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Traditional Property Auction vs. Modern Method (Pro’s & Cons Revealed)

The traditional property auction vs modern method of auction

Did you know there are 2 different types of methods you can use to sell at auction? Choosing the wrong one for your property could leave you at a big loss or paying extra fee’s that could have been avoided.

The 2 different methods to sell at auction are the traditional property auction & the modern method of selling at auction (also known as online auction).

We will show you both methods including some of the pitfalls and drawbacks of selling a property at auction in order to to aid you in choosing the best way to sell based on your own personal circumstances. Let’s begin.

      1. The Traditional Property Auction (Including it’s Risks & How to Avoid them)
      2. The Modern Method of Auction (Including it’s Risks & How to Avoid them)
      3. Pro’s of Selling via Auction
      4. Properties Suitable for Auctions
      5. Alternatives to Selling at Auction
      6. A Final Word


1) The Traditional Property Auction (Including it’s Risks & How to Avoid them)


Selling a home at auction the traditional way all seems rosy at first. From face value there don’t seem to many downsides however, once you enter the auction house and your lot appears you’ll soon start to notice things.

It’s true in many cases auctioneers and sometimes even estate agents who advise you to auction your property may not have your best interests at heart. For those who’re looking for quick sale property auctions, selling a house with low fees and costs, or a 100% guaranteed sale then, despite how beautifully house auction sales are dressed up, it might not be the route for you.

However, if you are considering an auction as an option its essential to be aware of the pitfalls ahead.


The 3 risks of selling a house at auction the traditional way


i) Speed of Sale


One of the major reasons for selling a house at auction is that it’s thought to be a fast solution. In reality, this might not be so, due to a variety of reasons:

  • You’ll may have to wait for the auction houses next sale, which might not be for a few weeks or months
  • There’s no guarantee that your house will sell on the day. If this is the case you’ll have to follow a different route of sale or re-auction at a later date.
  • Even with a successful final bid on the day, there’s still a risk that the prospective purchaser might not have the relevant identification documents with them (a rare, but increasingly common scenario that makes the sale null and void). Even if everything goes to plan the typical timescale before completion is around 20-28 days.

ii) Fee’s


Contrary to popular belief, selling at auction is often more expensive than through a traditional estate agent. A typical fee is around 2.5% of the sale price, which might be higher than what can be negotiated with a high street or online agent. Other costs include:

  • Entry fee to the auction, typically between £500-£1,000 (payable even if the house doesn’t reach its reserve). If you re-enter into another sale then the entry fee will have to be paid again
  • Solicitor fees to prepare a legal pack and carry out searches prior to auction day, costing anywhere in the region of £1,500-£2,000
  • In addition, your solicitor will have to attend with you on the day of the sale, meaning you’ll need to pay their associated costs

Fees do vary and it’s well worth talking to a variety of auction houses to determine which is the best for your situation.


iii) An Uncertain Final Sale Price


One of the draws of selling a property at auction is that your house will become the product of a bidding war, with prospective purchasers being caught up in the moment and proffering way over the expected selling price. Whilst this is possible, it certainly isn’t always the case. Once the price reaches the agree reserve the hammer will fall. This can lead to disappointment in the final sale price, especially once the auctioneers fees have been deducted.

In addition, if a property has been on the market for some time, or is proving difficult to sell, unscrupulous auctioneers might persuade you to set a guide price below what you’d accept to entice bidders. Bear in mind that a reserve can only be 10% higher than this, setting the scene for a sale at a price that isn’t acceptable to you, but is legally binding.

Related: Houses Bought for Cash – Differences & Legals you Need to know Before Selling

The best way to avoid these property auction risks is to do your homework before taking the major step of putting your house into auction.

    • Ensure any house auction companies you’re considering are members of NAVA Propertymark. This is a self-regulatory body for auctioneers and valuers, providing much advice on property auctions and helping you find an expert near you, so ensuring the correct valuation of your property and the ability to set a realistic reserve.
    • Check out auction sold prices at Right Move using the tool that allows you to 3
    • Search auctio- only sales in your area. Another great resource is the Essential Information Group, a site that collates virtually every single property auction within the UK.

  • Ensure you’ve been given all the necessary information regarding auction house fees, legalities that are your obligation to pay, timescales (including when the next sale is that your house can be entered in), and, most importantly, that you’re not pressured into setting a reserve price a single penny lower than you’d be happy to receive.

 


2) The Modern Method of Auction (Including it’s Risks & How to Avoid them)


This guide wouldn’t be complete without mentioning an alternative method for auctioning your house, referred to as the Modern Method of Auction. The difference between this and a traditional auction is that contracts aren’t exchanged at the point of a successful bid.

Instead, a reservation fee is paid (varies, but depending on the auction provider tends to be an agreed percentage of the sale price), and then 56 days are given to exchange and complete. Should the buyer pull out, the reservation fee will be forfeited. This tends to be high – a minimum of £5,000 – so the idea is that prospective buyers won’t bid unless they’re serious.

Such a method of sale is fairly new in the UK, and anyone considering this route should be aware of the following:

  • The reservation fee is not paid to you should the buyer pull out. Instead it goes to the auction company and estate agent.
  • Who pays for the legal pack? In such auctions it’s often split between vendor and seller.
  • Although the buyer pays the fees most will work this amount into the highest bid they’re prepared to make. Ultimately, this leads to a lower price for you, even though such sales are marketed as the buyer paying all the fees.
  • The outright winners of such a sales method are undoubtedly the estate agents and online auction providers.

The world of such online auctions is a little murky, to say the least. While one of the leading providers, IAM Sold, paints a very attractive picture of this method of selling, there are many drawbacks. Indeed, the Home Owners Alliance is very concerned about the growing popularity of this method of sale, and appears to be one that the scammers are taking full advantage of.

Nonetheless, the number of properties sold this way is growing, and many high street agents act as the catalyst for sellers to go down this route. While it is a valid option, with mounting concerns from industry bodies and complaints stacking up from dis-satisfied vendors, it’s essential for prospective sellers to ensure they’re aware of the risks of such a method, and carrying out due diligence to ensure they avoid losing out.


The 3 risks of selling a house at auction the modern way


i) Be Prepared for the Buyer to Pull Out


Be sure that you understand the costs to you, as a seller, before you commit. This should include who pays for the legal pack (or the percentage of the split if this is the case), any upfront fees, and the fees that will be paid by the buyer on the final sale price.


ii) Understand the Costs Involved as a Seller


You need to be prepared for the buyer to pull out. If this happens the (usually substantial) fee paid as a deposit is forfeited and usually split between the agent and auction company. You are then left in the situation of having a property to sell, and likely being out of pocket by any entry fee that might’ve already been paid to the auction house.


ii) Work Out a Good Reserve Price


Working out the reserve price (the lowest amount you’ll accept) will need to include the fact that buyers will factor the necessary fees into their bids. So while it looks great on paper that you don’t have to fork out the 1 or 2% fees on the sale price, the end bid is likely to be lower than what you’d achieve in a regular sale.

While many successful sales do take place via the Modern Method of Auction, it pays to do your homework before considering such a method.

 

Be it a traditional or online auction, there are certain types of property that are more suited to going under the hammer than others, something that should be well considered before going down either route.


3) Pro’s of Selling Via Auction


There are many reasons to auction your house. Naturally, those involved in the industry make the process sound extremely appealing.


With a typical post-auction completion date of 28 days, selling via auction can be fairly quick.
No reliance on property chains means the proceeds of the house sale will be available of a pre-determined date.


Should a bidding war take place there’s a chance of a property exceeding the expected price.


Once a sale price is agreed (when the hammer falls) there’s no chance for a buyer to further negotiate the value, as is often the case following house surveys and searches that take place during the traditional sale process.


You’re able to set a reserve price before the auction and this will be the lowest price you’ll accept for the property.

Unlike the traditional sales route, an auction is a public process with full transparency on both sides being a key element. No delays, buyers already have the funds in place, and all viewings and investigations are carried out prior to the auction taking place.
Many buy-to-let investors choose to purchase at auction, meaning you continue to receive your rental income right up until the completion date.



4) Properties Suitable for Auction


Any property can, of course, be sold in this manner. But whether or not you should consider selling your house at auction would depend on the type of house for sale. Examples that successfully receive the expected or greater values than the advertised price include:

  • Those with a short lease
  • A property that has neighbourhood difficulties.
  • A house that will prove difficult for buyers to be granted a mortgage (structural defects, in a known flood zone, without a kitchen or a bathroom, non-standard construction etc.)
  • Homes that need major refurbishment.
  • Properties with redevelopment potential.
  • A house with an adverse history, legal issues or any other reasons why a regular sales route might prove somewhat challenging.
  • Those with tenants in-situ.
  • Investment properties.


  • 5) Alternatives to Selling at Auction


    Selling a property at auction isn’t for everyone. If you go down this route you might want to consider choosing a London property auction house, even if the house is located in a different part of the country. This is because such centrally located operations tend to work in conjunction with regional auctioneers, so ensuring nationwide visibility.

    Of course, if speed of sale really is the essence then the most effective method is via a reputable house buying company, such as HouseBuyers4U, who offer a transparent, 6-step process that typically completes within 2-3 weeks.

    Selling via an auction process can be a viable option in some cases. However, the savvy seller should do their homework and be happy that they understand the process before signing on the dotted line. There’s a reason such an avenue is dominated by professionals in the world of property, and that’s because they understand exactly what’s involved.


    6) A Final Word


    When it comes to the question of, “Should I auction my house?” then there’s no one-size-fits-all answer.

    As we’ve stated in this article there are some types of properties that would thrive in auction but at the same time there are some that won’t sell at all!

    It ultimately comes down to a combination of facts. That said, for us, the key take-away must be the pitfalls and how to avoid not only being disappointed, but losing out on what could be a considerable sum of money if you get it wrong.


    Now it’s your turn – would you prefer to sell your house at auction the old fashioned way or would you prefer the more modern method? Post your thoughts in the comments section below!

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