Property owners choose to sell at auction because it usually results in a faster sale than using an estate agent. Auction sales typically have a much higher chance of success too.
But what types of property are suitable for auction?
Traditionally, auctions were limited to problem properties, commercial premises, and land/development opportunities. Other unusual properties such as pubs, churches, garages and freeholds also performed well.
However, because of the introduction of Online Auctions all types of properties are now suitable for sale by auction.
Online Auctions (also called Modern Auctions) can help sell “normal” houses quickly and for a reasonable price too.
If you’re considering selling your property by auction it’s important to choose the right type of auction and the right auction strategy. This will help you get the best results.
There are 3 main categories of properties that you could auction, and the best approach will differ for each one.
- “Problem Properties”
- “Normal” residential homes
- Commercial premises, or land/development opportunities
Read on to learn the best approach for different types of property
1. “Problem Properties” suitable for sale by auction
What are problem properties?
“Problem Property” describes a house that will struggle to sell because of some difficult or unusual issue with it.
These will either relate to the building itself, or to some legal issue surrounding it. These will often make the property unmortgageable.
The most common examples of “problem properties” suitable for sale by auction are properties with:
- Subsidence and other structural issues,
- Non-standard construction,
- Short leases,
- Japanese knotweed,
- Legal complications,
- Enforcement notices,
- Problem tenants.
This isn’t a complete list though.
- Fire damage,
- Flood damage,
- Roof problems,
- Neighbouring property issues,
- Compulsory purchase orders,
- Heavy development nearby,
- Derelict houses, or properties needing complete renovation.
Why are these types of properties all better suited to sale by auction, rather than a sale with an estate agent?
1.1. Challenges selling “problem properties” with estate agents
Overall, problem properties are quite rare. This means that estate agents will be less familiar with how to sell a property with your particular issue, and they may even end up putting buyers off.
Furthermore, the buyers they typically work with will be less experienced in how to deal with it as well.
If you try to sell a problem property with an estate agent you’ll typically run into three main problems:
- They’ll take longer to sell.
- You’re likely to agree a lower price.
- Your sales are more likely to fall through.
Multiple failed attempts to sell can start making a property look very unattractive. This can result in a much lower price if you eventually do decide to sell at auction.
This is why auction houses tend to advise sellers of "problem properties" to get an auction appraisal before trying to sell with an estate agent.
1.2. Why can auctions be better for “problem properties”?
Auctions can be a better option for problem properties for 3 main reasons:
1. Auctioneer experience levels
Auctioneers spend much more of their time working with problem properties so will have much more experience in how to sell yours.
This will include getting the right kinds of buyers competing against each other to buy your property. More competition between bidders means a better price for you in the end.
2. Buyer experience levels
As we outline later in this article, buyers at auctions tend to be more experienced too. They’ll understand the issues with your property, and know how to proceed. They also tend to buy with cash, so if your property is unmortgageable this will be less of an issue.
3. Binding sales
Finally, you won’t experience the high fall-through rate you may get when selling through an estate agent. This is because auctions are binding from the moment they finish. (Less than 1% of auction sales fall through after they’ve been agreed).
1.3. How to sell “Problem Properties” by auction
There are two main types of property auction:
- “Traditional” auctions, and
- “Modern” auction.
We’ll come back to modern auctions later, but if you have a problem property then Traditional Auction is more likely to be the right fit for you.
Traditional auctions are the ones you’ve seen on Homes Under The Hammer. They work as follows:
- The auction takes place over the span of a few minutes on a set date.
- The highest bidder wins the house.
- The sale legally exchanges immediately, and the buyer pays a 10% deposit.
- They’re required to complete the purchase within 28 days.
Traditional auctions are completely different to how property sales through estate agents work. These differences mean two important things for Traditional Auctions:
- Experienced buyers. Because the immediate exchange is such a big commitment, buyers at traditional auctions tend to be much more experienced. This means they won’t be put off by complicated issues with the property.
- No mortgages. Buyers at traditional auctions tend to be cash buyers, because 28 days isn’t really enough time to arrange a mortgage.
So because the buyers tend to be experienced and buying with cash, selling by traditional auction can be a great fit for problem properties.
According to Auction House, one of the largest property auction companies in the UK:
"Problem properties will often achieve higher sale prices through auction than they will through estate agents".
2. Selling "normal" properties by auction
While we tend to get hung up on thinking about the right types of properties for auction, it’s important to remember that it’s about the types of circumstances too.
Auctions aren’t just a way to offload a tricky property: They offer a quicker, more convenient sale compared with selling through an estate agent.
They also have a much higher level of success, which means greater certainty and peace-of-mind for you.
This means auction can be a good option if you’re in one of these situations:
- Inheriting a property or going through probate.
- Going through a divorce or separation.
- Have financial difficulties or outstanding debts.
- Buy-to-Let investors with problem tenants.
- People emigrating or relocating.
2.1. Modern Auction: A mainstream alternative to estate agents
The growth of Online Auctions (also called Modern Method of Auction) helps more people access the benefits auctions offer, such as speed, ease and certainty.
Modern auctions are open to any kinds of buyers too – not just experienced cash buyers. They’re much more mainstream because people can purchase with a mortgage, and this means they tend to achieve higher prices as well.
Modern Auction could be the right option for you if you don’t have a “problem property” or a “development opportunity” on your hands, but do have a reason for wanting to sell quickly.
3. Non-residential properties suitable for sale by auction
Non-residential properties are any property that you’re not selling for someone to live in.
Selling these types of properties at auction can be a good idea as buyers there tend to be more professional and experienced. Auctions attract developers who look for these types of opportunities.
These properties typically include:
- Types of commercial properties including retail outlets, leisure, offices, and industrial units,
- Land or development sites,
- Freeholds & ground rents,
- Unique properties such as old pubs, church, police stations and nursing homes,
- Homes needing intensive redevelopment,
- Homes with space to build new houses.
However, this still isn’t an exhaustive list of properties suitable for auction. Auction House outline several further types of properties suitable for sale by auction:
- Ground rents,
- Beach huts,
- Mooring rights,
- Amenity ground.
3.1. What’s the best way to sell these types of properties?
We’ve included a very broad range here, from industrial units all the way to beach huts. The best approach will vary drastically between different types. However, they can all perform well at auction.
Reach out to us for free specialist advice, and we can help put you in touch for the right auctioneer for your situation.
In the past, auctions were more limited in the types of property that were suitable for them. They performed best with problem properties, commercial/development opportunities and so on.
However, with the growth of the Modern Method of Auction, the real answer is that any type of property can be suitable for auction. This is because modern auctions allow ordinary mortgage buyers to take part as well.
Regardless of whether you have a problem property, a normal home, or a commercial unit, auctions can be a viable option.
We’ll be following up soon with an in-depth guide on how to sell your home by auction. In the mean time, reach out to us today for free advice and guidance. We're ready to chat, on 0330 223 5568.
By Matthew Cooper, Founder of Home Selling Expert