Going to Auction
James Green
In this new era of openness and transparency, research for a few pounds on the Land Registry site will tell anyone how much you paid for your property and when. Your car is tracked every few hundred yards by automatic cameras, you cannot enter or leave a pub without being photographed and Google Earth might even catch you sun bathing in what you thought was a discreet and private part of your garden. In the property world this openness is also apparent with property auctions on the come-back as an effective and sensible way of selling properties in the present difficult market.
From a buyer’s perspective, particularly first-time buyers and investment buyers, more and more Banks and Building Societies are putting their repossessed homes into big collective auctions in London and other regional centres. Most are flats and apartments built speculatively in the boom time in city centres where crippling losses have been sustained by both investors and lenders. Properties can now be bought for less than 50% of their original sale price. As a buyer, please tread carefully if you are attracted to these auctions, do your research properly as capital growth is likely to be extremely limited in the years ahead.
For sellers, offering their property for sale by auction has many attractions over selling by informal tender or private treaty. In my experience a good percentage of potential buyers are very wary of the ‘cloak and dagger’ system of an informal tender. They are never sure if the figure they put in is going to be a few pounds less than another
tender with the consequence of losing the property, or tens of thousands of pounds more than the next bid, thus paying an avoidable premium. The system is not clear-cut and there is always scope for potential buyers to re-tender after the tender date is closed which becomes very messy and there is no clear commitment to a signed contract so the transaction can easily fall apart at a later date.
Sales by private treaty are also suffering because of the very limited mortgage market creating delays with chains falling through. We have seen an increase in the number of transactions taking place where there are no chains, where buyers are coming out of rented accommodation or buying second/holiday homes or properties as an investment. Many sellers will go for the cash buyer rather than someone tied up in a chain.
The advantages of offering a property for sale by public auction is that you are dealing with those people who do have the financial ability to proceed and competition on the day of the auction not only generates the right market price but also has the advantage of a secure and binding contract.
Typical properties that sell well at auctions are those that are unique in some way, perhaps in a lovely location with outstanding views, overlooking the sea or having great architectural merit. They can be difficult to value accurately as uniqueness has different values for different buyers and the auction is the right forum to develop that interest and compete on equal terms in an open and transparent way.
Other properties that specifically go to auction are those in poor structural order where mortgages will be difficult to obtain, executor sales particularly where there are a multitude of beneficiaries who all need to be convinced by the executors that the property has been sold for the right market price, barn conversions, building plots and
agricultural land.
Selling a property at auction gives the seller the advantage of choosing the timing of sale and when completion will take place and this is particularly important at times of a falling property market where delays as a consequence of sales falling through and the property having to be re-marketed are not only distressing but costly in terms of capital value.
Some firms are more experienced than others in property auctioneering and experience is critical to the success of selling properties by auction. First the right advice needs to be given at the outset identifying a property as suitable for auction as opposed to selling by private treaty. A good auctioneer will advise on the right marketing campaign to ensure that as much interest as possible is generated in the property from the right pool of buyers and of course the auctioneer needs to be experienced on the rostrum to ensure that the auction proceeds smoothly and the best price is achieved.
As a buyer, do not be frightened to go to auction and bid for a property provided that it is the property that you want, you have done all the research in advance and you have asked your solicitor to look at the legal pack. Ensure that you have the funds available to exchange contracts on the day with a 10% deposit and that you have organised the remaining funds for the completion date. If you want a survey you must arrange for it to take place before the auction.
As a seller, again do not be frightened by the auction system as it can be an extremely satisfactory way of selling your property. However, you must seek out and take advice from an experienced Property Auctioneer who will be happy to give you the right advice. It can be a very rewarding experience.
