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.
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.
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:
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:
Fees do vary and it’s well worth talking to a variety of auction houses to determine which is the best for your situation.
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.
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.
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 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.
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.
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.
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.
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.
There are many reasons to auction your house. Naturally, those involved in the industry make the process sound extremely appealing.
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:
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.
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.