When it comes to residential properties being sold on TV programmes, you may have asked yourself: how does an auction on a house work? Why do people opt for this method of selling their home?
The truth is that selling a house at auction is more complex than it seems. In a seller’s market, you can achieve a good result and have the sale completed within 2-3 months.
However, in a buyer’s market, you’d need to put the property up for a very low guide price. But you don’t need to take that risk, as we’ll explain later.
In this article, we’ll explore the process of buying and selling at property auctions, the related expenses, the advantages and disadvantages, online property auctions, and whether it’s the right choice for you if you’re thinking of selling your house this way.
Table of Contents
How do house auctions work?
Selling a house at auction can take several months. Two or three weeks prior to the auction date, an auction house will put together a marketing catalogue.
Viewings of the properties are allowed, and buyers can even pay for early-stage surveys to check for any costly structural issues. Open houses are organised, and buyers can ask for a comprehensive legal pack to better understand the legal aspects of each lot.
The catalogue will include a guide price, which is an estimation of the property’s value on the open market. You also have the right to set a confidential reserve price, the lowest sale price the seller is willing to accept.
The auction process
This is a detailed auction process:
1. Auction Appraisal
The first step in selling your house at auction is to decide which auction house to use. This decision should be based on thorough research into their specialisations and success rates. Once you’ve chosen, an approved auction valuer will appraise your property, discussing potential sale prices and advising on a reserve price. This stage is non-binding, so feel free to ask numerous questions to gather as much information as possible.
2. Instruction and Documentation
If you’re happy with the appraisal, the next step is to sign the terms and conditions and other necessary documentation. A draft description of your property will be created for your approval.
3. Legal Pack Preparation
Choosing a solicitor is crucial at this stage. Your legal pack should include title searches, applicable searches, conditions of sale, and other official documents. This pack is essential for a smooth auction process.
4. Marketing
Effective marketing is vital to generate interest in your property. Auction houses use various channels such as social media, auction boards, websites, and print media to attract potential bidders.
5. Setting the Reserve Price
The reserve price, initially discussed during the appraisal, will be finalised based on the marketing feedback. This price is crucial as it sets the minimum acceptable bid. Setting it too high might deter bidders while setting it too low could undervalue your property.
6. Auction Day
On auction day, potential bidders must register in advance, provide ID and undergo legal checks. The auctioneer will invite bids, and the highest bid above the reserve price will win. The winning bidder must pay a 10% deposit immediately and complete the remaining payment within 28 days unless it is a Modern Method of Auction (MMOA).
Understanding Common Value and Stamp Duty
Common Value
The term ‘common value’ refers to the value of the house as perceived by most bidders. Despite personal valuations, the common value remains consistent, reflecting the property’s market worth.
Stamp Duty
Stamp duty is applicable on auction properties valued over £250,000, similar to traditional sales. Ensure you factor this into your budget.
Can you auction your house?
Not all houses are suitable for auction. However, if your property is difficult to sell on the open market, an auction could be the right option. However, not all auction houses are the same, and some specialise in dealing with large corporations such as banks, receivers and councils.
They will have over 200 lots, and your lot will be one of many. Naturally, they would give a more personalised service to their regular sellers as opposed to an individual seller.
It may be easier and quicker to sell to a cash buyer rather than deal with the uncertainty of a property auction.
Selling property at auction
If you intend to sell your house at auction, you should select an auction house that is a member of the National Association of Valuers and Auctioneers (NAVA). NAVA ensures the auctioneer adheres to their code of conduct and best practices.
Auctions can be held in person or online, allowing buyers to bid without having to leave the comfort of their homes.
On the day of the auction, potential buyers will get a bidding number to identify them during the bidding process. In case someone is not able to attend the auction, they can make proxy or telephone/online bids.
Once the bidding ends and the hammer falls on a particular deal at an agreed price, the buyer will be required to pay a 10% deposit on the sale price of the property the same day and the remaining 90% within 28 days.
How much does it cost to sell a house at auction?
Auction fees are not inexpensive. There are no hidden fees, and all the charges are upfront, so you need to consider if an auction is the most cost-effective way to sell your house.
Usually, you’ll need to pay the following: an entry fee, the auction house’s commission, a legal pack, conveyancing fees, legal fees, and any taxes.
The entry fee is a flat rate charged by the auction house and is payable at the time of instruction, though it may be deferred in the case of probate properties until after the sale. The commission is usually 2.5% plus VAT of the sale price.
The legal pack includes information such as the lease (if applicable) and the title plan. Your solicitor will be responsible for the conveyancing fees and any other legal fees associated with the sale.
Buyers are responsible for paying stamp duty or other taxes, which may affect your guide price.
After paying all the upfront fees, if your property doesn’t sell, you are expected to re-enter it into the next auction and wait another 3 months.
The frustration can lead to the seller opting for the certainty of a quick sale. Here at Property Saviour, we’d be happy to make you a cash offer. Call us on 0113 320 6700.
Online house auctions
Online property auctions have grown in popularity over recent years, particularly when social distancing guidelines meant that in-room auctions were either restricted or couldn’t take place at all.
Some auction houses run online auctions, like eBay, with limited time frames for bidding on lots. Others hold online auctions at a set time and day.
The same rules apply to sellers at traditional auctions regarding reserve prices, guide prices, and maximum bids.
Catalogues will be produced before the auction, and viewings can be set up for potential bidders. If a property doesn’t sell during the auction, it will still be up for bids afterwards.
Preparing to Buy at Auction
These are the steps involved if you are planning to buy a property at auction:
1. Viewing the Property
Before bidding, view the property thoroughly. Consider bringing an expert, such as a surveyor or builder, to assess any potential renovation costs.
2. Financial Preparation
If using a mortgage, secure an Agreement in Principle (AIP) from your lender. This helps set your budget and ensures you’re financially ready to bid.
3. Research Similar Properties
Understanding the local market is crucial. Research similar properties to gauge a fair price and potential future value.
4. Legal Pack Review
The auction house will provide a legal pack, which includes essential documents. Have your solicitor review this to ensure everything is in order.
5. Setting a Budget
Decide on a maximum bid that feels like a good deal. Remember, the guide price is just a starting point and can be lower than the final sale price.
6. Attend Other Auctions
Attending other auctions can help you familiarise yourself with the auction process. This experience can boost your confidence and understanding of the bidding dynamics.
On Auction Day
This is what you need to do on the big day! Register for your lot well in advance of the auction and register your debit card with the auctioneer.
1. Documentation
Bring necessary documents, including ID, proof of residency, and payment methods for the deposit.
2. Bidding
Make your bids clear and stick to your budget. Avoid getting caught up in the excitement and overbidding.
3. Post-Auction
If successful, you’ll need to pay a 10% deposit immediately and the remaining 90% within 28 days. Additionally, there is a budget for administration fees, stamp duty, survey costs, and building insurance.
What happens if my property doesn’t sell at auction?
In the event that the maximum bid does not reach the reserve price, the property will be withdrawn from the auction and remain unsold. This doesn’t always mean that you have missed your opportunity to sell.
The auction house may invite offers from any interested buyers and come to an agreement afterwards. A buyer who attends the auction but does not offer a competitive bid may hope to acquire the property through this method.
However, if a property doesn’t sell at auction it has a stigma of what was wrong with it, and your next offer is likely to be way below the guide price.
Should you auction your house?
Do you need a quick sale due to probate or to fund investment in another property? Is your house in need of major refurbishment, modernisation or repair? Is it in demand commercially?
We get so many enquiries from sellers who have been unsuccessful at auctions. We are cash buyers and able to purchase any property, giving you the certainty and speed of sale. There are no upfront fees; we’ll even pay £1,500 towards your conveyancing costs.
If selling a property is keeping you up at night, sell to us and relax.
Benefits of Selling at Auctions
The benefits of property auctions include the simplest way to ensure a chain-free sale and buyers being legally obligated to complete the purchase within 28 days of the auction.
In a Modern Method of Auction, it can take up to 56 days for the sale to complete. The buyer is not committed as they will have paid a buyer’s premium of £9,600 and can back out of a sale.
Buyer’s remorse in the auction world is a real dilemma. This can leave you with a real headache, particularly if you were counting on the sale going ahead.
Disadvantages of Selling at Auctions
These are some of common disadvantages of auctions:
- If the property doesn’t sell, you will still have to pay the auction entry and solicitor fees.
- The auctioneer commission fees can reduce your sale price significantly compared to the average estate agent’s fee. For example, in a Modern Method of Auction, a buyer is likely to pay £10k less for a property if they have to pay £9,600 in buyer’s premium.
- There is no guarantee that the sale will complete.
- Auctions aren’t a fast method of sale – for instance, if you need to sell within 2-3 weeks, a property auction isn’t suitable.
- In a Modern Method of Auction, even if the property doesn’t sell after a buyer backs out, the auctioneer and estate agent get their £9,600 buyer’s premium, and you are left out of pocket.
- If you live in the house, you will have to move out quickly once it has been sold at auction.
Selling a property at auction advice
Set a reserve price that is reasonable for the current market.
Before the auctioneer’s catalogue is printed, double and triple-check your property’s listing to ensure there are no errors. Incorrect information can discourage potential buyers and reduce your chances of a sale.
In the current market, almost half of auction properties aren’t selling. So why risk it if you need a quick sale?
Sell Safely to Property Saviour
Here’s why Property Saviour is a great alternative to property auctions:
Property Saviour Price Promise
- The price we’ll offer is the price that you will receive with no hidden deductions.
- Be careful with ‘cash buyers’ who require a valuation needed for a mortgage or bridging loan.
- These valuations or surveys result in delays and price reductions later on.
- We are cash buyers. There are no surveys.
- We always provide proof of funds with every formal offer issued.
We'll Pay £1,500 Towards Your Legal Fees
- No long exclusivity agreement to sign because we are the buyers.
- You are welcome to use your own solicitor.
- If you don’t have one, we can ask our solicitors for recommendations.
- We share our solicitor’s details and issue a Memorandum of Sale.
Sell With Certainty & Speed
- Our approach is transparent and ethical, which is why sellers trust us.
- 100% Discretion guaranteed.
- If you have another buyer, you can put us in a contracts race to see who completes first.
- Complete in 10 days or at a timescale that works for you. You are in control.
