Selling a house at auction

There are loads of articles online discussing how to sell a house at auction. But there are very few that will tell you whether or not you actually should.

Selling a house at auction might be perfect for you, but if you’re not in a rush to sell, you could get a lot more by being patient and selling through an estate agent on the open market. Similarly, if speed is of the essence, say to avoid repossession, to get moving sooner, or just to get your hands on that inheritance, then you could get almost as much as you would at auction, but a great deal quicker, by using a cash buyer.

In this article, we’ll lay out the pros and cons of selling your house at auction and see how they compare to your other options. It might not be as detailed as some other pieces, but it will make a lot more sense, and it will help you to make the best choice for you and your property.

What’s the appeal of property auctions?

With the housing market grinding to a halt at the moment, and properties taking months to shift, many frustrated sellers are switching to selling homes at auction. Auctions are growing in both popularity and credibility these days. No longer the last resort of un-mortgageable or un-liveable homes, they’re now a lively marketplace for properties of all shapes and sizes.

Selling your house at auction can be a fast, thrilling and more importantly, reliable way to sell. Auction your house and you’ll get a guaranteed buyer who’s locked into the sale and can’t back out or try to screw you over at the eleventh hour. There’s no last-minute gazundering, no failed chains, and no changing their mind after seeing a survey. Just a legally binding sale that is guaranteed to complete in 28-56 days.

Sounds great doesn’t it? Well, before you start binge-watching Homes Under the Hammer, there’s a few things you need to think about, not least of which is the costs.

How much you could get selling your house at auction

Think ‘auction’ and you inevitably think ‘bargain’. No one expects to pay full price for anything at auction, whether it’s a Blu Ray on eBay or a four-bedroom home. So you need to be realistic from the off about the potential price you’ll get when you sell your property at auction.

Like an estate agent trying to get your business, many auction houses will claim they can get full market value for your home, or perhaps more. In some cases, this is true, and you could get lucky. We’ve all been there on eBay, carried away in the closing minutes, desperate to beat our rivals and determined not to leave empty handed. It’s very easy to get carried away at a property auction and bid more than you wanted to. If this happens with your home, you’ll be quids in.

The problem is that there are no guarantees, and selling at or around the market value is rare. There could be no one in the room who wants your home, or just one sole bidder who gets a bargain. You can set a minimum sale price, called a reserve, but beyond this, there’s no way of knowing how much you’ll get. On average, selling your house at auction will get you around 85%-90% of the price you’d get from an open market sale and often the guide price, which is the price that the property is listed at will be lower than this to attract bidders. And remember, there are a host of additional costs on top of that.

How does selling a house at auction work?

Before we get into the costs of selling your house at auction, you need to understand how the auction process works. If I’m thinking about auctioning my house, I have two choices: traditional auctions and the modern method of auction. Each has its benefits and drawbacks, so let’s look at them both in detail:

Traditional auctions

When you think about selling at auction this is what you are probably thinking of, this is old-style auctioneering, where everyone gathers together in a room on the day. Although these days most rooms are virtual as the majority of property auctions have moved to online property auctions, opening up the bidding to a wider audience, and the best bid when the hammer falls wins. It’s quick, it’s clinical and it’s very intense! This type of auction mainly attracts investors and developers, and is best suited to properties with problems, although any type of property can be sold.

Traditional auctions are fast and furious, with contracts exchanged the same day. They’re reliable too, with buyers paying a 10% deposit, which is forfeit if they don’t complete the sale making fall throughs very unlikely. The downside of this speed is that it doesn’t leave enough time for a mortgage application, so your audience will be limited to cash buyers or those using bridging finance. You also run the risk that you property may not sell if there are no interested bidders on the day.

Pros of a traditional auction:

Fast sale on the day
Buyer legally and financially tied into the sale
Live competition can drive up bids
Exchange on the day, complete in 28 days

Cons of a traditional auction:

Only gets bids for a few minutes
Mainly attracts cash buyers
Properties tend to sell for less
You could wait weeks for the next auction

The modern method of auction

Everything is online these days and selling your house at auction is no different. With the modern method of auction your property is listed immediately, and bids are taken over the course of a month or so. This gives potential buyers the chance to view your home, and arrange a mortgage, broadening your buyer base. When the auction is finished, the winning bidder pays a reservation fee and has 28 days to exchange contracts and a further 28 days to complete.

Pros of a modern auction:

Appeals to a wider audience, including mortgage buyers
Buyers can bid from home, when it suits them
More time to market your property
Immediate listing without waiting for the next auction

Cons of a modern auction:

Bids are more considered and less impulsive
Slower sale than a traditional auction
Multiple viewers before and during the auction
High entry fees for the auction

The biggest downside to both traditional and modern auctions, is that you will probably get around 10%-15% less for your home, but without the benefit of a quick sale. Even a traditional auction can take several months by the time you’ve waited for the next auction to roll around so if you need to sell a property on a strict timeline it is worth checking when the next auction date is in your area. If it is too far away you might need to look at other options such as house buying companies.

Cost of Selling a house at auction – what are auction fees?

Unlike selling your house to a cash buyer, where there are no costs at all, selling your house at auction comes with a number of added extras. These are about the same as they are for an estate agent sale, and include:

Commission of 2% to 3% plus VAT
Catalogue fee of £200-£500 for traditional auctions
Entry fee of around £1000 for modern auction
Legal pack £300-£800

Some auction houses offer 0% commission on property sales, but don’t be fooled! The auction house aren’t just being generous, they’re passing on the fees to the buyer instead. If the buyer knows this, they’ll simply bid less to allow for the extra costs, so you end up getting about the same.

Is selling my house at auction a good idea?

At the end of the day, you need to consider what’s most important for you when it comes to selling your home. Do you want a quick and easy sale, or do you want the best possible price for your home? Selling your house at auction is not exactly the best of both worlds, but it could be the best compromise between the two.

There’s no denying that auctions deliver faster, and more certain, sales than using an estate agent, especially in the current market. However, you’ll probably get much less for your home. On the other hand, selling your house at auction will give you a little more for your property than you’d get from a cash home buyer, but your sale will take significantly longer and cost you more in fees and commission. Selling your house to a cash buyer costs nothing and could still net you up to 85% of the market value.

How to sell a house at auction

Selling your house at auction is a similar process to selling with an estate agent, first things first you need to choose the right auction house to go with.

1) Choose an auction house

There are many factors worth considering when deciding on which auction house to sell your property. They include;

Specialisation and Experience

The type of Property that you are looking to sell is a key factor when it comes to making your choice, ensure that the auction house has experience and a good track record of selling properties similar to yours, whether it’s residential, commercial, or land. Certain auction houses will specialise in certain areas and it is important to make sure that you are choosing one with a solid track record in selling your property type.

Local market knowledge can be another key factor when it comes to choosing an auction house. You want to pick one with expertise in your property’s location, strong local market knowledge will make for a more accurate valuation of the property and better marketing geared to your target audience.

Sales Success Rate

You can investigate the auction house’s success rate in selling properties at auction. A high success rate indicates a strong ability to attract serious buyers and achieve sales. With a bit of digging you can find websites that offer up a range of statistics on which auction houses are performing the best at any given moment, sales rates can vary and are generally between 70% – 90% depending on the type of auction, if the auction house you are looking at has a bad track record of sales it’s probably not worth going any further.

Marketing and Exposure

Ask about the auction house’s marketing strategy and how they plan to promote your property to potential buyers, ask them how many buyers they have signed up and what the average number of buyers per auction is you can also consider the auction house’s reach, including online presence, database of potential buyers, and advertising channels they use. A good auction house will happily answer any questions you have about this.

Fees and Costs

Seller’s Fees will vary from auction house to auction house so you need to understand all the fees you will be responsible for, including entry fees, commission rates, and any additional costs such as catalogue fees and legal packs. It’s worth bearing in mind that the cheapest option isn’t always the best option however.

Client Testimonials and reviews

Look for reviews, testimonials, or case studies from previous clients to gauge their satisfaction and the auction house’s reputation, too many bad experiences and it is worth looking elsewhere.

Personal Rapport & communication skills

Having a good working relationship with the auction house team can make the selling process smoother and can ensure that you get the most money for your property, choose a team you feel comfortable and confident working with, make sure that they respond to any queries promptly and that you feel they have good communication there is nothing worse than having to chase for updates or being left in the dark about what is happening.

2) Valuation

Once you have chosen the right company they will then give you an appraisal on your property to determine its value. Once they have discussed the valuation with you a reserve price can be decided upon. A reserve price is the minimum price that you would want to walk away with and if the bids don’t reach that amount then the property will go unsold. Not everyone chooses to set a reserve price but you do run the risk of someone bagging a bargain and walking away with well below the market value of your property. However a high reserve price can put potential buyers off and the more interested buyers you have the greater the chances of a bidding war ensuing leading to you receiving a premium for your house.

Once the valuation and possible reserve price have been decided upon you will sign an agreement with the auction house tying you to their terms and conditions.

3) Legal Pack

You will need to get a legal pack prepared, the auction house will often help you with this. The legal pack is a set of documents that can be viewed by any potential buyer so they know what they are well informed about the property they are considering bidding on. It also contains a lot of the information required during the conveyancing process which is essential for the fast transaction that an auction provides. This information includes;

Special Conditions: A set of standard conditions that lay out how the property is to be sold, it will state for example if a property is to be sold with vacant possession or occupied in the case of a tenanted property. It will also state the timeline for the sale and the costs involved in the purchasing process.
The title deeds of the property
Land Registry Title Plan: this will show the registered boundary of the property.
Conveyancing Searches: this includes information such as local authority searches, water and drainage searches an environmental report and potentially a coal mining report.
Energy Performance Certificate (EPC)
Replies to Enquiries: this includes forms that the seller has to fill out such as the property information form and the fixtures and content form.
Leasehold Information Form: additional information required when selling a leasehold property.

4) Marketing and Viewings

The auction house will then market your property which will likely include listings on their website, in an auction catalogue and advertising the property online and to their existing buyer database.

The auction house will also arrange viewings for potential buyers so they can inspect the property before the auction date.

5) The Auction

On the day of the auction the listed properties will be sold, usually in order, bidders will have to be pre-registered with proof that they are in a position to buy. Each property will have a certain amount of time where bidders can battle it out and place bids on the property. If your house reaches it’s reserve price by the time the bidding timer ends you have sold your property.

The buyer will then have a set time frame to make the purchase, this generally involves paying a deposit of around 10% of the sale price on the day of the purchase and then they will have 28 days to complete the transaction.

Summary

Auctions can be a great way to get rid of an unwanted or hard to sell property relatively quickly of course there are drawbacks, the big one being the uncertainty around what price you will actually achieve for the property as this depends on there being demand by bidders on the day.

Another drawback is that there are a certain amount of upfront costs and fees that need to be paid to the auction house and various third parties which further reduce the final sum of money that you will get after, and if, the property is sold.

The alternative to selling at auction is to sell to a cash buying company, these companies offer a house buying service that guarantees you a fast house sale at a pre agreed price, eliminating the uncertainty of the auction and sales can usually be completed in just a few weeks meaning that it is often a quicker route to sale.

Of course there are drawbacks to this as well, one being the price you will achieve will never be more than 80% of the full market value of the property. Another drawback is that there are certain rogue operators that will offer you more to lure you in only to drag the sale out and significantly reduce their offer later.

Luckily you can avoid the rogue operators and get an idea of what you could achieve for your property from both a cash buying company and at auction by using our matching service.

You just need to answer a few simple questions about your property and the circumstances of the sale and we will give you an estimate of what you are likely to achieve via the different routes, if you decide that a particular option is right for you then we can match you to one of our vetted and approved companies who will take care of the rest, giving you the peace of mind that your house sale is taken care of.

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