Property auctions are growing in popularity because they cut out a lot of the waiting and frustration that we associate with a “traditional” sale through an estate agent. But what are the downsides?
The one that we tend to think about first is the price achieved. Do houses sell for less at auction?
Houses sold at auction tend to achieve much higher prices now than they used to. They can sell for as little as 70% of their market value, but can sell for as much as 10% more than market value. The average is about 85-90%.
The price depends on the auction process and the auction house the seller chooses, as well as a little bit of luck.
To cut right to the chase and find out whether selling by auction is a good fit for you, use this free online quiz I've developed for you:
There are some important things a seller can do to improve their chance of getting a high price when selling by auction, and steps a buyer can take to avoid overpaying:
- For buyers, it’s crucial to do some in-depth research before the auction, and to set your limits.
- For sellers, it’s important you choose the correct auction process and the right auctioneer for your property. These will help stack the odds in your favour and make it more likely you’ll achieve a high price.
Read on to learn how to maximise your sale price if you're selling, and try to minimise the price you pay if you're buying.
1. Tips for Sellers: How to maximise your auction sale price
Anyone selling a property wants to get the best price they can for it.
However, as an auction seller you should expect to make a slight compromise on the price. For many sellers, the compromise is certainly worth it.
Auction sales offer you a quicker and more certain sale compared with selling through an estate agent. You can have the property off your plate (and have your money out of it) quickly and easily.
Recommended: Which types of property are suitable for auction? (and which method of auction is the best fit for your property)
There are still things a home seller can do to stack the odds in their favour though. The exact price a property ends up selling for at auction will depend on 3 key factors:
- The auction process chosen.
- The auctioneer chosen.
- A little bit of luck (unfortunately this one is inescapable!).
The right auction process and best auctioneer will depend on the property you’re selling, its condition, and its location.
1.1. Choose the right auction process: Traditional or Modern Method?
Ten or fifteen years ago, selling a house by auction was mostly about selling run-down houses to builders and property developers.
Sellers would often take a major hit selling this way, and the buyers would grab a bargain. Although this pre-conception still exists today, things have actually changed a lot.
Property portals vs Auction catalogues
Marketing has been a major factor this change. Before the online property portals, auction properties were marketed only in auction catalogues.
Because coverage was quite poor auctions attracted fewer buyers. Fewer buyers meant less competition, and ultimately a lower price.
Now though, auction properties are widely advertised on the major portals like Rightmove and Zoopla. This means auction properties have as much marketing coverage as any other property being sold. More eyeballs means more buyers, more competition, and higher sale prices at auction.
This has helped shift auctions away from being a way to sell “cheap and fast”, to actually getting more competitive sale prices.
Modern Auction vs Traditional Auctions
The second major change is the introduction of the Modern Method of Auction (MMoA).
With “traditional” auctions, buyers have to attend a live auction event. Many buyers found this intimidating and were put off from taking part.
Modern Auctions, on the other hand, run for 21-28 days and potential buyers can bid online or over the phone at any time. In that respect, submitting a bid on an auction property is now no different to submitting an offer to an estate agent.
Secondly, properties sold via MMoA are open to mortgage buyers now too. This has expanded the number of potential buyers drastically, increasing the sale prices.
This means it’s now easy for an ordinary first-time-buyer or a family to take part in property auctions. They can stumble across listings through Rightmove or Zoopla, then easily register and submit bids. If successful, they can finance their purchase with a mortgage.
In short, the introduction of the modern method of auction is probably the major reason that auction sales are “going mainstream”.
Should I choose Traditional Auction or Modern Auction?
As a general rule, if you’re selling a “normal” house with no major defects or legal issues, then a modern auction is usually the best bet. You’ll have more potential buyers, meaning a higher price.
There are a few major national auction houses who offer the modern method of auction. From speaking with some of their senior people directly, they tend to think they achieve around 85-90% of market value for a property selling this way.
On the other hand, if your property has a major defect or a complicated legal issue then you may be better off selling in a traditional auction.
- Firstly, you won’t be able to sell to a mortgage buyer anyway, so one of the major appeals of the modern auction is gone.
- Secondly, traditional in-person auctions can give you the chance of getting a really good price. Buyers are more likely get carried away in the auction room and pay more than they first intended.
I've designed this short quiz to help you find whether or not auction's a good fit for you and your property, and which type of auction to go for. Click below to take the free quiz now!
Ultimately, your auctioneer is there to help you make the right decision. Auction House, a NAVA and NAEA-registered auctioneer with PropertyMark.co.uk and one of the largest UK auction houses, advise customers as follows:
1.2. Choose the right auction house
Choosing the right auction house is the 2nd major factor in determining the price an auction property will eventually sell for.
There are 3 main ways they have an impact:
- Lists of registered buyers. Different auctions will tend to have a long list of active buyers concentrated in certain locations. Picking the right auction house for your home sale can unlock these buyers and give you a great head start.
- Quality of marketing. Some auction houses are better than others at bringing new buyers into the picture. High quality photography, floor plans and video walk-throughs can mean more buyers.
- Efficiency & negotiating skill. The quality of the auction house’s customer service is also important. The easier it is for buyers to schedule viewings and submit offers, the more you’ll have. Great sales people can literally secure £000s extra too by successfully drawing higher offers from people.
So getting the right auction house is crucial to a successful auction sale. The best auction house for you will depend on your location, circumstance, property type and more.
I can save you a lot of the time and guesswork involved in shopping around... take my free home-selling quiz to see if auction's the right option for you. If it is, you can get a free consultation and valuation from my #1 Leading Auction House in your area.
1.3. Luck: Stack the auction-selling odds in your favour
Finally, there’s no escaping it, but luck plays a bit of a factor too.
If you leave your house on the market for 6-9 months with an estate agent, eventually you’ll find that buyer who’s willing to pay the very highest price.
When you sell by auction in 28 days, that person just might not be in the market right now.
On the other hand, auctions are notoriously good because they’re auctions.
The key features of an auction are the low “guide price”, the competitive bidding process and the fixed time limit.
These have been proven time and time again to successfully pull higher offers out of people. This can often be even more than they may have originally been willing to pay.
This is why luck plays such a major factor in auctions. It only takes one or two bidders to get carried away in the heat of the moment. If this happens, properties can sell for more than they’d get after a year on market with an estate agent.
While you can’t “control” luck, choosing the right auction process and best auction house certainly stacks the odds in your favour.
1.4. Set an auction reserve price you're happy with
Just remember that you have the reserve price to protect you from selling for less than you wanted to. Set the reserve price at the minimum you’d be happy selling for, and you know you’ll come out with a price that you’re happy with.
A lower reserve price means your auction house can set a lower guide price. (A guide price is essentially the listing price and the "starting bid" for an auction property). This can lead to more interest, meaning more competition between bidders. Ultimately this can result in a higher selling price - but it is a risk.
Setting the right guide price and reserve price is an art in itself. Start your auction journey by taking our free quiz: If auction's a good fit for you and your property I'll connect you with our leading auction house in your area. They'll carry out a free auction valuation for you, and talk you through auction pricing.
2. Tips for Buyers: How to avoid overpaying at auction
Just as every home seller wants the highest price possible, every buyer wants the lowest one.
As we’ve established, while some properties can sell for more than the market value at auction, they can also sell for much less. This means auctions can be full of great opportunities for buyers.
However, as a buyer it’s important for buyers to remember this:
There are three major steps buyers need to take to avoid overpaying.
2.1. Do your valuation before and set your limit
Before the auction, carry out your valuation to work out what you think the property is worth. Once you know what the property is worth, establish the highest price you’d be willing to pay for it.
After that, the advice is simple. Don’t offer more than that figure. This is one of the most costly mistakes that buyers make at auction!
2.2. Do your research on the auction house and auction process
Each auction house works differently. The process will be different, and the fees and contract terms can be different too.
We've covered lots of these differences in our auction house comparison tool. Click into an auction house and browse through to the "fees" and "how they work" section for each auction house. There's some really useful information here that we've uncovered for you!
(Just remember that auction houses can make changes over time. We always try and keep our info up to date, but check all the auction house paperwork yourself as well).
2.3. Don’t let “fear-of-missing-out” or ego interfere
Why do buyers end up over-paying in the first place? It’s typically for one of two reasons.
“Fear of missing out” can lead buyers to pay more than they intended. When you’re outbid, it’s easy to think “If someone else thinks it’s worth this much, then it must be! I don’t want to miss out for the sake of another couple of thousand pounds!”.
Remember your valuation work though. You’ve established what you’re willing to pay for it. Don’t second-guess yourself in the moment or you may end up regretting it.
Ego interferes as well. Remember, an auction isn’t a competition between you and the other bidders. It’s a competition to secure the property at a price you’re happy with. If the price exceeds that amount, then don’t buy it! Not bidding is the way to secure a “win” in that instance.
Allowing ego to drive you beyond your ceiling price is a loss, not a win!
While it is possible for properties to sell for more than their market value at auction, on average they sell for between 10-15% less.
So why would a home seller choose auction?
Because it offers a faster and more convenient way to sell, with a much higher level of certainty. In many circumstances this trade-off is well worth the money.
I've designed this free quiz to help you find out if auction's a good fit for you or not. Click below to take the free quiz:
Why would a home buyer choose auction?
Buying at auction can offer a great opportunity to pick up a property at a lower price. Just be aware that auctions can attract “problem properties” – so make sure you get a solicitor to do due diligence before you bid. It’s also worth considering having a survey.
If your due diligence is all clear and you decide to bid, then just be careful not to overpay!
By Matthew Cooper, Co-Founder of Home Selling Expert