you’ll expect to receive – 25-50% discounts are not uncommon!
Indeed, most people using auctions as a way to buy properties understand this fact, and set their price limits accordingly. To them, this seller disadvantage is to their advantage, and bargains can be had if you are prepared to take on the risks of buying at auction.
There is a middle-ground – closed-bid property auctions
If you are looking to sell a property quickly, but still believe there is potential to achieve a good price, then estate agents can conduct closed-bid auctions. The agent can market the property in the normal way, but making potential buyers aware that they are required to submit sealed bids for the property by a given date. The highest bid is accepted, and an accelerated process of survey and conveyancing is then entered into. At myonlineestateagent.com we have used this process a few times in London, where there has been high and competitive buyer interest.
If you are prepared to accept a lower price in return for a quick sale, then an estate agent can market a property in the normal way, but with a lower asking price and making it clear in the property description that you are seeking a quick sale. This will highlight to buyers that they could get a bargain, but without the discounts that are common through traditional property auctions. Online estate agents can be effective for this route, as their lower fees reduce the impact of a lower selling price and they are less concerned about the impact of pricing on their commissions.
Closed-bid property auctions are possible, but only in certain circumstances. Otherwise, if you are looking to sell very quickly or have tight deadline you are working to then a normal auction process may work, but you have to accept that you will be selling at a significantly lower value.
For anyone considering selling property at auction for the first time, it’s worth attending a few auctions first, to see how the process works, and also speak to a few estate agents to see what price they could achieve within a quicker-than-normal speed. Don’t forget to include online estate agents in your research!