Is Auctioning Your House a Good Idea?
You may be surprised by property auctions, read on ...
There are more than a few ways to sell a residential property.
One of the most interesting ways is property auctioning. Not necessarily the first choice for sellers, auctioning a house has still become more common in recent years. With struggling house sales being a theme of the times, auctioning often feels like a good method for selling.
At first, sellers feel it has plenty of scope, in that it can bring you an attractive price for your property, and even be perhaps quicker than the conventional way of selling. Buyers feel it is a quick and easy way to get their hands on a property. And for a good price, too.
However, there are disadvantages to the process, and we’re going to look at these in this article. While there are some reasons why it might be a good idea to use an auction to sell, the possible disadvantages make it a challenging situation.
If you're buying
The time thing
Because you’re looking to buy a property at auction, you are completely beholden to what the auction company wants. They’ll publish a catalogue online or offline (or both) that shows the lots that are up for sale. Between the time of the catalogue being published and ‘auction day’, if you're interested in the property you’ll have to ensure you can get all your tasks completed before you turn up to bid.
This is where it gets very stressful, because if you’ve seen a property you’re interested in and you’re serious about buying it, you’ll have to arrange a survey. But that survey has to be completed and submitted by auction day. This doesn’t seem like such a big deal until you realise that auction day is typically just 3-4 weeks away from the date of the catalogue.
That is an incredibly small window of time to get the most important part of the initial stages of buying completed. If you don't have a survey completed, you’re leaving yourself open to all sorts of problems.
Your solicitor will have to check the legal pack of any of the properties you’ve decided to go for. Even with just one property, it requires that solicitor input. Solicitors never work quickly, mainly because of the caseload they have. And three weeks to get this important stage of buying done and dusted is a challenge to say the least.
If you think about the consequences of not having a proper series of checks, undertaken by a solicitor, as well as a survey, it seems less than sensible to buy at a property auction.
This is perhaps one of the biggest hurdles when buying at a property auction. Your house hunt needs money behind it, so if you’re going to go down the auction route, your financial details have to be perfect. We’re not just talking about managing debt either. The auction will take place, and if you don't have the financing for your new property, there will be problems.
You’re not going to be expected to pay up the full price on the day of the auction, but the auctioneer will expect to take delivery of the deposit money. This is often 10%, so if you are serious about going for a property at auction, the pressure is on you to make sure that money is available. Pretty soon after that (and this is dependent on how the auction company works) you will be expected to pay the balance, the full price of the property.
This takes a lot of work before you even go to an auction house. If you’re lucky enough to have a mortgage offer that is timed just right (because mortgage offers can change) then you should be able to walk into the auction confidently. But if you don't have all your financials in order, you’re looking at an embarrassing situation, and it is reasonable for the auction company to take action against someone who doesn't have the money to buy.
The guide price and reality
When you look at an auction listing for a property, you will see something called the ‘guide price’. This is a very important number, and you will need to be absolutely sure that you are fully aware of what could happen to that price.
The guide price is by no means indicative of what the seller expects to receive. Instead, it’s generally seen by auctioneers as being the minimum the seller will take for the property. Don’t be surprised if you see the price go up, just like at any auction. And don’t be surprised if it goes up by many thousands of pounds.
This becomes a particularly important aspect when it comes to the property auction itself. If you’ve walked in with your financials in order, and you know that the price may go up, it’s fine. But if you don't, and it becomes a stressful experience as you find yourself bidding above your means, then you will be in serious trouble once that hammer falls and the lot is closed. The auctioneer will make it clear that the hammer coming down marks the sale. If that sale is to you, you’d better be ready to complete it.
If you're selling
The dreaded reserve
The reserve price is sometimes not met, and if you’re selling a property this could seem like your worst nightmare. It’s not good news, and means that your property is either overvalued or it doesn't belong in the auction. By ‘not belonging’ we mean that it isn’t the kind of property that the auction customers want to buy.
You will still have to pay fees to the auction company even if the reserve is not met, so you’ll need to bear that in mind too.
No cold feet
Once that hammer falls you are locked into an agreement. But that doesn’t help when you’re in a crowded auction room and you’re hearing noises from all directions.
As long as you are completely clear on the fact that the sale will be binding there and then, this shouldn’t be a problem for you. Even so, it is a little surreal to see a property go in minutes to a new person.
You’ll have to think about marketing the property carefully. The auctioneers will do precious little to market the property, and this will make it harder for you to find the buyer you want on the day.
Take some time to spread the news about the sale. This should bring in people who genuinely want to have the property, and are therefore willing to pay a respectable price for it.
Limited range of buyers
Unlike selling privately or with an estate agent, selling at a property auction has a limited range of buyers on any given day. This significantly reduces your chances of selling your house at its true value.
If you’re going to a property auction, be careful. It can all happen very quickly, and this is perhaps not the best idea when you’re dealing with the biggest asset in your life.