Below are some of the questions that we are regularly asked by Buyers and Sellers, if you require further information then please contact us in the office.
FALSE – that may have been the case in the 80s and 90s but for the past 20 years, the majority of properties bought at auction in the UK have done so with some form of funding in place, whether that is a normal mortgage or bridging loan
FALSE – again this was true in the 90s when repossessions rose to nearly 500,000* (as opposed to averages of 150,000 - 200,000 in the 80s and 2000s) but in today’s market, auction is for any Seller who wishes to achieve a certain amount for their property in a specific timescale.
FALSE – every property ever sold at auction is sold subject to a reserve price which is effectively the Sellers minimum figure they would accept. It’s true that some properties will sell for less than the reserve but the Seller will always agree to this before the offer is accepted. More importantly on this point is the fact there is no upper limit to what can be achieved at auction as bidding will continue until the highest bid is achieved. Stuart’s record is 474% above the starting price!
FALSE – quite the opposite in fact. Whilst derelict houses are still classed as prime auction lots, the most common properties to sell in the UK are normal residential properties in need of updating (namely those that require a new kitchen, bathroom and redecoration). In terms of difficult to sell, if we think of the ideal auction lot, it is something where demand out-strips supply so if there are very few Buyers for a property then it is not going to do particularly well in auction.
FALSE – it is no riskier than buying via private treaty and in fact, there is an argument that it is safer because all legal work is done prior to you even making an offer. This means, that rather than making an offer on day 1 and then 3 months down the line finding something that would stop you from buying the property (and costing you potentially £1,000s in the process), when buying at auction, you will be able to download a legal pack for free around 2 weeks prior to the auction date meaning you can take advice and do your due diligence before you start spending money on surveys and other associated costs. If something in the legal pack makes you not want to bid, you simply don’t bid.
There are a few variations of the term starting price – guide price, starting bid, offers in excess of – but essentially, the starting price is where the auctioneer would typically start the bidding meaning that the Seller is unlikely to consider anything below this figure. The reserve price is undisclosed meaning only the auctioneer and the Seller know this figure and it’s the minimum amount the Seller will accept. If this price is met or exceeded, the property will sell. If the reserve isn’t met, the auctioneer will then get the highest bid from the underbidders and report this to the Seller to make a decision.
We get asked this one a lot and it’s understandable as the norm through private treaty is the Buyer doesn’t pay anything. However, from a Seller’s point of view, this means the Buyer can walk away and change their mind at any time during the transaction without any financial penalty - 30% of all private sales fall through because the Buyer changes their mind. At auction, we believe that both the Buyer and Seller should pay a fee as they both benefit from the speed, certainty and security that an auction sale brings with it and it means less transactions fall through (1% versus 30.6%*). Not everyone will want to pay a fee to buy at auction but then again, not everyone pays for next day delivery or FastTrack at an airport but nonetheless, these services are offered and used by large numbers of people who like the convenience and speed that these services offer - the same applies at auction.
Modern method of auction is where a Buyer pays a non-refundable Buyer’s Premium (typically £5,000) when their bid is accepted and then they have 28 days to exchange contracts with a further 28 days to complete. This means that if a Buyer decides to withdraw from the sale, they lose their £5,000 and part of this goes to the Seller as compensation. The idea behind the modern method is to bring in Buyers who are in a property chain rather than being chain free. The traditional auction is where a Buyer pays a non-refundable deposit (typically 10%) when their bid is accepted as well as a Buyer’s Premium (My Auction charges 1%+VAT of the sale price) but once the bid has been accepted, contracts will exchange immediately. This gives the Seller much more security of sale and also the Buyer the comfort that the property is legally theirs. Completion and payment of the outstanding 90% is due 28 days later. In this instance, if the Buyer withdraws from the sale, they will lose their 10% deposit and their 1% Buyers Premium so the financial penalties on a £200,000 property is £5,000 through Modern Method and £22,000 through a Traditional Auction, so it’s less likely a Buyer will withdraw from the sale due to the large financial commitment.
Yes – auctions tend to have 1-2 open house viewings each week on the run up to the auction date and there are typically 3-4 weeks of marketing prior to that date. You can attend as many open houses as you like as well as bringing builders, surveyors etc to look at the property with you.
As already touched on in Q8, a traditional auction will have 4 weeks of marketing and if the reserve is met or exceeded on auction day, it will exchange there and then with typically a 28 day completion. Therefore, from the first day of marketing to handing over the keys at completion is no more than 56 days. Compare this with private treaty and it is a very different story: The timespan from 1st marketed to exchange of contracts is between 91 – 175* days (225 – 525% longer than auction)
One of the most common phrases we hear when speaking with Estate Agents is; “We don’t have anything suitable for auction”. This is a natural reaction of someone who has very little knowledge of the auction market and has likely never sold anything at auction in the past - so how qualified are they to advise a Seller whether their house is suitable or not? This is why we work hand in hand with estate agents, advising and helping them to identify potentially suitable properties that our auction Buyers are looking to purchase. To us, it’s about exposing properties on the open market to a select group of specialist Buyers who are looking to buy specific types of properties but may not have seen them on the usual property portals. Logically, if a small property developer whose main source of income is to buy vacant properties in need of updating and refurbishment to then let out or sell on for a small profit, it makes more logical sense for them to register with 10 auction houses because the likelihood of them having something suitable for the developer to buy is far higher than them registering and being sent 100s of properties by 10 different estate agents where the majority of what they sell will be unsuitable.