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Pros and Cons of Selling a House By Auction?

Property Saviour » Traditional Property Auctions » Pros and Cons of Selling a House By Auction?

There are several pros and cons of selling a house by auction.  Naturally, if you are thinking of auctioning a house these won’t be revealed by auctioneer, or they won’t openly advertise them because it could put you off.

Auctioning a house has become popular recently.  Television programmes such as “Homes Under The Hammer” have made it seem like an attractive way to buy and sell a house. 

Selling a property at auction comes with its risks, from upfront costs to the uncertainty of sale and having every buyer poke around, peel the wallpaper and kick your walls.  What television entertainment shows fail to explain is that auctioning a house comes with some pros and cons!

There are some advantages of auctions, but only if it is right for your situation. Let’s see what they are.

You can either watch this video or read the entire article:

Table of Contents

Is an auction a good way to sell a property?

Auctions tend to be home to problematic, unmortgageable properties, and savvy property developers are willing to pay the least amount they can buy your house. 

If you are looking for a speedy sale, then you’ll be disappointed as you would have to wait up to two months before your property sells, and you will get the cash.  There is absolutely no guarantee that your property will sell.

There are two types of property auctions:

  1. Traditional property auctions – these were ball-room style hotel auctions which have now offered a combination of in-person & online property auctions;
  2. Modern Method of Auction where the auction is conditional depending on a satisfactory survey.

Auctions tend to be great for councils, administrators, and banks to dispose of repossessed properties where they must be seen as achieving the best price openly and transparently.  But it is risky as you let the auction bidders decide what the property is worth.

Sellers opt for auctions because there is a perception that auctions give you certainty of a sale.  But you must put in a low guide price to encourage bidding and be prepared to give it away at 10% above the guide price.  Why risk it when you sell your property for cash now?

pros and cons of selling at property auctions
Auctions are known as home of bargain properties. Sellers are encouraged to put in low guide prices but they could end up giving away a property.

Why do houses go to auction?

The primary motivation for listing a house at auction is to guarantee a quick sale without any lengthy chains or the risk of a buyer withdrawing at the last moment. However, there are also other reasons why sellers opt for auctions over other methods of selling.

These include:

  1. Inability to off-set mortgage as a tax-deductible expense, also known as Section 24 tax on landlords;
  2. Higher mortgage interest rates make it unviable to run a buy-to-let portfolio;
  3. Capital gains tax reduction in allowance to just £3,000;
  4. Proposed ban on no-fault evictions;
  5. Rent hike freezes and eviction ban in Scotland.
Not all types of houses are suitable for auctions
Not all types of houses are suitable for auction for example if your property is deemed to be 'too nice' for auction or price isn't right, it won't sell.

Pros & Cons of property auctions

Mortgage rate hikes and the government’s changes to tax relief have made the prospect of owning a buy-to-let property less attractive. As a result, more landlords opt to sell their properties at property auctions.

So, what are the pros and cons of selling a house by auction?

Pros of selling a home by auction

We’ll explore the pros of putting a property under the hammer:

  1. The buyer should have their finances in place and be either a cash buyer or a bridging loan borrower.
  2. When the hammer falls, you have legally exchanged contracts.
  3. It is a much faster sale compared with an estate agent.
  4. You will get cash in 2-3 months.
  5. Bypassing the property chain: Selling at auction means you won’t have to wait for other parties to progress, which can be a hindrance if you’re stuck in a property chain.
  6. No haggling: With an auction, the sale price is the final price and cannot be renegotiated. Whereas when selling via an estate agent, the price isn’t guaranteed until contracts are exchanged.
  7. Attracting investors: Auctions are often attended by buyers looking for major renovation projects, so if your property needs a lot of work and you don’t want to fork out, this could be the place to go.
  8. No-risk exit: Due to the speed of selling at auction, it could be the ideal way to get rid of a property that’s proving difficult to shift. However, remember that you must declare any serious problems you’re aware of.
Auction house sold data
Take a look at real percentage sold in auction. Credit Hammered Auctions & Essential Information Group.

Cons Of Selling A House By Auction

Let’s reveal the cons of selling any property under the gravel:

  1. Your Privacy Is Invaded!  When you sell your house at auction, people will come and view it.  This means having them stomp through your living room and giving your house a good kicking and peeling wallpaper to ‘see if there’s any damp!’  For someone unused to selling at auction, it can come as quite a shock!
  2. Selling your property at auction means you’ll have to pay a hefty entry fee.  This can be upwards of £500 – even if the property doesn’t sell.
  3. Auctioneer’s commission is usually higher than an estate agent fee – and can be as much as 2.5% plus VAT.
  4.  Upfront marketing costs of preparing a legal pack can be expensive.
  5. In a traditional property auction, there is a limited pool of cash buyers & property developers.  
  6. A Method Of Auction attracts nervous first-time buyers who need a mortgage.  Buyer’s remorse is common if they feel they’ve overpaid.
  7. Buyer’s premium seems expensive at 4.2% of the final hammer price or a minimum of £9,600!
  8. 28 days to exchange contracts isn’t enough time to allow for a mortgage application to be processed, so any would-be buyers may cut their losses at £9,600 and walk away.
  9. The value of a property is decided on the spot.  Auction prices can change drastically on the day. You should set a good reserve to ensure you don’t have to accept a disappointing price for your property.
  10. Property auctioneers will tell you that if your reserve price is not met, then you are not obliged to sell.  The risk is that you could end up giving away your property, as the reserve price must not be more than 10% above its guide price.
  11. There is no certainty that your property will be sold in an auction.  Most sellers heave a sigh of relief when the dreaded hammer falls on their property, signalling the sale of the house.  Unfortunately, it’s still possible that the sale may not complete, even at this late stage.
  12. Auctions aren’t fast, and there’s a frustrating delay.  You won’t get cash quickly.  There is a waiting period of up to 3 months before you get the money. 
  13. A little-known fact is that if you sell your house before the auction takes place, you must still pay fees.  Even if a buyer pulls out, the auctioneer will deduct their commission from their deposit.  
  14. As well as all the extra auction fees for selling a property, plus the auction costs of not selling – you could be ‘locked in’ to that auction house for a two-to-three-month period after the auction.  We feel this is unfair and not something that Property Saviour will ever do.

Is auctioning a house a good idea?
A major advantage of selling at auction is that buyer will have legally exchanged contracts. However, with online auctions buyers can back out.

Property Saviour Can Help

In a nutshell, you may not get what you were hoping for when selling a property at auction.  You have to set a low guide price to attract bids, but what if you get no bids or very few bids?  You will sell your property at just 10% above your guide price.

And as far as auctioning a house pros and cons go, we think this is a big deal!

It is disappointing and could also give you a financial headache.

When you sell your home directly to Property Saviour, we give you a firm offer – fast – and stick to it – with no risks.

There’s no such risk when you sell to Property Saviour, and we do buy any house.

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  • These valuations or surveys result in delays and price reductions later on.
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