When we think about selling a house we think about selling through an estate agent. But not all properties are sold this way. About 2.3% sell via auction instead. Why do these houses go to auction?
Property auctions offer a faster way of selling houses. The auction process also removes a lot of the uncertainty that comes with estate agent sales. This makes them suitable for two main types of sellers:
- Those trying to sell a “problem property”, and
- Those with a personal reason for wanting to sell their house more quickly than usual.
It's important to understand these two main motivations, so in this article we’ll shed more light on each one.
Understanding them can determine whether or not selling by auction sale is right for you.
If you’re a buyer, it’s useful to understand so you can help try and determine if the property you're buying has any underlying issues.
1. Reasons houses go to auction
Although auctions are growing they're still only account for a small number of property sales. As we mentioned above, they only account for 2.3% of properties sold in the UK. Here are where those figures come from:
- Data from the Office For National Statistics shows that 651,987 houses were sold in England and Wales during 2020.
- Essential Information Group are the industry-standard for property auction information. Data from their monthly newsletters tells us that 15,009 properties were sold in 2020 via auction.
- That means 2.3% (or about 1 in 45) houses are sold via auction.
So what makes this small pool of sellers decide that property auctions are right for them?
1.1. The benefits of selling through auction
Auctions offer two main benefits to sellers:
- They'll have a quicker, easier sale than going through an estate agent
- Auctions tend to attract more experienced investors and developers, who can take on "problem properties".
Auction sale vs Estate Agent sale
We probably don't need to tell you that people tend to find selling their home through an estate agent difficult and frustrating. But why exactly is that, and what do auctions offer that estate agents don't?
- Auctions are a faster way to sell. Auctions last 3-4 weeks, and at the end of the auction you have a binding sale. According to data from The Advisory, an advice and support resource for home sellers, it takes 14-23 weeks to get to the same stage via an estate agent.
- Auctions have a higher success rate. Data from EIG shows us that auctions have a success rate of 78%. By comparison, a study from Jefferies, a financial services company, revealed that estate agents only sold around 51% of properties. Read more here: Do houses usually sell at auction? (And how can you improve your chances of success?)
- Auctions are easier. Because auctions work to fixed timeframes things progress almost "automatically". This saves sellers the stressful experience of chasing solicitors and estate agents to try and progress things.
Experienced investors and developers (+ cash buyers)
Because auctions work to fixed timeframes they traditionally haven't been suitable for mortgage buyers. This means that auctions have tended to attract cash buyers. These cash buyers will typically be experienced property investors and developers.
This makes auction a great fit for selling "problem properties". These are usually not mortageable, so trying to sell via an estate agent can be a difficult process. By contrast, selling via auction puts the property in front of the right audience:
- Experienced property investors and developers won't be put off by "problem properties"
- They wont need a mortgage to buy the property.
Overall, this means a much faster sale. Furthermore, because the auction house's job is to create competition between multiple bidders it can often result in higher prices too.
Read More: 17 Benefits Of Selling A House By Auction
1.2. Choosing auction due to "Property" circumstances
Because of the benefits of selling via auction it can be a great way to sell problem properties. What do we mean by "problem property" though?
Examples of "problem properties"
"Problem properties" are houses that could be difficult to sell due to an unusual issue surrounding it. The issue may relate to the building or the land itself, or to a legal issue surrounding it.
Here are some of the most common "problem properties" you may find selling by auction:
- Subsidence and other structural issues,
- Non-standard construction,
- Short leases,
- Japanese knotweed,
- Legal complications,
- Enforcement notices,
- Problem tenants.
This isn't an exhaustive list though. We've covered more issues you may come across in this article:
Recommended: What types of property are suitable for auction?
Do all properties sold at auction have something wrong with them?
This is a common misconception about property auctions. Just because house auctions can be an effective way to sell problem properties, it doesn't mean that all the properties sold at auction are "problem properties".
Auctions attract a variety of sellers with perfectly "normal" properties as well. We'll move on to these next.
1.3. Choosing auction due to "Personal" circumstances
Auctions aren't just about selling "problem properties" quickly to professional investors and developers.
As we've covered, property auctions offer a faster, easier and more certain sale compared with an estate agent. This makes auctions an attractive alternative for lots of different home sellers.
Many sellers find themselves in a personal situation where a faster, easier sale just makes sense.
Examples of personal reasons to sell at auction
Selling by auction can be a good option if you're in one of these situations:
- Inheriting a property.
- Divorce or separation.
- Debts or financial difficulties.
- Buy-to-Let investors with problem tenants.
- Relocating or emigrating.
An experienced auctioneer can help guide you through the process, and help you get the faster home sale you're looking for.
1.4. Drawbacks with selling by auction
Although auctions deliver a faster and more certain sale, there's always been one main downside for sellers: You compromise on the price.
Sometimes properties will sell for less at auction than if you went via an estate agent. For buyers this means that auctions can be an opportunity to buy at a good price.
This isn't always necessarily the case though.
Do "problem properties" actually sell for more at auction?
The auctions contest that "problem properties" will actually sell for more at auction than via an estate agent.
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."
The main reason for this is because a problem property can "stagnate" on the open market. If it takes a long time to sell and then has a couple of sales fall through it can start "scaring" people off.
Once the price has been reduced a couple of times as well it can really look like a red flag. Some buyers will just think that if a house has been available for that long and no one else wants it, then they don't either!
It becomes a vicious cycle where the property gets harder to sell over time, and eventually results in agreeing a rock bottom price. Had it gone straight to auction originally then the sale price may have been much higher.
Although there's no hard data to confirm this, it certainly makes sense. We've covered this topic in much more detail here: Do houses sell for less at auction? (And how to get the best price)
Drawbacks selling "normal properties" at auction
If a property is being sold via auction because of a preference of the seller (rather than because it's a "problem property") then it is common to sell for less via auction.
The average is about 85-90%, although it varies drastically on a case-by-case basis.
The difference is not as high as it used to be though. This is due to the Modern Method of Auction, which has taken off since around 2016. Modern Auctions have helped bring "auction sales" into the mainstream by opening them up to mortgage buyers as well.
Houses go to auction because they're a quicker and easier way to sell houses. This makes it a great fit for sellers who want (or need) to sell more quickly than usual.
It's especially true for "problem properties" too, which can really struggle to sell via estate agents.
2.1. Advice for buyers
If you're a buyer, how can you tell if the property you're looking at is a "problem property", or if the seller just wanted a faster sale?
Note: It's not necessarily from the guide price. The low guide prices you see with auctions don't necessarily mean that the house has something wrong with it. To learn more, check out this article: How accurate are guide prices at property auctions?
Properties with low guide prices can, in fact, be problem-free. This is especially true with properties being sold via the modern method of auction.
If you decide to buy via auction then it's up to you to figure out what issue (if any) the property has. You should do this before bidding! Read our article about why you need a solicitor for auction purchases, and what they do for you.
Surveys are highly recommended too.
Property auctions are a good way to land a bargain in a quick sale that avoids a potentially lengthy, conventional buying process.
While this is absolutely true, just make sure you do the due diligence before you bid on the property.
2.2. Advice for sellers
If you think auction could be the right choice for you it's crucial to choose the right type of auction and the best auction house. Having a good solicitor to back you up is also important.
We can help on all these fronts. Check out our auction house comparison tool to explore your options.
Call for a free consultation too, and I can help you determine which auction house is going to be the right one for you and your property. Give me a call now on 0330 223 5568.
By Matthew Cooper, Founder of Home Selling Expert