Television programmes like Homes Under the Hammer have raised the profile of property auctions.
Although auctions still only account for two per cent of all property sales, some experts believe this proportion will rise. In an increasingly stagnant market, selling at auction may appear an attractive choice for sellers. If you are thinking about selling your property this way, there are some things you should consider first. Melissa Hackett, a residential conveyancing expert with MacDonald Oates LLP in Petersfield, looks at the auction process including some of its advantages and disadvantages.
An outline of how auctions work
The auctioneers will prepare a catalogue listing all the properties for sale, usually about a month before the auction. This catalogue gives a guide price for each property and will contain standard contractual sale conditions. Each individual property should have a legal pack which potential buyers can request and review. This provides details of the seller’s title to the property and other relevant information such as search results.
At the auction, the auctioneer sets a starting price for a property and then invites would-be buyers to put forward their bids. The starting price is pitched to generate interest and elicit bids, so is usually lower than the auctioneer thinks the property will sell for. The highest bidder wins the property and the moment the auctioneer brings their gavel down a binding contract comes into place. The successful bidder pays a deposit, usually ten per cent with the balance to be paid on completion which generally takes place 28 days after the auction.
Advantages of selling your property at auction
If you decide to sell your property at auction, you may find this quicker than a conventional sale through an estate agent. The successful bidder agrees to buy your property as seen, on the basis set out in the auction catalogue and legal pack. There is little scope for protracted negotiations, raising title or other issues, or trying to lower the price because of an unfavourable survey. This provides you with greater certainty that your sale will proceed as opposed to accepting an offer either privately or via an estate agent, which is not legally binding until exchange of contracts has taken place.
If your property has issues relating to title or condition you may be more successful at auction where buyers will often undertake less investigation of issues relating to the property and may not obtain any legal advice prior to the auction.
Disadvantages of selling your property at auction
An auction may not, however, provide all the certainty you are hoping for. For example, you will not know the sale price until bidding has finished. You can protect against an unacceptably low price by setting a reserve, a price below which the auctioneer will not accept a bid. However, this may not be as good a price as you could obtain after a period of extended marketing by an estate agent. There is also the risk that your property will not sell at all, which may make an auction unsuitable if you are relying on the sale proceeds to finance your next purchase.
The cost of selling at auction is also likely to be higher than via an estate agent. In addition to the auctioneer’s sale commission, you will have to pay an entry fee even if your property does not sell. It is also important to check whether there are any additional or supplemental charges, for example if you choose to withdraw your property before the auction or to sell it elsewhere. You may be responsible for the auctioneers commission if you sell to a buyer who found the property via the auction even if it was not purchased at the auction itself.
Types of property best suited to an auction
Some properties are better suited to selling at auction than others. Properties in need of improvement, those with structural defects, sitting tenants, title issues, or development potential may sell more easily at auction as opposed to a sale on the open market. Auctions often attract a higher proportion of cash buyers, developers and investors who are prepared to compete and this can drive prices up.
Conversely, if you are selling a conventional, well presented house you may achieve a better price through an extended period of marketing by an estate agent. Some people, for example first-time buyers or those who need mortgage finance, may be put off by an auction.
Alternatives to selling at auction
If you are looking for a quick sale, an auction is not the only solution. A good local estate agent can suggest different strategies which can also help speed things up. For example, they may ask for best offers or sealed bids. This involves inviting would-be buyers to make their final offers by a certain date. Checking the buyer has funding in place and they can go ahead in your desired timescale can also help ensure your sale runs to plan.
If you are buying a new-build property and are having problems selling your own property, talk to the developer. Many house builders will accept your existing property in part exchange, allowing you to move into your new home without having to sell your existing one.
How your solicitor can assist with your auction sale
Whilst selling a property at auction involves the same underlying conveyancing process as any other sale there are also some crucial differences, so you will need a solicitor with experience of auction sales. Time frames are typically short, so it is important to have a solicitor who knows the process and will be able to progress the sale quickly.
Unlike a conventional sale, any prospective buyer should check the title to your property before making an offer by bidding at the auction. So, ideally, you should find and resolve any title issues well before entering your property into an auction. A well-prepared, clear, and comprehensive legal pack, which deals with any title issues, should make your property more attractive to bidders and will boost your chance of getting the best price possible at auction.
Selling at auction brings its own challenges and may not suit everyone. Talking issues through with your solicitor can help you make an informed choice as whether it is a suitable option for you.
For further information about selling a property at auction, or buying or selling your home, please contact Melissa Hackett in the Residential Property department on 01730 268211 or email firstname.lastname@example.org. MacDonald Oates has offices in Petersfield and Midhurst.