Why auction the house instead of selling?
Why auction the house instead of selling it? When it comes to selling a house, there are a few different ways that you can go about it. You can list it with an estate agent, sell it yourself, or sell the property at auction. Each of these methods has its own set of pros and cons. Is it tempting you?
Why auction the house instead of selling it?
This blog post will take a closer look at the pros and cons of selling your house at auction. There is a lot of contradicting information the on the Internet but we can assure you that below is everything you need to know about property auctions.
1. Top reasons houses go to auction.
Over the last few years, property auctions have attracted many more buyers and sellers.
Lots of people are still hesitant towards property auctions and this can be for many reasons. The majority (but not all) of sellers are expecting to sell their property to cash buyers. As it happens many cash buyers favor buying through auctions as it’s a great way to grab a bargain. It’s also speedy and transparent. Many buyers also enjoy the adrenaline rush associated with auctions.
It’s true that many auctioned properties are damaged, nonstandard, or unmortgageable. It might be a unique property e.g. a listed property so it wouldn’t be suitable for a regular buyer.
MYTH:
If a property is sold via auction there is something inherently wrong with it.
MYTH:According to Governmental ONS data in October 2022 110,850 (residential) properties were sold, out of this 2,259 were auctioned according to eigproperty auctions this is 2% of total (residential) properties sold in one month. Property auctions still represent a small fraction of the property market but becoming increasingly more popular. Often overlooked and dismissed from being a good alternative way of selling a property.
2. Main benefits of selling via auction in the UK
So what are the main benefits of using an auction house then? There are three main reasons people will use auctions:
- They can be faster and sometimes cheaper than an estate agent.
- Problem properties are easier to sell as builders and specialist investors and developers will be able to buy houses.
- Cash buyers – properties sold at auction tend to be bought with cash so there is less likelihood of failure in e.g. a property chain.
3. Auction houses vs estate agents – comparison
We mentioned a comparison to using estate agents in the benefits section but what other main difference between using an estate agency vs an auction house?
Speed – Auction houses on average will be around 1 month to sell a property, the final part is also binding so there is little risk of a dropout, compared to an estate agent that takes nearly 7 months according to Zoopla to sell a property with a risk of chains breaking, a lot more people needing to view your property as well as most likely a lot more stress.
Costs -The buyer needs to pay any fees, not the seller when you sell via property auction. This can make it more economical to sell at auction too as fees from estate agents can quickly add up. It should be mentioned though that if a property doesn’t sell at the auction you may need to repay to relist.
Stress – For some auctions are less stressful than estate agents as the process can be a bit more straightforward. Most auction houses will also be buyers who are used to problem properties.
4. What is a problem property and why is it best to sell at auction?
We’ve mentioned a problem property, these will be properties that are very difficult to sell via traditional routes, examples of a property like this would be:
- Structural issues like subsidence
- Short lease
- Japanese Knotweed
- Problem tenants
- Fire Damage
- etc.
There are more but it gives you an idea of what might work well at auction, some auction houses will specialist in certain types of houses for example repossessed properties.
5. Are all properties sold at auction problem properties?
No, some properties at auctions are problematic but a lot of them are just regular properties. Sellers use auction services if they need a quick sale e.g. inheritance, divorce relocating, etc. You can pick up a good bargain if you are a buyer with secured funds.
6. What are the potential problems when selling at an auction?
Should you sell your house at auction? Whilst you can expect to sell faster at an auction there are drawbacks, you might not get as much as if you were to sell via traditional methods. There is also no guarantee that the property will sell for the reserve price which means you might need to relist it. Setting a good guide price can help. Remember that the buyers will still want to buy for the lowest possible price so you need to balance this. A lot of auction houses will also have additional fees that you need to factor in like the entry fee and legal packs.
7. Why do ‘problem properties’ sell for more at auction?
Property auction houses like SDLAuction tend to have more experience selling properties with problems compared to estate agents who are used to selling traditional houses. Auction houses will also have potential buyers lined up who have experience with properties that need more work.
8. Do regular houses sell?
There are still plenty of normal none-problem properties being sold, this has also increased with the modern method of auction (you can bid remotely) which is a bit more of a mainstream use of auction that can be compatible with a mortgage – you will need to arrange an Agreement in Principle with your mortgage lenders before the auction process. This may drop out of favour with a downturn in the market along with other property buying methods.
Summary: auction the house instead of selling it?
Why auction the house instead of selling it? When selling a house, there are several options available to choose from. One option is to sell through an auction house. There are several benefits to selling a house through an auction house, including the speed of the sale and the low costs associated with the sale. There are also drawbacks to selling a house through an auction house, including the fact that the property may not sell for the reserve price and that you need to pay additional fees. Selling via auction can be good for houses with problems that might not sell via traditional routes.
Experts’ tips for Buyers at auction
Buying a house at auction – does it mean that there is something wrong with the property? Absolutely not. Currently, properties at auctions are not ‘doer uppers’ only. Auction houses do everything to attract not only developers and investors but also normal people. In some countries auctioning is a very popular way of quickly buying and selling. In the UK more and more people are choosing this way of buying and selling houses due to the speed and ease of the process.
A low guide price does not necessarily mean that you’re about to buy a wreck. It may be the case that someone inherited the property and needs to move on quickly. A guide price is just a starting point that can multiply within minutes.
Before you start bidding secure your finances. Talk to the financial advisor. Have an AIP in place. Be sure you do not get overly excited with the bidding because the moment the gavel falls deal is legally binding. Keep an eye on upcoming auctions in your local area. You can often sign up for reminders.
Experts’ tips for Sellers at auction
If you’re pondering whether or not to sell your property through auction, understand that it’s become increasingly popular and might be the right choice for you- depending on certain conditions. For instance, if you need to make a sale quickly or are selling a difficult property, an auction may be ideal.
The solicitor we work with underlined the importance of research, to choose the best auctioning house that specialises in auctioning the type of properties that you want to sell (that’s if you’re selling via the modern method of the auction) or the one that’s the most reputable in your local area. (traditional method of the auction) Second important thing is that you choose a solicitor that you trust. Word of mouth is a good way of finding a good solicitor. Sign up for the newsletter offered by auction houses online to stay up to date with the events and not miss the next auction date.
Frequently Asked Questions
Do you lose money when selling at an auction?
It depends on the market. If you set realistic reserve prices and the property meets the right buyer, then you could sell for more than if selling via other methods. However, if your reserve price is too high or if there are not enough buyers in attendance, you could end up selling for less than expected. Also factor in any additional fees charged by the auction house when calculating your potential sale price. According to My Auction on average houses sold 21% above asking prices.
Every day that your house is on the market, it’s costing you money in repairs, staging, and other bills. An auction cuts down on the time your home is on the market so sell your property at an auction to save both time and money.
How much do auctions charge to sell your house?
When setting a reserve price, it’s crucial to factor in the auctioneer’s fee, which is typically a set amount plus a percent of the winning bid. At most auction houses, this commission is approximately 2%+VAT of the total sale price.
Why would you sell at auction instead of going through an estate agent?
House auctions are an expeditious solution for buyers who can bid from any location and have a high chance of selling the property on the day of the auction for sellers.
What happens if the house doesn’t sell at auction?
Even if a house doesn’t sell during a property auction for any reason, the auctioneer may ask potential buyers to make an offer afterward. To learn more about this process, check out our article here.
Are auction sales final?
If you successfully bid and the hammer falls, you have exchanged contracts and have legally purchased the property. There’s no going back.
What’s a modern method of auction?
The modern method of auction is a process where a buyer bids on the property, but must exchange contracts and pay a non-refundable reservation fee immediately. The buyer then has 28 days to complete the purchase and legally own the property. This allows buyers more time to organize finance if required. Buyers can place bids remotely from anywhere in the world.
What’s a traditional method of auction?
The traditional method of auction is a process whereby the highest bidder at an auction will purchase the property, provided they exchange contracts with the seller on or before an agreed completion date. This method of sale differs from modern auctions, where buyers are expected to exchange contracts and complete them on the same day as bidding happens. Unless using a proxy the buyer needs to be present at the time and location where the auction takes place.
What is a buyer premium?
A buyer’s premium is an additional fee that the successful bidder is required to pay on top of their bid. The amount varies from auction house to auction house and can range from 1-5%+VAT of the purchase price.
It’s important to factor this cost into your budget when considering bidding for a property at an auction.
