When should I consider selling property by auction?
My objective today is to give you a better understanding of pros and cons of selling by auction and some pointers for the kinds of things that you should look out for that suggest that the auction route is worth considering.
What is different about selling by auction?
The major advantage of an auction is that when the gavel falls (or virtual gavel with online auctions), an unconditional exchange of contracts has taken place between the buyer and seller.
Completion usually takes place 20 working days later.
So, a successful auction provides the certainty and finality that selling by private treaty does not.
As it is transparent and accountable– you can see what bids were made and who was bidding – and so can prove that you achieved the true open-market value and met your fiduciary duty as executor on behalf of the beneficiaries.
What sorts of buyers buy at auction?
Not ones that need a conventional mortgage.
Or buyers in a chain (unless they have exchanged with a completion before the 20-day cut-off).
Cash buyers or buyers with pre-agreed loan facilities for buying such property. These are a mix of:
- Professional Investors (often with companies that specialise in modernising property for resale or rental)
- Private individuals (perhaps with inheritance or other capital to invest).
- Developers/builders (looking for projects for themselves or their backers).
The majority of these buyers are looking for a margin in return for their cost, time and to some extent risk.
What sort of things should you look out for to spot a potential auction property?
There are four categories of property to look out for:
1. Unlikely to be mortgageable.
Structural issues: subsidence, Japanese Knotweed, foam loft insulation, failed roof/gutters, woodworm, dry rot, etc.
Poor internal condition (“Uninhabitable”): no/very dated kitchen/bathroom, unsafe wiring, dangerous/no central-heating, damp.
Flood risk/other environmental issues.
Grade II Listed.
Apartments with short leases (under 50 years).
2. Potential to add significant value.
Bungalows with large plots and scope to add second dwelling.
Large period townhouses ripe for conversion to flats.
Land with development potential.
3-Bed semis near schools/station with permitted development rights for loft/rear extension.
3. Highly desirable one-offs (where heart rules head).
Character properties.
A+ location.
4. Need for speed/certainty.
Debt – Insufficient estate funds for outgoings.
Client circumstances (Divorce, etc.).
To auction or not to auction?
One category ticked – consider auction.
Two categories ticked – auction likely to be an excellent option.
Three/four categories ticked – the perfect auction property!
What practical considerations should I consider?
With an auction the legal pack is provided up-front and contains:
- Title deeds.
- Standard property information forms/fixtures & fittings, etc.
- Grant of probate.
- Searches.
- Common Auction Conditions (CAC).
- Any special conditions.
Reserve Price:
- Must be agreed up-front.
- Must be realistic.
- Must be within 10% of Guide Price (not above top price if a range).
Contract/Fees:
- Auction generally more expensive (2.5% plus VAT plus £500 plus VAT Catalogue Entry)
- Can off-set a % as a buyer’s fee.
- Contract is “Sole Selling Rights”.
Summary
Auctions provide transparency, accountability and certainty – you can prove that you have met your fiduciary duty on behalf of the estate.
For the right property and/or situation they can be the best way to sell probate property – and our simple check-list should help identify those opportunities.
And finally, if you spot the signs and want to run it past someone – please feel free to call on 0203 758 7850.