Selling a House at Auction: A Complete Guide for UK Homeowners
Property auctions represent a distinct approach to selling real estate in the UK market. The process differs significantly from traditional estate agent sales, offering unique advantages for certain types of properties and sellers. This comprehensive guide examines the intricacies of selling a house at auction, from initial preparation through to completion.
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by Robert Jones, Founder of Property Investments UK
With nearly two decades in UK property, Rob has been investing in buy-to-let since 2005, and uses property data to develop tools for property market analysis.
Understanding House Auctions in the UK
The auction process creates a competitive environment where multiple potential buyers bid against each other to purchase a property. This can be a great situation for sellers.
Property auctions operate through two primary formats. Traditional auctions represent the most established method, conducted in auction rooms where properties are sold unconditionally upon the fall of the hammer. The modern method of auction offers an alternative approach, typically conducted online with different terms and conditions.
Traditional auctions require completion within 28 days after the sale, making them particularly attractive to homeowners seeking a quick, definitive sale and for sellers of investment properties that wish for a quick disposal of their property assets.
How Property Auctions Work: Step-by-Step Process
When you decide to sell your house at auction the auction house will enter your house as what is called a lot in the next auction sale. Each sale is likely to have other lots, varying from just a handful to a hundred or more at the largest auctions.
Selling a house at a property auction involves three distinct phases. The first is the preparation period that begins after the auction catalogue is released. The second is the day of the auction itself. The third is the completion period after the property and keys are transferred to the buyer.
Preparation Period
The auction catalogue is typically released about three weeks before the auction. This is a crucial period for the seller to get ready for buyers to conduct thorough due diligence. During this time, the buyer needs to carefully research the property, review the legal pack, and ensure they fully understand what they are bidding on. This may involve tasks like visiting the property, obtaining a survey, and reviewing any necessary documents.
The Day of the Auction
On the actual auction day, the buyer will compete with other interested parties to bid on the property. The process is fast-paced, with the auctioneer rapidly calling out bids.
When the time comes to offer your lot in the auction room the auctioneer will suggest an opening bid and invite interested parties to begin bidding. Bidders who are willing to pay more than the opening bid will then raise the bidding, typically in units of £1,000.
If once the highest bid is received and bidding stops, the bids have exceeded the reserve price, then your house will be sold to the highest bidder immediately on the fall of the hammer. The buyer will have to pay a deposit, normally a 10% deposit, of the sale price there and then. They will then have to pay the balance and legally complete the sale within the period specified in the auction terms and conditions. Sales at auction must normally be completed within 28 days. The buyer must be prepared to complete the purchase according to the terms outlined.
The Completion Period
The buyer must ensure they can secure any required mortgages or other funding and work closely with their solicitor to finalise the transaction. If everything goes according to plan, the buyer will receive the keys and officially 'complete' and own the property at the end of the completion period.
This whole process from the start of the preparation period to completion can happen in 6-8 weeks and is much quicker than a traditional sale which can take many many months.
Costs of Selling Your House at Auction
Auction sales typically involve several cost elements. The primary expense comes from the auctioneer's commission, usually around 2% plus VAT of the final selling price. Additional costs include entry fees, legal pack preparation, and conveyancing expenses.
While auction fees might exceed traditional estate agent commissions, the speed and certainty of sale often justify the additional expense. Some auction houses offer arrangements where buyers cover certain selling costs, which can sound great, although consider that this may impact the final bidding price as a buyer may simply lower their final price accordingly.
Understanding how to set the right pricing strategy is crucial for a successful auction sale. This starts with understanding two key concepts: guide prices and reserve prices.
What is a Guide Price?
Guide prices are intended to be a guide to prospective bidders at a property auction. Guide prices indicate to prospective buyers the minimum price a property is likely to sell for. A guide price is not the price a house will sell for necessarily.
The guide price is something you should discuss with your auctioneer. A guide price may be a single figure, eg. £175,000, or a banded guide price eg. £150,000-£170,000.
Auctioneers generally advise setting a guide price that is as low as possible, as this will increase the number of interested buyers and hopefully lead to competitive bidding. However, it should not be set too low as this can be counter-productive.
What is a Reserve Price?
A reserve price is a price below which the property will not be sold at the auction. It is not the price a property will sell for. Unlike guide prices which are disclosed to bidders, reserve prices are not disclosed to bidders and remain confidential between you and the auctioneer.
A reserve price is something you need to discuss with your auctioneer. Take into account the market value of your house and what you want or need to sell it for. It is common practice for reserve prices to be set within the banded guide price or within 10% of a single guide price but this is not necessarily always the case.
Bear in mind that setting a low reserve price should increase the chance that your house will sell at auction. Setting a high reserve price can decrease the chance it will sell.
What Happens If Your Property Doesn't Sell At Auction?
If bidding fails to reach the reserve price, several options become available. The auctioneer typically allows interested parties to submit post-auction offers, which sellers can consider even if they fall below the original reserve. Alternatively, the property can be entered into a future auction, potentially with adjusted guide and reserve prices.
Some sellers opt to explore alternative selling methods after an unsuccessful auction. These might include traditional estate agent sales or direct sales to cash buyers. Each approach offers different advantages and considerations.
Timeline: How Long Does it Take to Sell at a Property Auction
The auction process follows a structured timeline. Initial preparation and marketing typically require three to four weeks. This period allows for property listing, marketing activities, viewings, and legal pack preparation.
The auction day itself moves quickly, with competitive bidding determining the final price. Successful sales proceed immediately to exchange of contracts, with completion usually required within 28 days for traditional auctions.
Are Auctions The Best Place To Sell Investment Properties?
Auction sales prove particularly effective for certain property types and situations. Properties requiring renovation, unmortgageable properties, properties with structural issues, tenanted buy-to-lets or unusual properties often achieve better results at auction than through traditional sales methods.
The speed and certainty of auction sales attract sellers needing quick completion and buyers looking for something more than a 'typical' house.
Once the hammer falls, the sale becomes legally binding, eliminating concerns about gazumping for buyers or gazundering for sellers.
However, auction sales also carry risks. The final selling price depends entirely on competitive bidding, which can result in properties selling for less than anticipated. Sellers must carefully weigh these factors against their specific circumstances and requirements.
Whether you are a homeowner or a landlord selling their portfolio. The decision to sell at auction requires careful consideration of personal circumstances, property condition, and market conditions.
While auctions offer numerous advantages, they may not suit every seller or property type. Is a quick sale worth the trade of for a lower price? Is a potentially lower selling price worth the trade off for the certainty?
For those considering alternatives to maximise their sale price while still targeting investment buyers, there are other options available.
An alternate to auctions can be selling via an investment property agent. These agents specialise in selling properties to investors and can sometimes provide you with an off-market sale, with an improved offer so is well worth considering all the options.
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