It’s a tough call to choose between selling a property via an auction vs a discreet sale. And one where many sellers get their fingers burned in a property auction if they are ill-advised.
To sell a property through an auction is a daunting experience for novice property sellers, as many auction houses charge upfront fees.
For the best chance of success, it is recommended that the property is marketed as early as possible, your solicitor prepares the legal pack, and it is ready for potential buyers as soon as the property goes live. When the hammer falls, the buyer puts down a 10% deposit and agrees to a completion time of 28 days.
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Property auction pitfalls
As a property-buying firm, we have purchased properties that later transpired to have major issues. We are experienced with buying and selling property at auction, so we are able to advise you on the pitfalls.
In this guide, we will reveal some of the dirtiest tricks used by commercial and residential property auctioneers. Whether you wish to sell a house in an auction or you are considering how to sell a commercial property, we believe you should be making an informed decision. Later on, we reveal how you can avoid being just a number in the auctioneer’s online and offline catalogue.
When it comes to auctioning a house, there are pros and cons to consider in your decision-making process.
Low starting bids
A professional auctioneer will advise you to put in a low, enticing guide price to get people bidding up the property. If your property is the lowest property in the catalogue, it will get pre-auction offers as local investors try to secure bargain properties in auctions.
Fees can mount up for the buyer
Buyers may have to pay your solicitor, ranging from £1,000 to £2,000. Not to mention stamp duty and a long list of extra completion fees.
Buyers will also have to pay stamp duty, which can be high. This is also time-consuming, and we all know time is valuable when selling a property.
When buying a property, there are several rate bands for Stamp Duty. The tax is calculated on the part of the property purchase price falling within a variety of different land tax bands. For example, if you buy a house for £275,000, the Stamp Duty Land Tax will be £3,750, which, when added to the other fees, might make the buyer think twice about going ahead.
On completion, when signing the property contract, the buyer will also be responsible for insuring the property, another cost they probably haven’t considered.
Buyer can back out – legally
Another disadvantage of an auction is that the buyer does not have to go through with the sale, even after the hammer falls. There is no guarantee they won’t change their mind and back out after the winning bid.
Auctioneers’ fees
To make matters worse, if the buyer does back out after realising the price, it’s going to cost them to buy the property on completion – sellers may also face penalty fees if they fail to complete after the exchange.
How much does it cost to sell a house at auction?
Entry fees
When considering selling a property via auction, you need to be aware that you’ll have to pay an entry fee the day you agree to go ahead. This fee is used to market the property, costing the seller between £500 and £1,000.
That means you’ve just paid the auctioneer without guaranteeing a sale price. Is that a risk you can justify taking, and is this suitable for your situation?
Administration fees
If you buy a property at auction, you’ll have to pay an administration fee to the auction house, typically between £900 and £1,500, but can be higher depending on the auction house.
Online auction fees calculator (UK)
Many people looking to sell a house at auction are aware that there will be fees they need to consider before going ahead, which could take money from the final price. In the search for a total figure, they will look online for an auction fees calculator, however, unfortunately, there isn’t one – and that’s because auctioneers don’t want to reveal these extortionate costs before they’ve reeled the seller in.
Guide price v reserve price
When selling a property via auction, many people are confused about guide prices, reserve prices and selling prices – so here’s the low-down.
What is the guide price at a house auction?
Each auction property in the catalogue has a guide price and is also subject to a reserve price – the guide price is the level where the bidding will commence. A guide price can be a range of prices such as £190,000 to £200,000. Within this range the reserve price must be within the aforementioned range. Usually, the reserve price is at the higher end of the guide price.
What is the reserve price at a house auction?
The reserve price is the seller’s minimum acceptable price at auction and the figure below which the auctioneer cannot sell. The reserve price, which may be up to 10% higher than the guide price, is not disclosed and remains confidential between the seller and the auctioneer.
You must be aware that both the guide price and the reserve price can be subject to change up to and including the day of the auction – this is one of the disadvantages of the auction – as nothing is set in stone, and there are no guarantees. Even a low reserve price is no sure-fire way of achieving a quick sale. A lower reserve price does increase the odds of being able to sell a property. The risk is that you could end up giving away the property.
How to set the right price
A low minimum reserve price will be required in order to guarantee a sale of your house. If the reserve price is too high, you won’t attract any buyers who’ll consider bidding for a purchase.
So, should I sell my house at auction?
Our expert advice would be that although it’s possible to sell at auction, we suggest you weigh up your options first, especially if you’re searching for a quick sale. Do your research, and check out more of our online guides.
Would you be better off selling a house privately?
Private house sales - with Property Saviour
Property Saviour can make you a guaranteed offer on your property, and we guarantee a fair price for your house.
As we don’t buy properties on behalf of investors, there are no hefty contracts to sign. We guarantee to buy your home, and you can expect the process to be completed within five to 10 days. Property Saviour will buy any property, meaning you do not need to refurbish.
Property Saviour will exchange contracts quickly without delay. There is no waiting months for the next auction, no upfront costs or auctioneer’s fees to pay upon completion. We will also pay up to £1,500 towards your legal fees.
It’s a huge decision to make, but it costs nothing to give us a call and chat with our experts about your options and what you can expect if you’re considering an auction sale.
Auctions are home of ‘problem properties’ and you’d have to put in a low guide price, pay upfront fees and hope it sells in three months’ time. Compare that to selling to a cash house buyer, get £1,500 paid towards legal fees and sell in ten days or less.
It is better to have certainty of price agreed, have your your legal fees paid, deal directly with a cash house buyer and have a sale completed in 10 days or quicker. With a property auction, you’d be paying upfront fees, paying for searches, legal pack and there’s no guarantee that your house will sell in three months time.
Houses go to auction because they claim they are quicker however, you’d have to wait one month of marketing prior to auction and a further month for completion to take place. This is hardly a quick way of selling a house. Why not sell with certainty in ten days?
- It is a limited market and can put off 95% of buyers because of limited timeframe to complete the purchase.
- The price you receive maybe well under your anticipated sum.
- You have to pay upfront fees – auction entry fees, legal fees for preparing the legal pack and marketing fees.
- There’s no guarantee that a sale will go through and buyers can pull out. It means auctioneer will take their fee from the deposit and return the balance to you.
- If property doesn’t sell in auction there’s a stigma attached to it. This makes it difficult to sell again because buyers think there’s something wrong with this property.
Auctions are home of problematic properties and there are far too many variables including location, condition of property, it’s guide price, location, time of the year and whether property prices are rising or falling.
Generally speaking auctioneer encourage sellers to advertise their homes for as low as possible to make them look like a bargain then they HOPE that buyers will outbid each other to achieve the eventually price.
When a buyer sees additional admin fees, legal fees, buyers premiums or a contribution towards their legal fees, they realise that suddenly this property seems very expensive, and they back out of the purchase. They risk losing their 10% deposit, which seems less than paying all extortionate fees.
If the seller wishes to ‘force the sale’, he/she will have to take the buyer to court. The only real winner will be the litigation lawyers who will charge you £300 an hour. There is no guarantee of winning in court. Even if you do win, if the buyer has no assets, you could throw good money after bad.