The popularity of modern property auctions has soared during the pandemic. In October last year, Auctioneer, John Pye, told The Guardian that the number of properties sold via online auctions was 126% higher than during the same period in 2019.
Once the domain of property investors and developers, auctions are now being used by independent homeowners, attracted by the speed of sale and potential for the competition to drive up the final sale price. What’s more, with the evolution of the “modern auction”, people can buy and sell properties from the comfort of their sofa — which has proved to be a significant bonus during the pandemic and looks unlikely to change. This guide will focus on modern auctions as these are currently the most popular with the general public. Nevertheless, the experts at Tech Realtor Spencer Hsu suggest that you should work with a realtor or veteran real estate agent to learn about the property market. The professionals can further help you evaluate the property value, which will make the auction process more effective.
But selling a house at auction is not for the faint-hearted. You need to understand the process and have nerves of steel. This beginner’s guide is designed to provide the basics you need to get started and avoid first-time sellers’ common pitfalls at a modern auction.
What is a Modern Auction?
Modern auctions made their first appearance in the 1990s, but it’s only in recent years that they have become popular with homeowners and buyers.
Unlike a traditional auction which takes place at an auction house, the modern version is held online. Interested buyers can arrange to view the property and make a bid via the auctioneer’s website during a fixed period, which is typically about a month but can be less. The current highest bid is usually displayed so that buyers can gauge how much to offer.
How Long Does it Take to Sell a Property at Auction?
A modern auction often runs for around 30 days, but the seller can choose a duration that suits them. In addition to the auction duration, remember to allow time for:
- The property to be marketed
- Interested parties to view the property
- The bidding window (from several days to several weeks)
- Exchange of contracts (within 28 days of the auction ending)
- Completion (buyers have 56 days from when the auction ends)
What’s the Process for Selling a House at a Modern Auction?
- Property valuation. The auctioneer will use HM Land Registry data to provide a valuation. An agent from the auction house may visit your property to check its condition and any particulars you have provided.
- Set a reserve price. The seller chooses the lowest amount they would be willing to sell the property for, the “reserve price”. This is not made public. The “guide price” is added to the property advertisement to give buyers an idea of how much to bid. The reserve price cannot be more than 10% higher than the guide price.
- Agree on the auction deadline. After this, no more bids will be accepted. The duration of most modern auctions is typically around 30 days, but this can be reduced if the seller needs a quick house sale.
- Instruct a solicitor. Although not a legal requirement, it’s advisable to instruct a solicitor or conveyancer to prepare an auction legal pack containing all the documents you will need for the sale.
- Survey. Again, this is not mandatory, but many sellers choose to have their own Royal Institute of Chartered Surveyors (RICS) survey conducted to give buyers peace of mind about the property’s condition, encouraging more bids.
- Marketing. The estate agent markets the property just as they would if it was being sold via a traditional listing. The deadline and guide price are included in the property advertisement.
- Viewings. Interested buyers can book a viewing of the property before submitting a bid online. Some auction houses may choose to hold open days for multiple buyers to visit at the same time.
- Bidding. Interested buyers must register on the auction house website and make a bid before the end date. The guide price and the current highest bid is displayed to encourage competitive bidding.
- End of auction and payment of deposit. The property is sold to the highest bidder when the auction ends, provided their bid exceeds the reserve price. The successful bidder must pay a deposit or “reservation fee” to secure their purchase. The amount varies but is typically around 10% of the sale price and is often non-refundable if the sale isn’t completed. If nobody bids or the highest bid is below the reserve price, the property may be put into a traditional auction or marketed further by the estate agent.
- Exchange of contracts and completion of the sale. The buyer must exchange within 28 days of the auction ending (20 working days) and complete the sale within a further 28 days.
The Pros and Cons of Selling a Property at a Modern Auction
- Typically faster than an on-market sale. The successful bidder must exchange and complete their property purchase within 56 days of the auction ending or risk losing any fees they have paid.
- Easier to sell a problem property. Although modern auctions are now used to sell all types of property, they are still very popular with homeowners who have hard-to-sell properties. This is because auctions attract bargain hunters and developers keen to bag a deal on a fixer-upper.
- Attract a larger pool of buyers than at a traditional auction. The longer the period between the auction and completion allows buyers to secure the financing they need to make the purchase. A traditional auction must be completed within 28 days, which means that only cash buyers can afford to bid.
- Competition can result in a higher sale price. Unlike in a traditional house sale, where the buyer typically negotiates the price down, in a modern auction, the bidding system encourages buyers to continually up their offer. This can result in a higher final sale price than a typical on-market sale.
- A sale is not guaranteed. If the lowest bid is less than the reserve price, the property will remain unsold. However, the seller may still be liable for the fees associated with the auction process.
- High fees. Buyers will factor in the auction fees they have to pay when calculating their maximum bid. The buyer’s costs can really stack up — making a considerable dent in their maximum offer. Furthermore, the seller must also pay a commission to the auction house.
- Costly mistakes are common. The process can be confusing for beginners. Setting the guide price too low is a common mistake. This attracts more bidders, but as the reserve price cannot be more than 10% higher than the guide price, this can result in the property being sold for much less than the seller hoped.
- You Need to be Ready to Move Fast! Once your bid is accepted, you will have just 56 days to pack up and move out. Even if you’re keen to secure a quick sale, having no flexibility regarding the timescale of when you move can be problematic and stressful for many sellers.
Selling a house at a modern auction can be a faster option than an on-market sale, and the competition may drive the price up. However, beginners who go in blind without understanding the process or the finances of selling at auction could make mistakes that cost them dear, and there is no guarantee of a sale.