Selling Your Property at Auction vs. Private Sale
Should you take the risk of a property auction?
What you need to know about selling at a property auction
It’s time to sell your home or your parents’ home, and you want to know the quickest, easiest method which will also give you the best price with the least hassle.
Your two main options are selling your house at a property auction or in a private sale.
Before you choose either, you should understand how each one works and the advantages and disadvantages of each one.
At a public property auction, your home is placed for sale and buyers have the opportunity to bid on it. Sometimes it's an online auction, but often, the house sells in a traditional auction house where all buyers are present. This can be more effective because one buyer can bid up the price if they really want the property.
Property auction fees
You'll have to pay the auctioneer’s costs for selling your home, and you may also have to pay for any advertising.
There are other key costs to a property auction:
Commission. This is the big fee. On average, the costs of selling in a property auction are 2.5 – 3%+VAT. This can be negotiated down to 2% with some auctioneers.
Entrance fee. To enter an auction you have to pay to play. On average, expect the entrance fee to be between £200 to £500+VAT.
Auction legal pack. The auction legal pack will be at least £200+VAT.
What to look for in an auctioneer
You’ll want to find an auctioneer at a property auction who is knowledgeable about property, especially in your neighbourhood.
If it's your first time, they should be able to provide valuable advice to help you through the process. You’ll want to have a reserve price so you don’t end up practically giving your home away.
An auctioneer can advise on the right figure.
Tip: Attend a property auction as a bystander to see how one is handled and what the auctioneer has to say. Get comfortable in that environment before putting your house up for sale. Try to find a house that is similar to yours so you can get a better idea of what you might expect.
Advantages of selling a property at auction
For most sellers, the primary advantage is the completion of the transaction.
They don’t have to wait around until the buyers secure financing, because they must have the funds on the day of the sale or within a few days afterwards. After you begin the process with the auction house, it usually only takes about 30 days for the auction to be held or even less during slow times.
A potential advantage of selling your home through an auction is that buyers may bid up the price to even more than what you were hoping for. You could end up making a nice profit if you have a desirable property. Investors and developers often attend auctions, so you’ll be dealing with people who recognise the value of a property, which could increase the selling price.
Disadvantages of a property auction
Since you’ll be looking at cash buyers or those who have their financing in place, you may limit your options for a sale.
Only certain types of people feel comfortable participating in an property auction. Others who are perfectly capable of making the purchase will be intimidated and stick with private house sales.
Some buyers don’t like to bid for a house, which will limit your pool of buyers even more.
You can’t count on a bidding war, so you may end up barely meeting your reserve amount. You’ll have to calculate in the auction house fees and any mortgage you may have on the property when deciding on your reserve, so you could end up with not much left for your future.
What you need to know about selling in a private house sale
A private property sale is the traditional method of selling a home for most people unless they decide to list their home with an estate agent.
You advertise your home and wait for buyers to show interest. Instead of hiring an agent to sell your home, you can choose to do the job yourself. You’ll find ways to let buyers know your home is available. You may post a sign outside and take out an advertisement in the newspaper or go online to try to sell your property.
Interested buyers will contact you to find out more about the house.
Buyers visit your home to see if it’s the right fit for their needs. When someone is interested in the property, they send you an offer to buy. They offer certain terms that you can accept, modify or reject.
You'll be responsible for reading the offer and determining the terms and conditions. You can also contact a solicitor who will offer legal advice on the details of the contract.
Tip: Find a solicitor before you attempt to sell your house. You’ll want to look at recommendations and select someone with experience and who possibly deals with quick house sales.
Once you accept an offer, you must go through the process to close on the property.
The buyers often must complete their financing requirements to ensure they have the funds to purchase your home. This usually takes at least 30 days, but it may be twice as long if there are complications.
During this time, the conveyancing process is conducted, the title deeds are checked to make sure it’s clear and the home may be inspected for any issues.
At any time during the process, the contract may fall apart. While this doesn’t happen often, it occurs more often than you might think.
There are usually three main issues that cause a house sale to fall apart:
- It may be an issue with the house
- A problem with financing
- The buyer gazundering the seller
Tip: Have a professional inspect your home and warn you of any potential problems buyers might have. You'll then have the option to either fix them or leave it as-is, but you’ll be aware of possible issues.
If the transaction isn’t completed for some reason, you’ll have to start all over and market your home again to find a new buyer. If you reach closing and sign the final papers, you receive your funds and are ready to move on.
Advantages of a private sale
The main advantage of selling your home through a private sale is the ability to attract a lot of buyers.
If there's success in numbers, then the more buyers who see your home, the more likely someone is to buy it. You have the option of choosing the person you want to sell your property to.
Example: You may want to sell your house fast with a professional cash buyer because you won’t have to deal with the complexities of financing, which can delay and even end a real estate transaction.
You can often get the price you want or at least know how much you’re willing to negotiate. This helps you prepare for the future and the next home you want to buy.
Tip: Price your home higher than what you actually want to receive as long as it is valued at the amount. This gives you room for negotiation because many buyers will want to offer a lower price anyway.
Disadvantages of a private sale
The primary disadvantage for many sellers is the fact that you’re at the mercy of the market.
If prices are low in your area, you’re likely not going to get more for your home.
You also have to wait until you find the right buyer and until the process is complete. It’s not uncommon for a home to sit on the market for months before it finally sells – often at a price lower than what it was listed for.
Tip: Don’t accept the first offer you get unless it’s exactly what you want. You usually have a day or two to consider an offer, which allows you time to entertain more than one.
You’ll also have to be flexible on showing your home, which may mean weekends and evenings spent elsewhere as you hope someone likes the place enough to put in an offer.
Even with the best planning, you can get surprised with delays or even the loss of a contract.
Because it can take so long to get your home sold, your life is on hold until you sign the final paperwork. You may not feel comfortable buying a new place until your current one sells, which will take even more time until you’re settled.
Your own marketing
You’ll need to market your home and do all of the work in completing the transaction. You’ll have to navigate the selling process on your own, which can leave you open to a lot of problems.
Example: You’ve received an offer on your home, which you accepted. At the last minute, the buyer decides to back out of the deal because of issues with the inspection. Their terms allowed them this option up to a week before closing. Since you aren’t used to writing contracts, you weren’t aware that you could have requested a shorter time-frame.
Making the right decision
Certain types of homes are better suited to auctions than in private sales because they're more complex.
These homes include:
- Repossessed homes
- Homes that are severely outdated and require major renovations
- Homes that are extremely unique and will be difficult to sell to an average buyer
Land is often sold at auctions rather than in a private sale.
You have more control over the process, such as the amount you sell your home for and who buys the property if you choose a private sale.
Example: A cash buyer may be interested in your property and only price it a little less than a second buyer who needs to secure financing. Since the first person has the money in hand, you might choose them even though they came in at a little less than the second buyer.
If you decide to sell to a cash buyer, the transaction may be completed in less time than what you could sell your home at an auction. If they have the funds readily available and there's no hold-up on your end, you could have the cash in your hand in less than 7 days.
If you’re in a hurry to complete the transaction, it’s a prime opportunity to meet your goals.
What you should do:
- Know your timeline for when you must sell
- Know how much money you must have to meet your goals
- Consider the qualities of your house and how difficult or easy it will be to sell
- Choose a solicitor who can help you with either a private sale or auction
What you shouldn’t do:
- Fail to advertise your home regardless of which method you prefer
- Make a decision in the heat of the moment, but think through your options
- Fail to check the reputation of an auction house or property cash buyer
If you desire to sell your home, you have several options.
Two of them include selling at a property auction or selling through a private sale. Either option can help you sell quickly if you have a cash buyer.
Be aware of fees for the auction, which will decrease the amount of funds that come to you. Also, realise that not all buyers will attend an auction.
Regardless of your choice, make sure you understand the process and your role. Look for the option that serves your interests and helps you sell your home the quickest and for a fair price.