If you’re considering selling your home but want to avoid the traditional route, you may wish to auction your property. While it may feel uncomfortable selling your home this way, it’s pretty popular. In fact, up to 20,000 homes sell via auction in the UK per year.
This article will help you to understand what property auctions are, how they work – and all the pros and cons. Keep reading to see if it’s the right option for you, and gain valuable advice for selling your property at auction.
Why sell your property at auction?
People generally choose to sell properties at auction if:
- They want to sell a property quickly.
- They want a secure sale where buyers won’t pull out.
- Their property has issues that make it hard to mortgage or sell traditionally.
- They want to sell a whole property portfolio or tenanted property.
- They think they can achieve a higher price.
If these points matter to you, then it’s worth considering a property auction rather than a traditional sale through an estate agent.
How do property auctions work?
At a property auction, potential buyers will bid on your home, and whoever offers the highest bid wins the property. Once the auctioneer’s hammer strikes, the house is considered ‘under offer’. The winner must then fork out a 10% deposit to confirm the sale. Within a month, the property sale must be completed, and the winner must transfer the remaining 90% of the funds to the seller.
What is different about a property auction?
Apart from the actual sales process, the biggest difference is the curated set of buyers who stand ready to bid for your property. While estate agents vet buyers lightly, auction houses are much stricter. There’s usually a significant entry fee for buyers, meaning that those who enter are usually seasoned investors, landlords and portfolio holders.
This is both good and bad news for you. Buyers likely have lots of money to throw around, so there’s the potential for a lucrative property sale. On the other hand, their experience means they’re not likely to be hoodwinked into paying more than they should for your property.
Secondly, auctions often suit a particular type of property. People sell at auction if they need a quick sale or if their home is difficult to sell another way. For example, the property may have legal issues attached, structural problems, it may be tenanted, or it may be challenging to mortgage (etc.).
How do I sell my property at auction?
There are several steps you’ll need to take in order to sell your property at auction:
- Pick an auction house or specialist estate agent – Do your research and pick the agent or auctioneer that suits your needs and price point.
- Choose a solicitor and conveyancer – Solicitors do the heavy lifting before the property is sold, so you will need to choose one early on. They will get all the legal bits sorted, like preparing a legal pack for buyers and drafting a contract. That way, your home will go to auction ready to be sold.
- Prepare your home – Like any home sale, you’ll need to prepare for open days, viewings and surveys. Make sure your property is in the best possible condition so you achieve a high price.
- Set auction prices (guide and reserve) – You’ll need to set a guide price and reserve price for your property. This means you determine the minimum price you’re willing to accept and the price you will present suggest to bidders at auction.
- Market the property – The agent or auctioneer will market your property for a month or so across property portals, catalogues and their own pool of contacts. You’ll need to be ready for house viewings and open days during this time.
- Monitor the auction and bids – You’ll need to keep your eye on the bids once the auction begins. This can be very quick if it’s done in a traditional auction house, or it can happen over a series of weeks if you’re auctioning online.
- Finalise the sale – At a traditional auction, the deal is final once the person has won the bid. That means that contracts can be exchanged on the day and must completed within 28 days. Online auctions usually draw out this process, where the contracts must be exchanged within 28 days and then completed within 28 more days. Buyers can potentially pull out within these 28 days (at the cost of their reservation fee and admin charges).
How to choose the right auction house
The same way you’d select an estate agency. You’ll want to see how they market homes, assess their track record, explore what properties they sell and assess the services included in their price.
You may want to pay more for an established auction house with access to a large pool of high-quality buyers. On the other hand, choose a smaller auction house for lower fees, or look at online property auctions. Ultimately, you want to select the option that will give you the best return on investment and meet your requirements – getting the highest price possible or making a quick sale.
How much does it cost to sell your home at auction?
Selling your home at an auction is more expensive than selling through an estate agent. There are several auction costs you’ll need to consider carefully:
Standard auction fees
The average fee is 2.5% of the sale price. This is significantly higher than the average estate agent, who generally charges 1.42%. Also, some auction houses charge a flat fee in addition to the sale fee. This can be another £400-500 when VAT is considered. You will need to vet the auction house carefully to see if they charge other advertising fees, or if they operate on a ‘no sale, no fee basis’.
Solicitor costs
Selling at auction doesn’t mean you avoid solicitor costs, for several reasons. First, they often prepare a ‘legal pack’ for potential buyers to read before they make an offer on the house. These usually cost around £400 to produce.
Additionally, there are the standard conveyancing fees to consider. This varies from solicitor to solicitor and prices can reach £800 – or even more depending upon the property’s sale price if they charge a percentage-based fee.
In the most expensive scenario, you may pay £500 for a flat auction fee, £400 for a legal pack, and £800 for conveyancing fees. Then, you will also have to pay an average of 2.5% of your home’s sale price.
What about online property auction costs?
In theory, online auctions can be a lot cheaper (even free) for the seller. This is often because the estate agent or tech platform charges the buyer extortionate fees instead. Equally, online platforms do not need to hire space for the auction or process physical paperwork in the same way, reducing the fees they need to charge.
However, fees are often so high for buyers that this reduces the amount that they are willing to pay for a property. This can lead to the seller parting with their property for less, meaning it would have been better to use a traditional auction or estate agent instead.
How do online property auctions work?
Online property auctions work in much the same way as regular auctions – minus the in-person parts.
Marketing will often begin in advance, and there will be a set time when the auction is open for bidders to enter. Those who want to participate submit their details to the auctioneer for verification. Once the auction begins, the bidder can view what’s happening online – such as the latest bids and whether or not the reserve price has been met. Equally, they can keep an eye on bids from their laptop or phone, and choose to put in a price whenever they like (for as long as the auction remains open).
One key difference is the way the sale is completed. Usually, contracts are exchanged on the same day and then there is a period of 28 days in which to complete the sale. However, online auctions give the buyer 28 days to exchange contracts, and then a further 28 days to complete the sale. This is meant to give buyers more leverage to get the funds they need to buy the property.
How to set prices for a property auction
There are two prices you need to consider when putting your home up for auction: the reserve price and the guide price.
The reserve price
The reserve price is a private figure only known to you and the auctioneer. If bids do not reach this reserve price, then your home will be withdrawn from the auction to prevent it being undersold.
The guide price
The guide price is a public figure you ‘take to market’. The idea is to entice buyers to bid based on this figure at auction. This does not have to match the reserve price, and can be lower or higher depending upon your auctioning strategy.
How to prepare your home for auction
Sure, the auction house will handle the marketing, but you still have work to do. Like any property sale, you’ll need to prep your home for viewings and make it as attractive as possible.
However, you may want to do some marketing yourself. If you’ve got a lot of connections or belong to local WhatsApp/Facebook groups, market your home there and invite people to bid at the auction. This will give your house the best chance to sell.
What happens if a property doesn’t sell at auction?
If a property does not sell at auction, it is usually withdrawn because it’s failed to hit its reserve price. However, many auction houses will then consult bidders after the auction to see if a new price can be agreed with the seller.
Selling your property at auction: the pros and cons
If you want to sell your home at auction, there are several pros and cons you will need to weigh up. It’s essential to explore these before you commit to a property auction.
The pros: advantages of selling your property by auction
1 Serious buyers are vetted
Property auctions are niche, and generally attract buyers who know what they’re doing, like investors or landlords. Buyers like this typically have the capital to buy your property and are serious about doing so. This means you eliminate the problem of half-hearted buyers who just waste time.
2 An existing pool of buyers
Most auction houses have their own pool of buyers and investors to contact. These people are thoroughly vetted, meaning your property is instantly available to those with more money to pay.
3 Buyers are less picky
Most people who attend auctions know that the homes sold may have issues. They’re often unfazed by this because they’re used to renovating properties, investing in them and selling them on. Your property will likely sell even if it’s not in excellent condition.
4 No onward chain
Usually, property sales take a long time to complete because there is a whole ‘chain’ of transactions that must happen simultaneously. This is so everyone can buy/sell their properties in sync with the others in the chain. However, you skip this tedious process entirely with a property auction.
5 Lots of cash buyers
It’s relatively uncommon to find a cash buyer for your home – but not through a property auction. Many have significant cash funds which they are willing to pay upfront.
6 Easy to sell tenanted properties
Usually, it’s more complex to sell tenanted properties because fewer people have the expertise and capital to do so. But once again, auctions are full of experienced buyers and portfolio landlords who are quite happy to add another tenanted property to their collection.
7 Sell inherited or other ‘problem properties’ easily
Suppose you’ve inherited a property with legal issues attached, or simply need more time to go through the traditional sales process. In that case, auctioning is an easy and profitable option that takes less time because buyers are prepared to purchase properties like this.
8 Sell your whole property portfolio
Once again, if you’re looking to sell your property portfolio onwards, an auction is an excellent place to do it. That’s because the kind of people who attend auctions often have the money to make a large purchase like this.
9 Sell fast after a divorce
If you’re going through a divorce and need to sell your property, an auction avoids the traditional drawn-out sales process.
10 No more ‘gazundering’!
This happens when a buyer lowers the price they are willing to pay before the property exchange completes. Auctions are far, far stricter and operate under different legal guidelines so that this does not happen.
11 Auctions are always running
While property sales often peak in spring, there isn’t a peak for auctions. Many buyers are willing to invest in a new property at all times of the year.
12 Avoid the usual pitfalls with estate agencies
The sales process is much more straightforward at auction, meaning you cut out many of the third parties that would generally be involved.
The cons: why you shouldn’t sell your property at auction
1 Auctions can take longer than you think
Despite the traditional image of a packed auction room with bidders scrambling to offer the highest price, auctions can take a while. In fact, traditional auctions can sometimes take up to 4 months from start to finish. That said, online auctions are significantly faster than this.
2 You don’t escape all the sales hassle
Much like a normal property sale, you will still need to open your home to viewings, valuations, surveys and open days. This is a problem for anyone wanting to auction their home for less hassle.
3 It costs more to sell your home
Usually, the fee for selling your home at auction is higher than a traditional agent – fees are commonly about 2.5%, while estate agents charge about 1.42%. Other costs, such as ‘room hire’ fees, can be as much as 0.5-1.5% of the property sale price – so you need to watch out for this.
4 You need to set a guide/reserve prices very carefully
The guide price must incentivise people to bid competitively, and the reserve price must be high enough for you to profit. If the guide price is too high, people may not bid.
5 It may make your property search harder
If you depend upon auction proceeds to buy your next property, it’ll make your property search harder. That’s because you won’t know how much money you’ll get from selling your home. For example, it may soar above your reserve price or barely meet it.
6 You may not escape a poor valuation
You’ll need to pick an auction house carefully. Like many estate agents, some will try to win your business by offering impressive (but unrealistic) property valuations.
7 You must be prepared to move quickly
Completions must happen within 28 days of the property sale, meaning you’ll have to move out quickly if your property sells. Of course, this is fine if you aren’t living in the property.
8 Sales are always final
This is a double-edged sword. On the one hand, it stops ‘gazundering’, but it also means you can’t back out once your property is sold. This is because stricter rules govern auctions than traditional property sales.
9 Your home may miss its reserve price
If buyers aren’t willing to pay as high as your reserve price, you’re likely to lose money. This is especially true if you’ve paid upfront auction fees or extra advertising costs.
You will need to weigh the benefits of selling your property at auction against these disadvantages.
In conclusion
There’s a lot to consider before putting your property up for auction. While it seems like an easy and secure way to sell, you’ll have to factor in additional costs to see whether it’s worth it. Ultimately, this comes down to your requirements – whether you want to achieve a high price, a quick sale, or simply want to avoid the hassle of selling with an estate agent.
