Auction Case Study: Finding out your property has subsidence… When you're 9,000 miles away

Overview

• House sale fell through due to suspected subsidence
• Structural reports confirmed it
• Seller lives in Australia, so couldn’t carry out the remedial works
• She contacted us about house buying services
• We ended up suggesting auction as a better option
• We connected her with the best auction house for her situation and…
• She sold FOR £62,000 MORE than the “home buyer” option

1. Calling for advice

A couple of months ago I received an enquiry from Sian. Oddly, her number started with +61 which, as it turns it, is the dialling code for Australia.

Sian had a property back in Cheshire though. It was her old family home, and she’d put a tenant in place when she emigrated in 2019.

Earlier this year she decided to sell the property, and that’s where she ran into issues.

1.1. Sale fallen through due to subsidence

Things with the sale started well. Sian quickly agreed a sale for £320,000 with a first time buyer. But then the problems started.

The buyer's mortgage survey came back saying there could be a problem with subsidence:

• Since she left the UK in 2019, it seemed the property had sunk slightly.
• The living room door no longer fit within the frame properly.
• And the floors were slightly uneven.

Sian was waiting on a structural engineer's report which would confirm the situation, but she was expecting the worst.

She reached out for advice, and to see if she could sell directly to a house buying company.

1.2. How house buying companies work (and why they're not a good option here)

For house buying companies the business model is about buying properties at about 80-85% of market value. The company then tries to sell them for 100% of the market value to make a profit.

If that 15-20% drop seems like a lot, it's because there are a lot of costs to cover in a business like this. That's why no genuine house buying company is really able to pay any more than 80-85% of the market value.

For some home sellers, they may decide that a discount like that is worth taking for the quicker and more convenient sale.

But the issue in a situation like Sian's is that there's a "double-whammy" effect: 

• The subsidence is devaluing the property - perhaps by as much as 30%.
• A house buying company then needs to buy for 15-20% less than that.
• This can result in a really really low offer. Hence the "double whammy".

I discussed this with Sian, and suggested that a better way to sell would be via auction.

1.3. Why choose auction for this situation?

This is the perfect type of property suited to auctions. You'll have an audience of experienced buyers who: 

• Will be ready to take on a project like this,
• Won't be put off by the issues,
• Will have cash or auction/bridging finance (because this won't get a normal mortgage).

Auctions have a few other benefits over selling to a house buying company, or selling with an estate agency too:

Speed

Although it might not be done as quickly, auctions are still fast. (They can be done in as little as 8 weeks from start to finish).

Selling is also a much faster option than repairing subsidence.

Related: How long does it take to fix subsidence?

A more likely sale

And although auctions aren't as certain as selling directly to a professional buyer, they're still pretty certain. According to data from EIG (the industry standard for property auction data), over the preceding 12 months around 78% of properties that went to auction sold successfully.

By comparison, only around 51% of properties listed with an estate agent sell successfully.

Fewer fall-throughs

Furthermore, somewhere between 25-40% of sales agreed through an estate agent fall through! Sian's was likely to be at the upper end of that band too, because of the problems with the house.

By comparison, less than 1% of auction sales fall through after they've been agreed. (This is because auctions are legally binding, and the buyer pays a hefty deposit upfront).

Auctions have a few other benefits too. Check them out at the link below.

Related: 17 Benefits of selling your house at auction

1.4. Auction appraisal

We went away to get an auction appraisal for Sian. We went to the company we thought was the best auction house for her situation: We contacted Martin Bond - one of the most experienced auctioneers in the country, and head of Martin Bond Auctions.

Martin's team conducted a valuation on the property and came back with an auction appraisal. Because the results of the structural survey weren't in yet, there was a bit of a range on the valuation: It depended on the survey results.

Eventually the survey results came in, and the auction valuation was confirmed at £250,000.

This was based on:

1. The normal value of the property (ignoring any issues),
2. The extent of the subsidence problem,
3. And on the assumption that an insurance claim could be passed on to the new buyer.

We passed Sian on to the auction house so she could learn more about the process, work through the specifics, and decide if an auction sale was right for her.

1.5. Subsidence and Insurance (some policies are transferrable)

If you sell a property with subsidence then buyers have to budget for covering the costs of remedial works. For example, if it's going to cost them £20,000 for the job, that's £20,000 less that they can offer.

But your insurance can help out here in some instances, even if you're selling the property right away. Here's how:

If you get your claim approved by the insurer and then get their authority to transfer that claim, your buyer will be spared the costs of the remedial works. This means they can offer a higher price - meaning more cash for you.

Sian worked with her insurance company, and managed to quickly get confirmation both that a claim would be covered, and that it was transferrable.

2. Preparing the listing

2.1. Setting the reserve price (Leap of faith)

There are two main different approaches you can take when it comes to pricing a property for auction:

1. You can set a high reserve price (the optimistic price you really want for the property).
2. Or you can set a low reserve price (the pessimistic price you really need for the property).

Each has its pros and cons.

Setting a high reserve price (pros and cons)

Setting a higher reserve price can feel safer. After all, if you don't end up with a great offer that you're happy with, the property simply doesn't sell. You can then have another go at selling afterwards.

But the downside is that a higher reserve price means a higher guide price (the price the property is advertised at). A more expensive property is just less appealing to buyers, which means you'll get less interest.

So a higher reserve price results in less competition between buyers, and ultimately it can lead to a lower selling price.

Related: What happens if there's only one bidder at a property auction?

Setting a low reserve price (pros and cons)

The alternative is setting a low reserve price. This can certainly feel riskier. After all, if any bid exceeds the reserve price, your property sells for whatever the bid was. So you really might end up selling for that price - even if it's super low.

But the upside of this is that a really low price attracts lots of interest. This leads to more competition between buyers and can ultimately lead to a higher selling price on auction day.

In the end, Sian decided to take the leap of faith and set a LOW reserve price. She'd just had a sale going through at £320,000. The new valuation was £250,000 in light of the subsidence, but she trusted the process and set her reserve below this at £200,000.

Related: Do houses sell for less at auction?

2.2. Other auction preparations

While Sian got her insurance claim in place, Martin's team photographed the property and got the legal pack in place with the solicitors. Within a month, the listing went live.

2.3. Marketing begins (online auction)

The listing went live in an online auction. The property was available for 28 days, and bidding would then take place online for one hour on the final auction day.

3. Auction Day

Eventually, the process culminated in auction day.

Here's how this auction works: 

• It's a type of modern auction.
• Bidding is all online and done remotely. (Offr is the platform behind the scenes that takes care of the logistics).
• Bidding opens at 1pm.
• It then runs for 1 hour...
• But every bid in the closing moments extends the clock by 30 seconds. (Meaning the auction goes into "overtime" if people keep bidding).

Bidding started slowly. The first bid came in at 1.01pm at the guide price. It was beaten shortly afterwards, but the price didn't change much for most of the hour.

In fact, 2 minutes before the auction closed the price was still only at £190,000.

Finally, with only seconds left, the reserve was met with a £200,000 bid at 1.59pm.

But then it took off. Bids kept going, and going, and going as each bid extended the clock slightly.

All in all, the bidders drove the price up by £52,000 IN 3 MINUTES!

Eventually the price settled at £252,000. The timer ran out, and the bidder got his new property.

Here's the bidding timeline: 

Summary

It was an incredible result. Sian got her reserve price, with an incredible £52,000 on top.

Although it finished around 2pm in the UK, it was after 11pm in Australia where Sian was watching. Martin spoke with her moments after. I think she was struggling to get her words out, but thanked Martin for all his help.

Back in the UK, the buyer paid his deposit, and completion will follow shortly.

Sian got a great price for the property considering the issues, and as importantly the process was easy. This was crucial for her, being so far away.

I spoke with her the next day. My favourite quote from the conversation:

Here are the key points, and what made this work: 

• Sian had the right auctioneer for the property. Going to smaller boutique auction houses can lead to a much higher level of service than the big corporates. This can be really beneficial, especially for complicated cases like this. With Sian being abroad, having extra help getting everything set up for the auction was a huge stress-reducer.
• She followed their advice. Sian secured the insurance claim to pass on, and followed the auctioneers advice on pricing. It's a huge leap of faith and does come with its risks. This means it isn't right for everyone, and it may not work out every time. But the low starting price led to a bidding war between three buyers - and an extra £52,000 on top of the reserve.