Why sell a house at auction?
On average, around 20,000 UK homes are sold at auction each year – a mere 1 in 50 of the total. Auctions remain a mystery to many people, whether they are buying or selling property.
Sellers often see auctions as a ‘last resort’, believing it will result in a poor price.
Buyers, on the other hand, will only consider an auction if they have done their research, have sufficient cash and are prepared to take risks.
This guide explores the pros and cons of selling at auction and will identify when it is the best method of finding a buyer.
It also contains more information about the auction process, the risks involved and the differences between traditional ‘auction room’ sales and modern online property auctions.
Table of Contents
Reasons to Sell a House at Auction
These are some of the reasons why a seller would consider selling at auction:
1. Speed of Sale
Selling a house at auction is one of the quickest ways to sell a property. Once the hammer falls, the sale is legally binding, and completion typically occurs within 28 days. This is ideal for sellers who need to liquidate assets quickly due to financial difficulties, relocation, or other urgent circumstances.
2. Certainty of Sale
Unlike traditional sales, where deals can fall through at the last minute, auctions provide a high level of certainty. Once the winning bid is accepted, the buyer is legally obligated to complete the purchase, reducing the risk of the sale collapsing.
3. Competitive Bidding
Auctions can create a competitive environment where multiple bidders may drive up the price of your property. This can be particularly beneficial if your property has unique features or is located in a desirable area.
4. Transparency
The auction process is transparent, with all bids being made publicly. This transparency can be reassuring for sellers, as it ensures that the property is sold for its true market value.
5. Selling Problematic Properties
Properties that are difficult to sell through traditional methods, such as those with structural issues, short leases, or legal complications, can often find buyers at auction. Investors and developers frequently attend auctions looking for such opportunities.
6. Avoiding Lengthy Negotiations
Traditional property sales can involve lengthy negotiations and back-and-forth discussions. Auctions streamline this process, with all terms and conditions set out clearly in advance, leading to a more straightforward transaction.
7. Wide Exposure
Auction houses often have extensive marketing strategies, including online listings, brochures, and advertising campaigns. This wide exposure can attract a larger pool of potential buyers than a standard estate agent might.
8. Flexibility
Auctions offer flexibility in terms of setting the reserve price and choosing the auction date. This allows sellers to have some control over the process while benefiting from the auction’s competitive nature.
Types of Properties Suitable for Auction
These are different types of properties which may be considered suitable for auction:
1. Investment Properties
Properties that are attractive to investors, such as rental properties or those with development potential, often perform well at auction. Investors are typically well-prepared and willing to bid competitively.
2. Unique or Unusual Properties
Unique or unusual properties can benefit from the auction process. These properties might struggle to find the right buyer through traditional methods but can attract significant interest at auction.
3. Properties in Need of Renovation
Houses that require substantial renovation or are in poor condition are often sold at auction. Buyers at auction are typically more willing to take on projects and see the potential for adding value.
4. Probate Properties
Properties that are part of an estate can be sold quickly and efficiently at auction, providing a straightforward solution for executors and beneficiaries.
How do property auctions work?
Property auctions come in various shapes and sizes, and it can be hard to understand the differences between them.
To make things simpler, there are two main elements to consider:
- Whether the auction is unconditional or conditional.
- What type of method is used (traditional or modern).
Conditional auctions
At the fall of the hammer, the buyer is granted a period of exclusive rights to purchase the property. There is no contract exchanged nor any legal obligation to proceed at this stage.
This exclusivity period is typically 28 days long, by the end of which the contracts must be exchanged and the purchase completed within an additional 28 days (56 days in total from the auction date). This can be frustrating if you need to sell now.
Traditional method
If you’ve ever watched Homes Under the Hammer, you’re likely familiar with the traditional auction-room sale (although, nowadays, the auction is more commonly held virtually).
Bids are only accepted during the auction, although the auction house may advertise properties ahead of time to receive pre-auction offers. Once no new bids are placed, the hammer falls.
If the bidding has reached the reserve price (see below), the winning bidder pays a deposit, usually 10% of the purchase price. The seller pays the auctioneer’s fee, typically 2-3%.
Modern method of Auction
In recent years, the modern method of auctioning has become more popular. It is similar to an eBay auction, in that properties are advertised by local estate agents and listed on property sites with bids open for three or four weeks.
There is no definite closing time though. If bids are made at the last minute, the auction can be extended to prevent “sniping”.
If the reserve has been met, the winning bidder pays a reservation fee, usually between 4-5%, in addition to the purchase price. The seller does not have to pay a commission, but the asking price may be lower due to bidders factoring the fee into their bids.
It is important to remember that both traditional and modern auctioning methods can offer either conditional or unconditional lots, so it is important to read the listing carefully.
Preparing for Auction
Although a sale is not always guaranteed with an auction, and it is best to check auction sold performance data, these are some of the steps you can take to increase your chances:
1. Choosing the Right Auction House
It is important to select an auction house with a good reputation and experience selling similar properties. Research their success rates and speak to previous clients if possible.
2. Setting a Realistic Reserve Price
Setting a realistic reserve price is essential to attract bidders while ensuring you achieve a satisfactory sale price. The auctioneer can provide guidance based on market conditions and similar sales.
3. Legal Preparation
Ensure all legal documents are in order, including title deeds, planning permissions, and any relevant certificates. A well-prepared legal pack can reassure potential buyers and facilitate a smoother sale.
4. Marketing Your Property
Work with the auction house to market your property effectively. High-quality photographs, detailed descriptions, and extensive advertising can help attract more bidders.
5. Viewing Days
Organise viewing days to allow potential buyers to inspect the property. This can help generate interest and provide an opportunity for buyers to ask questions.
On Auction Day
It can be a nervous experience with uncertainty of the outcome. Here’s what you can expect:
1. Understanding the Process
Familiarise yourself with the auction process, including how bids are made and accepted. Attend a few auctions beforehand to understand the atmosphere and procedures.
2. Be Prepared for the Outcome
Be prepared for both outcomes: whether the property sells or doesn’t meet the reserve price. Have a plan for either scenario, whether negotiating with interested parties post-auction or considering alternative selling methods such as selling to us.
Can a buyer or seller pull out after an auction has been won?
In an unconditional auction, the sale is legally binding. If either party backs out, they will be responsible for breaching the contract and likely suffer heavy costs.
Should the buyer opt out, the deposit will be kept by the seller. If the seller decides not to complete the transaction, the deposit will be returned to the buyer. Both parties in breach of contract will be liable for the other’s costs and expenses. However, enforcing a contract requires expensive litigation and normal hourly rates start at £300.
In a conditional auction, neither party will be held accountable for breaching the contract if they withdraw.
Nevertheless, the auction process is designed to discourage this kind of behaviour. If the buyer backs out, their reservation fee will be forfeited, and not go to the seller, but instead be kept by the auction house.
If the seller decides to not move forward, they must cover the cost of refunding the buyer’s reservation fee.
What happens if a property doesn’t sell?
If a traditional auction lot does not generate any bids, or the bids do not reach the reserve price, then the auction house will classify it as an unsold lot. This will typically be advertised on a dedicated part of its website and will be sent out to its mailing list.
Buyers have the option to make offers on unsold lots at whatever price they desire, and the seller can choose to either accept or decline these offers. If the seller decides to wait, they can list the property in another auction.
The commission is only paid if the property is sold (including post-auction sales). However, if the item does not find a buyer, the seller will have to pay the entry fee and the fees for preparing the legal documents.
In the case of the modern method of auction, the usual approach is to start a new auction period. It may be beneficial to alter the guide price to attract more attention. Depending on the auction house’s terms, there may be extra fees to pay for relisting.
What are the pros and cons of selling at auction?
Auctioning a property brings with it an entirely different type of audience compared to if you were to go through an estate agent. Both methods have their pros and cons.
Advantages
These are some of the advantages of using auctions as a way to dispose of property stock:
Auctions are quicker than estate agents – but you can get tied into a contract!
This is one of the main advantages of selling at auction, particularly traditional auctions. If a bidder succeeds, the buyer is committed, and you receive 10% of the sale price immediately. Plus, you can be sure that the sale will be finalised within a reasonable timeframe.
The timeframe for modern method auctions is longer, but there is still a strong financial incentive for the buyer to finish on time.
With a traditional estate agent, there can be long delays, chains can fail, and buyers may back out due to changing their minds, buyer’s remorse or their finances falling through.
Auctions have a high success rate.
It is true auctions have a high success rate compared to estate agents. However, these are headline figures and must be taken with a pinch of salt as numbers are often massaged.
When you compare this to estate agents, who typically only sell about half the homes on their books, this is a very good chance of success.
It is even more impressive when you consider that many of the properties in auctions may have some issues. However, when demand in the market as a whole is high (like it was in early 2022), estate agents’ sales rates will be higher, so auctions may not have the same advantage.
Auctions are transparent.
Bids are made in the open, and there is the potential for competitive bidding, which can drive the price up.
Disadvantages
These are some of the disadvantages when selling at auction:
Auctions tend to have a more limited number of buyers.
When looking to purchase or sell a house, they typically go through an estate agent. Many people won’t consider auctions at all, and those that do usually have a very particular set of preferences.
With the quick nature of the auction process, it’s often difficult to secure a mortgage – as we’ll learn later, this could mean buyers won’t be able to get a mortgage for the property.
This means the pool of buyers is generally restricted to those with the cash available – investors are typically more price-conscious than individual homeowners.
However, this is less true for modern auctions, as their extended timeframe and user-friendly bidding process draw in more traditional buyers. One large modern auction operator has reported that 40% of buyers use a mortgage.
Auctions can be more costly.
In contrast to estate agent fees, which are usually less than 1.5%, auction commission is usually around 2.5%. Sellers have to pay an entry fee to enter their property into the auction – this is usually several hundred pounds.
In modern auctions, the buyer pays the fee (typically 4-5%), which is separate from the purchase price – as a result, the seller will generally receive a lower price.
Auctions are likely to result in a lower selling price.
With a limited number of buyers, mostly investors looking for a deal, it’s expected that the prices at auctions will be lower than those on the open market. However, this isn’t always the case and depends on luck whether a bidding war breaks out.
How do selling prices compare?
While it is widely accepted that, in exchange for a quicker sale, the selling price of a property at auction is usually lower, we wanted to find out if this is true, and if so, by how much. To answer this question, We conducted independent research using auction data.
Due to the nature of properties sold at auction – as we discuss in the next section, they often have some kind of issue – it is difficult to do an exact comparison.
While each property is unique, we attempted to minimise the effect of this by focusing on those with similarly-sized properties in the same area; for example, flats in large blocks or houses on streets with similar properties.
We selected 100 properties from across England and Wales that were sold at auction in the last year, representing a variety of urban and rural locations.
We then compared the prices these properties achieved at auction with the estimated value given by Zoopla for that street or postcode area. We also compared open-market sales of properties in the same street (or, if there were no such sales, we used sales of similar properties within a quarter-mile radius).
On the other hand, properties sold on the open market in those same areas had a price very close to the Zoopla value; on average, they were around 2% higher. This suggests that properties sold at auction have a discount of approximately 25%.
When does it make sense to sell at auction?
Sellers may opt for auctions over estate agents for two primary reasons: the property isn’t well-suited to the estate agent’s methods, or the seller’s situation isn’t conducive to an estate agent’s approach.
Auctions tend to be more expensive, but they can also provide a lower price for the property. But you need to know to what you are doing with auctions as the wrong guide price can result in a financial loss.
- Speed
Selling your residential property, mixed-use, commercial property, or land can be done quickly, with the whole process taking as little as eight weeks from instruction to completion.
- Success
Auction House provides a great chance of selling your property, with, on average, 75%-80% of all lots offered being sold in recent years. This is much higher than selling through estate agents alone.
- Legal and Binding In Most Cases
Once the auction has finished and the hammer has fallen, the contract is legally binding, and your buyer is committed to the purchase. This is much more secure than a sale agreed through estate agents, as one-third of sales can fall through at a later date.
- Marketing
We have a database of local, regional and national buyers, and your property will be sent to these people. It will also be featured on property portals like Rightmove and Zoopla, as well as in our catalogues, on our website and via email.
- Open House
To create competition and get the best price possible, open house viewings are held. This allows potential buyers to come and look around the property. But be aware that these buyers are looking for faults and are likely to kick the walls or peel the wallpaper.
- Competitive Bidding
The auction aims to generate interest from two or more buyers and have them bid against each other in the auction room. Sometimes, a buyer will put in a pre-auction offer if they are particularly keen on the property.
- Best Price
Properties for sale at auction can often achieve a price higher than the original guide price. This is especially important for properties sold through probate, as the executors must get the best price possible.
- Set Price
With an auction, there is no room for negotiation after the hammer falls, so buyers must research the property before bidding. This is in contrast to private treaty sales, where survey findings or last-minute gazundering can reduce the agreed offer price.
- Timescale
If you need to sell quickly, an auction could be a possible option. You will know the date of the auction when you list your property, and legal completion will take place 28 days afterwards. The timescale is fixed and legally binding for both parties. However, the sale isn’t guaranteed, and there are upfront fees to be paid.
- Continued Income
If you are selling an investment property, you don’t have to sell with vacant possession. Auctions have to buy to let investors looking to buy, so you can keep your tenant and receive rent until completion.
Contact Property Saviour
Property Saviour provides a great solution for those looking to sell their home quickly. We provide a free cash offer, and as cash buyers, you can complete the sale within 10 days, with no estate agency or legal fees.
With auctions, there’s a waiting period of a month of marketing before the auction, and up to 56 days after the auction IF the property sells. Whereas, with Property Saviour, you can have money in the bank in 7 days and no fees to pay.
Sell with certainty & speed
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.
