Should I Consider Selling My House at Auction?
Estimated reading time 9 minutes
When the property market is volatile, the chances of a quick house sale are often unlikely. Homeowners wait for the best possible price, only for it to never come, buyers wait for the most opportune time, only to see it never arise. And that is why many people consider an auction as a way to sell fast and potentially make a tidy profit on the house sale.
The thing is, it isn’t quite as simple as attending an auction and waiting for the gavel to fall. There is far more to consider, and that is why in this edition of our property guides, we dive into what is involved in house auctions and whether they are an option worth considering.
Why would you sell a house at auction?
An auction is one of the ways you can sell your house quickly without fear of a buyer pulling out. In addition, it gives you the chance to potentially see the property become part of a bidding war which sees you end up making more money than expected. If you have a desirable property, you can very quickly see the demand reach fever pitch and as a result, see buyers competing against each other to secure the home.
Auctions also prove to be a great option for those who own a home that has seen better days. Auctions are often filled with clever property investors, those who are willing to snap up a property, refurbish it and then sell it for an even larger profit further down the line.
This can all make the option of listing your property at auction rather tempting but before you rush off and secure your listing, let’s look at what else you need to know.
What types of house auctions are there?
There are currently two types of house auctions you could list your property on. The traditional method is where you attend an auction house and people bid accordingly to try and secure the property. Then you have the modern method, also known as conditional auctions, where properties are auctioned online. The way each work varies so it is handy to do a little research to ensure you give yourself the best opportunity to secure the sale of your property.
How a traditional property auction works
Auctions are scheduled well in advance with a catalogue promoting the properties normally made available two to three weeks before the auction is due to take place. Interested parties will at first, see your property in this catalogue and decide if it is something they would be interested in viewing. The catalogue will contain the guide price for the home, giving buyers a chance to see what it could be worth if it went up for sale on the traditional housing market. However, come auction day, you can set a confidential reserve price. The lowest price that you are willing to accept for the home. Just be aware that the price you set could limit your buying audience so always consider this carefully. Likewise, set it too low, and whilst guaranteeing a sale, it could be way short of what you believe you should get for the property. A guide price can also be set lower than your reserve should you feel it may help to bring more people into the bidding process.
Viewings can then be booked and in some cases, surveyors may also be booked so that any structural issues could be assessed and priced up. At this stage, if there are any issues with the home, you may find some potential buyers drop out. Others will remain keen though so don’t feel disappointed.
During this time, some buyers may also ask for detailed documentation that will outline all legal information relating to the property.
Come the day of the auction, interested parties will begin to bid and much like those auctions you see on TV, the auctioneer will monitor the process giving people the opportunity to bid. Upon bids ending and a sale price being agreed, the hammer falls and the sale is secured. The winning buyer will then pay a 10% deposit on the same day with the balance to be paid within 28 days.
If the home was not to sell, either through lack of interest or the reserve not being met, the property gets withdrawn from the auction. Sometimes, even after the auction has ended, offers may be invited by the auction house and a sale could still be agreed.
How do online house auctions work?
Online house auctions work much the same as the traditional method of property auctions, but rather than take part in an auction house, they take part online.
Depending on the company you opt to use, you could find that the auction runs on a specific day at a specific time, with other companies, the auction runs for a set period of days, normally 30, with bids being made 24/7.
Like with traditional property auctions, a reserve price will be set, normally between you and the online estate agent you have chosen to use. Using the same thought process as with any other type of auction, be careful with how you set the reserve price. Too high and you alienate some buyers, too low and you could miss out on cash that you could have made. Estate agents will often recommend a lower price to hopefully spark a bidding war but this is not always guaranteed to happen. Remember, your guide price, can be lower than your reserve.
Just the same as traditional house auctions, interested parties can discover more about the property through a catalogue, often online, and then opt for a viewing. The same documents can be provided, and the booking of a surveyor completed if required. Once this stage has passed, you simply wait until the auction date.
On the day, you will be able to view bids online and see how the bidding ends, it makes for a fully open and transparent process without you even having to leave the house.
The winning buyer must pay a non-refundable reservation fee. This is normally worked out at a rate of 2.5%+VAT or a minimum of £6,000. This is to be paid immediately. A buyer can still pull out though, although they will lose this cash. With an online auction, the sale must be fully completed in 56 days.
Costs of selling a house at auction
An auction can guarantee a fast sale of your home, but it does come with costs, this can often be something that keeps people holding off from auctions. After all, you don’t want to lose a large chunk of the proceeds from your sale going towards fees. It’s these fees that often make people look to cash house buyers instead. Many cash house buyers like Gaffsy sell your house for free so there are no surprise charges once the property sells.
When you auction your property, you will be expected to cover costs for a variety of things.
To have your property listed for auction with your chosen estate agent or auction house, you will be required to pay a fee for it to be listed. This varies but will be payable upon you listing the property.
Auction legal pack
For any house sale, you require a solicitor, and they will prepare a legal pack that can be provided to any potential buyers. In it, the interested parties will find any information relating to the lease, the land and the property itself.
Booking a conveyancer is an important part of the process and their services need to be paid for upon the sale of the property.
Perhaps one of the biggest costs to bear is the commission to the auction house. This is typically around 2.5% plus VAT although it may vary. Speak to your potential auction houses first to get an idea of how much this commission could be.
As with any house sale, there are various legal fees to cover, these could include any fees to solicitors.
This variety of fees can make the idea of selling via auction a little daunting but if you make a good profit on the sale, much of the costs can be absorbed by the profit leaving you with the money you initially hoped to make still in your pocket.
Pros and cons of selling property at auction
A property auction can be a quick way to sell your home and can see you make a profit way higher than you had expected. Without a chain either, the time delay associated with more traditional methods of sale is alluring to many.
However, it should also be understood that for the most part, properties will sell for much less than on the open market, and you may find the sale price is even less than you had hoped, even accounting for the lower valuation than on the regular property market. Clever buyers will factor in the reservation fee to their budget. A property going for £150,000 may only see bids hit £145,000 as the buyer wants to keep that £5,000 back to pay their fees.
Ultimately, it is down to you, the property owner, you could see a bidding war erupt that delivers better results than you had hoped but this still stands to see you earn less than you could. You may also see that you have a property that just doesn’t sell and you could find yourself paying again to have it listed in the future.