When you sell a house at auction the hope is that you’re going to have lots of people interested.
The idea is that you set a low guide price to tempt people in. The auctioneer starts the bid at this low price, and then… Blast off! All these bidders compete for your property, and the competition forces them to place ever higher bids until, eventually, you end up with a great price for your property.
But… What happens when things don't go to plan? What happens if there’s only one bidder at an auction?
Your house may still sell, but it’ll only reach the reserve price at best. If there’s only one bidder then the auctioneer is allowed to “run them up” to the reserve price, by bidding against them. However, if their highest bid is still lower than the reserve price then the property will not sell.
It’s a strange auction rule, and sounds surprising. (As a bidder, you expect to compete against other bidders – not the auctioneer themselves!).
Even if the sole bidder's top price falls short of the reserve there may still be a chance to tie up a post-auction sale - so don't give up yet.
1. Property Auctions with a sole bidder
So the auctioneer can bid against buyers?
It sounds surprising, but it's true. Remember, the aim of the auctioneer is to get the property sold. In order to sell, a property needs to meet the reserve price. But to meet the reserve price, the bid needs to climb from the starting price (also know as the guide price).
But what happens if there's no one to bid against someone to drive the price from the starting bid, to the reserve price? The current bid would simply sit at the starting price, and the hammer would eventually come down at that price.
The sole bidder would have won the auction, but it wouldn't have been enough to actually win the property! (Because they're still short of the reserve price).
This is no good for anyone:
- The buyer loses out. Perhaps they were actually prepared to pay more for the property, but simply didn't have the opportunity to bid higher because they already had the top bid.
- The seller loses out. Maybe they had a buyer prepared to pay their reserve price, but the property remained unsold.
It just doesn't make sense. So as a solution, the auctioneer is allowed to "bid against" a sole bidder up to but not including the reserve price.
1.1. Taking "bids off the wall"
This is often called "running the buyer up" to the reserve price, or "taking bids off the wall", or "puffing".
It sounds a bit dodgy when you first hear it, but it's completely legal - as per Auctions (Bidding Agreements) Act. In fact, as you can see from the example above, it's actually in the interest of all parties for the auctioneer to do this.
EIG are the industry standard for property auction information, and explain the practice nicely in their glossary:
"If an auctioneer is auctioning a lot but the level of bidding has not reached the reserve price, the auctioneer is permitted by statue to bid on behalf of the vendor, also known as "off the wall".
This bidding pattern can then continue... up to but not including the reserve price"
- EIG definition of "off the wall" bidding
Gov.uk confirm the same: They say "the auctioneer’s role is to act as an agent for each seller". The auctioneer is there to try and sell the property for the owner. If the property doesn't meet its reserve, they've failed to do that. So they're allowed to "run the buyer up" to the reserve price.
1.2. How do you know if the auctioneer is bidding?
Benjamin Tobin was the Chairman of Strettons Auctions for 40 years. He's one of the most experienced auctioneers in the country, and still works as a consultant. In an interview with Bridging And Commercial he outlined some clues as to whether or not the auctioneer was bidding. Quoting from that interview:
Unfortunately, all these signs come after the auction has ended. This means it's difficult to know at the time whether you're bidding against a real buyer, or being run up by the auctioneer.
If can be helpful if you can tell the difference during the auction though. Look around the room and see if there are obviously other buyers making obvious bids. Remember to check any auction staff who are fielding telephone bids too.
If you can't see anyone bidding, you may be the only bidder, and the auctioneer may be trying to run you up to the reserve price.
1.3. What to do if you suspect "bids off the wall"
As we've covered, the auctioneer isn't doing anything wrong by taking bids off the wall. To quote Benjamin Tobin again, "the law recognises that it is a necessary part of the auction process and thus regulates, rather than prohibits it".
But being able to know the different may help you get a better deal in the long run.
If you suspect bids being taken off the wall, you have two options:
- You let the auctioneer "run you up" to the reserve price, and you win the auction, or
- You stop bidding, and try to secure the property in a post-auction sale. You may secure the property at a lower price this way. More on post-auction sales later.
1.4. Is being a sole bidder a good or a bad thing?
If you're the only one bidding, it can be a good or a bad thing. It could mean:
- You're on to a great deal because you've got no competition!
- OR... Other potential bidders have seen something you've missed.
Assuming you've done your due diligence (such as having a pre-auction report done by a solicitor, and having a building survey) and no issues came up, then you could be on to a great deal.
1.5. What happens if the auctioneer actually wins the auction?
If there's only one bidder and the auctioneer is bidding against them to "run them up" to the reserve price, what happens if the sole bidder stops bidding?
The auctioneer would actually be the highest bidder, and would win the auction!
When this happens the property has simply failed to sell because it hasn't met its reserve. The buyer knows they've missed out, and the seller knows it's fallen short of their bottom price. At this point the auction house will begin trying to tie up a post-auction sale.
They may speak with the sole bidder and see if they can encourage another increase. They'll also speak with the seller to see if they'll reduce their reserve price. If a deal is tied up in a post-auction sale it can still be under auction conditions.
If a post-auction sale can't be tied up, then the property remains unsold. This happens to around 21.7% of properties that go to auction.
If you're selling a house at auction, then only having one buyer is a bit of a disappointment. The auctioneer will still do their best to get the bidder to your reserve price though by "running them up" towards it.
If you're the sole bidder for a property, it could be a blessing or a curse. You may be on to an opportunity that others have missed... Or you may have missed something the scared off the other buyers.
This is another reason it's crucial to always do your due diligence before buying at auction.
By Matthew Cooper, Founder of Home Selling Expert