The Ultimate Guide To Property Auctions
A property auction is one of the most popular ways to buy and sell property, houses and buildings. But what is a property auction exactly, and why would you consider attending one?
We’re going to answer these questions and many more in our complete guide to property auctions below.
What Is A Property Auction?
A property auction is a process where interested buyers can bid on a property owned by a seller. The principle behind a property auction is very simple – whoever places the highest bid on the property wins!
It’s not quite this straightforward, but it isn’t much more complicated either. Property auctions have many advantages over traditional house sales for buyers and sellers alike.
One of the most important is the efficiency of a sale – when an auction ends, contracts are immediately signed, and the buyer has a short window in which to pay the purchase price of the property. This contrasts with sales through an estate agent, which can involve months of negotiations and delays.
How Do Property Auctions Work?
Once an auction commences, buyers take turns increasing the highest bid incrementally. At some point, all but one of the buyers will drop out, leaving that final highest bidder as the winner. As long as the successful bid exceeds the reserve price set by the seller, they walk away with the property.
Property auctions can be electric, exciting affairs. Recently, many auction companies, such as Edward Mellor, have incorporated online auctions into their service. This allows buyers to get involved in an auction wherever they are in the world, whilst giving sellers a far greater number of potential bidders.
Who Goes To Property Auctions?
The unique benefits offered by property auctions offer tantalising prospects for both buyers and sellers. This is one of the key advantages of auctioning properties – every party has something to gain from the process.
Buyers attend property auctions for many reasons. Some may be looking for a new home, whereas others will be landlords trying to expand their property portfolios. However, every buyer at an auction will have their eyes peeled for a bargain.
For buyers, property auctions have a number of benefits when compared to traditional house buying processes. They’re fair, varied and give the buyer the chance of a great deal. We’ll delve into these benefits more closely in the following sections.
Sellers also have a lot to gain from a property auction. With the opportunity for quick and easy sales, property auctions represent a great alternative to selling through a traditional estate agent. In addition, buyers are far less likely to pull out of deals thanks to mandatory deposits and immediate exchanging of contracts after a sale.
Many sellers will also use auctions to offload any property they’ve been struggling to sell on the open market. At an auction, sellers are much more likely to find a buyer that’s interested in their properties – finding a buyer can take months through traditional channels.
Property Auctions: Pros And Cons For Buyers
Secure a great deal
One of the main reason home buyers and investors head to auctions is to try and get a great deal on a property. At an auction, there’s always a chance that you’re going to secure what you want for less than the guide price.
When you buy a property through an estate agent, you’re rarely going to be able to get a property for much under the asking price. If you’ve become frustrated by unnegotiable prices on the open market, auctions are definitely worth looking into.
For many buyers, the fairness of the auction process is a big attraction. When the auction starts, everyone in attendance has an equal chance of buying the property they want. There’s no pressure to send a sneaky early offer in. Instead, whoever bids the most on the day, wins the property.
The open market can be a challenging place to do business. The structure of an auction removes most of the difficulties associated with property deals, making the process simple, efficient and fair for all parties.
There are loads of factors that can slow down a purchase on the open market. For one, the very process of going through an estate agent adds many complications and delays. On top of that, property negotiations can be finely balanced and communications can easily break down at any time.
When you buy at an auction, everything is sorted before the bidding even commences. Everyone involved knows that if the property sells, there are very few cases in which you can retract your offer. As a result, auction purchases are completed extremely quickly.
Lots of choices
A typical auction house will have a highly varied selection of properties available on an auction day. So if you’re looking for something unique for your home or property portfolio, shopping at an auction could be your best chance at finding it.
Before the big day, the auctioneer will publish a document advertising all of the properties that will be available for purchase. As a buyer, this is your chance to finalise which properties you’re interested in and the ones you’ll be bidding on.
A crucial part of property auctions is the exchange of contracts after the sale. At Edward Mellor auctions, contracts are exchanged as soon as the hammer goes down. This means you’re never in limbo worrying if your offer is going to be accepted – if you’re the winning bidder, the property is yours.
Committed to purchase if you win
If you’re going to be buying property at an auction, then it’s essential that you know what you’re getting yourself in for. One of the most important things to understand is that winning an auction commits you to purchase the property. Backing out at this stage would result in the loss of your deposit.
Many auction houses charge a 10% deposit of the property value to enter an auction, which will be kept by the seller if you pull out after winning the auction. At Edward Mellor, we use a simple “token” deposit system. Buyers simply purchase one token (£5000) each for every auction they would like to enter. These tokens are refunded if the buyer does not win, but kept as a deposit if they do.
Regardless of the system used by your auction house, you should only ever buy a property if you’ve done the research and are 100% sure it’s the right move for you.
Emotions can run high
When the bidding commences on a property, it’s all too easy to get caught up in the moment. It’s not uncommon to see the price rising and start to panic bid. In any auction, staying calm is one of the biggest challenges. Auctions are naturally exciting, but you don’t want this to get in the way of making sensible financial decisions.
Before the auction starts, it’s best to have a solid idea in mind of how much you’re willing to spend. This should help prevent you from making a decision that you might regret when the hammer goes down!
Limited knowledge of the lots
This is perhaps the biggest disadvantage of buying property at an auction. It’s likely that you won’t have been able to visit all of the properties in person, which means you’re relying on photographs and written accounts to make your decision.
Luckily, auction houses provide fairly comprehensive information surrounding the properties that they sell. Since the list of buildings is released in advance of auction day, you might get a chance to go and have a look at the ones you’re most interested in beforehand.
Property Auctions: Pros And Cons For Sellers
On the other side of the auction are the sellers. Just like with buying a property at auction, selling comes with its own set of advantages and drawbacks. Therefore, it’s essential to make sure you understand precisely what you’re getting into before deciding to sell through an auction.
Perhaps the biggest benefit of selling property at auction is that the process is extremely fast. If your auction manages to attract a buyer, then you can have the sale wrapped up the very same day. This is completely different to selling through an estate agent who will typically take months to sell your property.
If for any reason you need to get a property off your hands quickly, then heading to auction is undoubtedly your best solution.
Quick contract exchange and payments
Since all contracts are agreed upon prior to the start of the auction, everything is cut and dried before the bidding commences. When the hammer goes down, the sale is practically guaranteed. This is in contrast to a sale on the open market, where buyers can back out of the deal at any time.
Traditionally, buyers are also required to put down a 10% non-refundable deposit before the start of the auction. In the event that they win the auction, they cannot retract their offer without losing their deposit. As a result, a seller will immediately secure 10% of the payment, with the rest to be transferred on the completion date.
In an Edward Mellor auction, contracts are immediately exchanged at the fall of the gavel.
Potential for bidding to surpass the value of the property
In many cases, bidding can surpass the expected value of the property. If there are two or three keen bidders at the auction, the price can quickly skyrocket past the guide price or the market value. Of course, this is an ideal situation, but it does happen more than you might expect.
In addition, as more auction companies integrate online bidding into their sales, there’s even more chance of buyers getting locked into a bidding war.
You can set a reserve
Auctions are often posed as risky for sellers, especially with high-value property items. Although there’s undoubtedly some risk involved with selling at auction, there are ways to minimise it. One of the most common is to set a reserve price.
A reserve is a minimum price that a property can be sold for. This means that if the bidding does not cross over this threshold, then the property can not be sold. Buyers will not know what the reserve is, but they will be given a guide price. The guide price is usually based on the reserve that the seller sets.
Although setting a reserve takes away the risk of a property selling too low, it can sometimes deter buyers from bidding. Setting a reserve is a fine balancing act that does take some practice to master.
Sell on your terms
Ultimately, when you’re selling at auction, you’re selling on your terms. There are no estate agents to deal with and the contractual situation is made much simpler. If you’ve ever had trouble selling property in the past, then it could be worth trying out an auction this time.
Although there are far more advantages to selling at auction than drawbacks, there are still some negatives that you should be aware of.
Risk of your property selling for under its value
Whenever you’re selling anything at auction, there’s always the risk of your item selling for less than you expected. However, with the minimum price reserve system, it’s easy to make sure that you’re never going to be disappointed by a sale.
Furthermore, as auction houses add online bidding to their sales, there are more and more potential buyers at every auction. So, these days, the chance of your property selling for below market value is much lower than it used to be.
Don’t save on commissions
Most auction houses will charge a commission as well as entry fees to the auction. These costs usually work out to be in line with the fees charged by high street estate agents. As a result, you won’t be saving any money in this regard.
This isn’t really a drawback as such, since you’ll always be paying these fees regardless of the way you choose to sell. That said, it’s still worth knowing and understanding any costs that you’ll be subject to.
Should You Buy Or Sell At A Property Auction?
Now that we’ve looked at the benefits and drawbacks of property auctions for buyers and sellers, a question you might have is this – who’s better off at a property auction, buyers or sellers?
In truth, there isn’t really a definitive answer to this. Although the two parties do have some conflicting interests at an auction (buyers want bargains and sellers want high prices), they also share some of the common advantages. For example, the speed and ease-of-sale definitely benefits buyers just as much as it does sellers.
On another note, it isn’t easy to know who will have the most success before an auction day. Sometimes, fewer buyers will turn up than anticipated, leading to lower bids and sales. Other times, the auction room will be packed to the rafters and bidding will skyrocket past the guide price.
It could be argued that sellers are taking a bigger risk by going to a property auction. If you are thinking about selling at an auction, then you should take plenty of time to consider whether it’s going to be the best solution for you.
Auction Vs Non-Auction Property Sales
Going to auction is just one way to buy and sell properties. In fact, property sales only make up a small percentage of the housing market trade.
Buying At Online Property Auctions
Over recent years, online auctions have become more and more commonplace. Some auction companies will run online bidding alongside their in-person auctions, and others will run dedicated online auctions.
In both of these cases, the principal is the same. Buyers place their bids incrementally through an online platform, and can see when they have been outbid by another buyer. If no one outbids the highest bidder for a certain amount of time, then they win the lot!
As online auctions work on the same basis as traditional auctions, auctioneers are able to allow online and in-person buyers to bid at the same time. This is excellent news for sellers, who now have a much larger pool of potential buyers to bid on their properties.
At Edward Mellor, we operate innovative online auctions to help people trade property safely and fairly. Discover in-depth information about how our online auctions work through our Online Auctions Buying Guide.
How do online property auctions work?
Every online auctioneer will operate differently, but there are some standard processes that the majority will follow.
If you’re a buyer looking to attend online property auctions, then the first thing you’ll have to do is register at an auction house. This process is usually very simple and won’t require any documentation or financial information.
Once you’ve registered online, you’ll typically be able to view upcoming auctions. You should also gain access to the legal packs of those upcoming properties and can start to research which properties you might consider bidding on.
The Edward Mellor online platform allows potential buyers to “watch” any lots they’re interested in. They are then kept automatically updated with news about the properties and any other important information throughout the auction cycle. This process works in a very similar way to watching an item on eBay.
Deposits and payments
To participate in an online auction, you’ll have to put down some sort of deposit. Every auction does this differently – some will ask for 10% of the property’s guide price (in-line with traditional in-person auctions), whereas others will use a “token” system.
The token system is essentially the same as a deposit, but it does not adjust to the value of the property. For example, Edward Mellor clients purchase one token for each property they want to bid on. These tokens are priced at £5000 each, regardless of the value of the property. If a bidder is unsuccessful, then the tokens are immediately refunded.
It’s important to remember that you have to put a deposit down for every property you’re interested in on that auction day. Once bidding on the first property commences, most auction houses won’t let you put down deposits for other properties in that day’s catalogue.
Putting down a deposit is a key process in any property auction. It protects both buyers and sellers whilst ensuring that all sales can be completed quickly and efficiently. As a result, you can always expect a deposit to be a requirement for any online property auction.
Virtual auction catalogue viewing
All online auctioneers will provide virtual auction catalogues for buyers. It’s always recommended that you study these documents with a keen eye. Doing the due diligence on any property you’re interested in is the only way to ensure your investment is going to be safe. Additionally, you should seek professional advice on the value and condition of a building through an independent valuation before bidding on it.
The bidding process for online auctions is almost exactly the same as the in-person version. Bidders are allowed to place bids in line with pre-determined increments. This ensures that the bidding increases smoothly and not all in one go.
An online auction will clearly display when you’re winning the property, and let you know if you’ve been outbid. Some online platforms will have a feature known as “Maximum Proxy Bidding” which automatically increases your bid up to a maximum price set by you. That is, if you’re outbid, the platform will automatically increase your offer above the current leader as long as it’s still below your maximum amount.
If your maximum price is below the reserve price set by the seller, then the proxy bidder will immediately place that maximum bid. There’s no benefit from increasing your bid incrementally if your maximum is below the reserve.
Maximum proxy bidding is an extremely useful feature that makes it much easier to stay on top of your auction. In fact, you don’t even have to be watching the auction at all if you don’t want to.
The fall of the gavel
After each new bid, there will be a bidding extension period (usually around 60 seconds). If no further bids are placed during this time, then the virtual hammer falls and the auction comes to an end. If the highest bidder has crossed the reserve price threshold, then they win the property.
In many traditional online auctions, such as the ones conducted by Edward Mellor, contracts are immediately exchanged between the buyer and seller when the bidding ends. After this happens, both parties are legally bound to complete the transaction, usually within 28 days.
Some auction houses make use of the “modern method” of auction. Under this system, the buyer and seller have 28 days to exchange contracts, and a further 28 days to complete the transaction. The modern method was implemented to give buyers a window to secure mortgage finance for their new property.
Hopefully, you now have a reasonable understanding of how online auctions work. But what exactly are the benefits of this type of auction?
Bid from anywhere
Perhaps the most obvious benefit of virtual property auctions is that you can take part from anywhere in the world. There’s no need to make a long journey to an auction house in your local area; instead, fire up your laptop, and you’re already there.
These days, most property auctioneers will accept bids from in-person buyers, as well as those tuning in remotely. This means online buyers can take part in the same auctions as everyone else and won’t miss out on the opportunity of any properties.
Avoid the emotions of an auction
There’s no doubting that an in-person property auction is one of the most thrilling experiences around. However, with emotions running high in the auction room it’s all too easy to get swept up in the excitement. Making a regrettable financial decision is not always as thrilling…
When you take part in an online auction, it’s much easier to focus and stay calm. There are no distractions or rival bidders whipping up the emotion of the auction. With features like maximum proxy bidding, you’re also less likely to end up spending more than you wanted to on a property.
Access to more information
When you buy online, you’ll have full access to the property information and legal packs. It’s often much easier to read through these documents online rather than flicking through a heavy handbook. You can also do your own research into the property right up until the auction starts.
The best way buyers can guarantee that they’re making a good investment is to absorb as much information about the property as possible. In general, online buyers have more of a chance to understand a property before they bid than in-person buyers.
Drawbacks to consider
In truth, there are very few drawbacks to using online auctions for buying property. An online auction avoids many of the problems associated with a traditional sale, but doesn’t introduce any of its own issues.
If you want to get involved with property auctions but aren’t keen on travelling all the way out to an in-person event, or there aren’t any upcoming auctions in your local area, then an online auction is usually going to be an ideal solution.
Selling At Online Property Auctions
We’ll get onto talking about how property auctions work for sellers later on in the article. For now, let’s take a look at the benefits and potential drawbacks of selling property through online auctions.
Larger pool of buyers
For sellers, the main benefit of an online auction is being able to access a larger pool of buyers. The more potential bidders there are, the more likely your property will sell for a high price. Online buyers can tap into an auction from anywhere in the world and you could have thousands of people participating in your auction.
Since many auction centres run online auctions parallel to in-person events, there’ll also be in-person bidders to add into the equation. In summary, if you’re looking for the biggest audience for your property sale, then you need to find an auction with an online element.
Easy exchange of contracts
Traditional property auctions are already famed for their un-conditional sales and simple exchange of contracts. Online auctions take this even further though by completing this process automatically. As soon as the hammer goes down, the online platform will automatically send a digital contract to the buyer.
Quick and easy sales
Put simply, online property events take everything that’s great about a traditional auction and make small but meaningful improvements. An online auction is by far the easiest and fastest way to sell a property.
Drawbacks to consider
We said that there aren’t any major drawbacks for buyers in an online auction – and this is true for sellers as well. The only disadvantages that do exist are the same as those of a normal property auction. For example, sellers should be always prepared for their properties to sometimes go for less than they hoped.
However, thanks to the larger buyer pool, online auctions are able to take away some of this risk. Just like with buying, sellers should always try and have their properties online if they want to get the most out of an auction.
Buying Property At Auction: Step-By-Step
The previous section was focused on buying at online auctions. Now, we’re going to shift our attention towards the real fun: in-person property auctions.
If you’ve never been to an in-person auction before, then the first thing to know is that you’re in for a real treat. But there’s a range of other things that you need to understand before jumping into the fire of a live auction.
Below you’ll find everything you need to know about how in-person property auctions work, and what you should be doing at each stage of the process.
Before Going To Auction
Going to an auction isn’t all about the auction date itself. The build-up to the auction is just as important and is your opportunity to get fully prepared.
Find an auction
Of course, the first step in attending an auction is to find one that you’re interested in. The best way to do this is to work out which areas you want to buy property in, and then researching auction houses in those specific locations. The auction houses will then be able to keep you updated about upcoming events and properties that you might be interested in.
We’d recommend getting on the mailing lists for as many different auction houses as you can. This way, you’ll be kept fully up to date about all the properties going to auction in that area and won’t miss your dream buy.
Read the auction catalogue
Whenever property auction houses have an auction date coming up, they will publish a catalogue outlining each of the lots that will be available. Here you’ll find information about the location, condition and guide price for each property.
Arrange a survey
Once you’ve picked out the properties you’re interested in from the catalogue, it’s time to arrange a survey. Contact the auction house directly and request a viewing of each property. Any respectable auction house will be more than happy to do this for you.
If you can, try to take a builder or construction professional with you to help with the survey. Thoroughly inspect the property to get the best idea you can about its condition. A builder will be able to advise you on the cost of any necessary repairs.
You might also like to carry out an independent valuation at this stage. This will help you check that the guide price is in line with the market value, so you can determine your maximum bid.
You should also try and look around the surrounding area. If you’re buying a property as a new home, then you need to decide if you like the area and if there are enough amenities in the vicinity. If you’re a landlord looking for a new property, then you’ll want to know if the area is going to be appealing to tenants.
Consult a legal professional
If you’re satisfied with the condition of the property and want to take the process further, then we’d recommend reaching out to a legal professional. Ideally, you need someone experienced to look over the legal pack provided by the seller. You really don’t want to miss anything problematic that could negatively affect you in the future.
Since contracts are exchanged between buyers and sellers immediately after an auction has finished, it’s essential to get this sorted ahead of time. If you notice a problem with the legal pack after you’ve won the auction, then it could be too late to go back!
Ensure your finances are in order
The final step before attending an auction is to check that your finances are in order. You need to ensure that you’ve put aside cash for a deposit and that you can cover the full amount if you manage to win the auction. Again, it’s always best to reach out to a professional or someone who is experienced to help you manage your funds effectively.
This is also a great time to set your budget for the auction day. Having a firm price in your head before you get to the auction is always the best strategy. We’ve mentioned a few times how easy it is to get caught up in the emotion on the day. By setting your budget beforehand, you remove one of the important decisions that you’ll have to make in a stressful environment.
Unless you’re a cash buyer, you’ll also need to have a finance setup in place before making a property investment. This makes setting your maximum price even more important. Ensure you know how much the deposit is going to be and that you have a way to pay the total cost.
On Auction Day
So, you’ve made it to auction day. You’ve decided which properties you’re interested in and have reached out to mortgage lenders to put appropriate financing plans in place. Now, it’s time to seal the deal and walk away with the property you’ve been dreaming of.
It’s very likely that you’ll be feeling a little nervous about your first auction. To make everything less stressful, be sure to arrive with plenty of time to spare. Additionally, the auctioneer may announce additional information about a property before the auction starts. This information could be the difference between you deciding to place a bid or passing up on the lot.
Arriving well before the start time of your property will give you chance to soak up the atmosphere and get a feeling for how the auctions are going. You might notice that the bids are following a similar pattern, which could lead to you altering your strategy.
Ensure you bring the necessary documentation
Most auction houses will require a selection of documentation to let you participate in the auction. So, make sure that you have everything you need with you before leaving for the auction. There’s nothing worse than making a long journey, only to realise you left your identification at home.
If you’re at all unsure of what you need to take with you, then don’t hesitate to get in touch with the auction house. They will typically require two forms of ID but may ask for other information too.
Get comfortable for the auction
When a property you’re interested in comes around, find yourself a good seat near the auctioneer. Get comfortable and make sure that you’re free from distractions. By the time the auction reaches the closing stages, you need to know that you can be fully focused on the bidding.
Hold your nerve
When bidding commences, there will probably be a flurry of opening bids. Of course, everyone has a different auction strategy, but it’s important not to get carried away in the early stages. There’ll always be an opportunity for you to place a bid if you want to, so there’s no need to jump in too soon.
Staying calm is one of the hardest things to do during an auction. The buyer that manages to hold their nerve and not get distracted by other bidders usually manages to secure their properties for the best price.
To place a bid, you will usually hold up your paddle so that the auctioneer knows who is leading. Make sure you hold your paddle up clearly and put it down as soon as your bid has been recognised. Throughout the process, the auctioneer should be making it clear what the leading offer is.
If you’re struggling to keep up and remain relaxed, then you might want to consider having someone bid for you by proxy. This way, there’s no chance of breaking your budget or getting cold feet at the critical bidding moments.
Sign the contract
If you manage to place a winning bid that clears the reserve price when the hammer falls, then the property is yours! The auction house will then take you through the procedure of signing contracts and will confirm that your deposit has been taken.
If the auctioneer uses the “modern” auction method, then this process may be slightly different.
Wait at the end if you don’t reach the reserve price
If the bidding on a property you were interested in didn’t meet the reserve price, then the seller may allow the auctioneer to sell the property privately at the end of the auction. Make sure to stay up to date on any developments after an auction has finished – you might be able to get the property at a fantastic price.
Top Tips For Buying At Auction
Consult professionals at every stage
Buying property is a significant investment and checking in with professionals is a way to minimise the chance of making the wrong decision. Taking a builder to the property survey and asking a lawyer to look over the legal pack are simple things that can have a huge positive impact.
The property market is a complicated place and it can take decades of experience to fully understand it. There’s no shame in asking for help from someone more knowledgeable than yourself. That said, you know yourself best, and you should never be pressured into making any investment that you’re not entirely comfortable with.
Research how your auction house operates
All property auction houses will operate in different ways and have their own procedures. Researching the auction house will help you understand exactly how the auction is going to go on the day.
As part of this research, we’d recommend attending an auction that you’re not bidding in first. Observing the different processes will put you in the best position when it comes around to your own auction day. You’ll already have experienced the atmosphere in the room and will have an idea of how the auctioneer runs the bidding.
Consider attending with your solicitor
When it comes to auction day, you should consider taking a property solicitor along. This is especially true if it’s your first time attending an auction – your solicitor will likely have auction experience and will be able to guide you through the process.
They will also be able to offer advice if there are any changes to the legal standing of a property on the day. Occasionally, new information can come to light on the auction day that will be shared before the bidding begins. Your solicitor will help you understand the potential impact of any last-minute alterations.
As we briefly mentioned earlier, you can ask someone to bid on your behalf at an auction. A solicitor is an excellent candidate for this job. They are very likely to stay calm under pressure and ensure that you don’t end up creeping over your budget.
Go in with a sensible mindset
Going into an auction with the right mindset is the best way to ensure you have a good experience. Although it’s difficult, try not to get too attached to a single property – there will be many buyers at an auction, and sometimes you’ll have to let a favourite go to someone else.
With that said, you should avoid being timid and stay strong in your convictions. As long as you’re staying within your budget, don’t be afraid to get out there and take control of the bidding. Sometimes all it takes is a bit of confidence to secure a winning bid.
Selling A House At Auction: Step-By-Step
If you’ve decided that a property auction is the best way to sell your asset, then you need to know what you’re getting yourself in for. Just like with buying a property, there are various processes to understand and perform before you get to the auction day.
It doesn’t matter if your property is going to an in-person auction or will be available for online bidding, the basic steps you’ll follow are the same.
Before Your Auction Date
For sellers, the main bulk of the work happens before bidding starts. Once you actually get to the auction room, everything else will take care of itself.
Book a property appraisal
The first step on the road to the auction house is a property appraisal. During this procedure, your property will be professionally assessed to provide an estimate of its value. The appraisal will take a variety of factors into account, including size, condition and location.
Appraisals are important since every property is unique. This is particularly true for older or uncommon buildings, which are often sold at auction. An appraisal will also help you’d decide whether or not you want to commit to selling the property.
At Edward Mellor, we provide free appraisals for anyone looking to sell through our platform. Our expert valuers strive to make their appraisals as accurate and reliable as they possibly can.
Agree on a price and set a reserve
Following an appraisal, the next step is to agree on a desired sales price. This price will typically be heavily based on the appraisal value, but there is room for movement. It’s important that the seller and auction house agree on the desired price so that everyone can try their best to make it happen.
The seller can then set a reserve price for some extra peace of mind. The reserve prevents the property from being sold too far under the desired sales price. Choosing the lowest price you’re willing to accept is somewhat of an art, and your auction house should have the experience to help you out.
Set a time frame
As the seller, you’ll also have the power to decide how soon you want your property to go to auction. If you’re keen on a quick sale, then you can get your property into the first available auction day. On the other hand, if speed isn’t a concern, then you might wait to sell at the best possible time.
Waiting to sell your property could give it time to gather more attention and potential buyers. However, it could deter buyers who are looking to secure a property quickly. Balancing this can be a difficult task.
Whatever your time frame, an auction house should always be able to accommodate you.
Discuss the legal side
Selling a property at auction is, at its heart, a legal process. Put simply, you are handing over the ownership of an asset to another person, in exchange for an agreed sum of money. As a result, there are various legal proceedings to complete and contracts to draw up before a property can go to sale.
For the legal side of things, your best bet is to reach out to an experienced property solicitor. They will assist with the preparation of your property’s legal pack and any other processes that need to take place before auction day.
Pay your entry fee
To get your property featured in an auction catalogue, you will have to pay an entry fee. This fee isn’t always due prior to the auction though, and you may be able to negotiate with your auction house to pay the entry price after the property has sold.
The entry fee covers the cost of preparing pages of the catalogue for your property and any advertising that the auction house undertakes on your behalf. The auction house will typically market your property at online estate agents and their own websites.
At The Auction House
If you’ve made it this far, then you’ve done the hard part. Now you can sit back, relax and wait for your property to sell.
Prepare to sell your property!
In the vast majority of cases, properties that go to auction easily surpass the reserve price and get close to the value that was appraised. However, some properties will go straight past this point and get you a higher sale than you could have hoped for.
If the bidding doesn’t reach your reserve price, then all hope is not lost. You may be able to ask the auctioneer to offer the property to the current highest bidder, for the reserve price. Interested buyers might decide to pay the extra in order to secure your property.
This definitely isn’t a requirement though – if the bidding doesn’t reach the reserve, then you don’t have to offer the property to anyone.
Sign the contracts
In the event of a successful sale, contracts will be exchanged immediately between yourself and the buyer. Once you’ve signed the contract, you’ve sold your property! Thanks to the efficiency of property auctions, you’ll be paid the total amount within 28 days of the auction.
If your auction is in-person, then auction houses usually require your solicitor to attend with you. This also means they will be able to oversee the contract process and confirm that everything is in order.
If you don’t sell, try again
If your property didn’t sell for any reason, then don’t be disheartened. A property that doesn’t get many bids one day can soar past the guide price on another. Take a look at the next available auction date and consider putting your property in for another go.
With that said, it could be that your building isn’t suited for auction and would be better sold using a different method. Most property auction houses will be honest with you in this case and give you any advice you require.
Costs Associated With Selling At Auction
Property auctions aren’t free. Before you decide to sell your property in this way, it’s vital that you have an understanding of all of the costs involved. If you take some time to research this, then you won’t be caught out with any unexpected charges down the line.
Practically all property auctions, whether online or physical, will require an entry fee. The proceeds from the entry fee go towards entering your property into the auction catalogue and cover any advertising that the auction house does on your behalf.
The entry fee is typically a non-negotiable charge that you should budget for. Entry fees vary between auction houses and you can expect to pay anywhere from £200-£1000. Some auction houses will advertise “no entry fees”, but you should be wary of other hidden costs that they may implement.
Your entry fee already ensures some level of marketing before the auction date, but you might decide to increase the exposure of your property even more. If you’re advertising through an agent then you can expect to have more costs to cover.
The auction company will usually advertise your property through online platforms such as Rightmove or Zoopla. For this reason, you might consider paying for an advert in your local estate agents, to attract buyers or property developers in the area.
Marketing isn’t a necessary cost when you’re selling through an auction, but it could potentially help your property fetch a higher price. Of course, it’s up to you to decide whether or not the expense of marketing will be worthwhile.
These are the most significant charges involved when you sell at an auction. When people are talking about “auction fees”, they are usually referring to the commission. A commission is a percentage of the sale price that the auction company keeps in the event of a successful sale.
Auction fees vary between different houses but you can expect to pay around 2% commission when your property sells. It’s important to stress that this fee is only charged when your property is sold – there won’t be any charges due if the auction is unsuccessful.
The commission is taken for any costs that weren’t covered by the entry fee, as well as paying auction staff and operation fees. Again, the commission rate is typically non-negotiable and is just a cost that you need to factor into your calculations.
Most physical auctions will ask sellers to attend with their solicitor. As a result, the seller will have to cover the solicitor’s fees for the time that they are in attendance. The attendance of a solicitor guarantees that all contracts are dealt with correctly and the sale is completed smoothly.
Before the auction day, sellers also have to prepare a legal pack for their property. There’s nothing stopping the seller from preparing the legal pack themselves, but most will consult a property solicitor to complete this process for them. The cost of a legal pack is typically £200+.
Unless you have some previous experience, we’d always recommend asking a professional to prepare the legal pack on your behalf. If any problems are found with the legal pack, your property could be removed from the auction catalogue.
How Do Auction Fees Compare To Estate Agents?
It’s clear that there are many expenses associated with selling a property at auction. But how do they compare to fees charged by estate agents?
Unfortunately, estate agent fees vary dramatically. The cost depends on a range of factors, from the property’s location to the type of building that it is. You can expect an estate agent to charge anywhere from 0.75% to 3% + VAT of the final sale price for their services.
As with an auction, you will most likely have to pay legal fees for various procedures. You won’t have to get a legal pack produced, but there will be a range of paperwork that requires a trained eye to be completed correctly. These legal fees, along with the estate agent’s commission, should be the only major costs you have to cover.
This isn’t the full story, however. Some estate agents will work additional upfront fees into the small print, such as For Sale boards and advertising costs. They may also ask for you to cover the cost of a value appraisal.
If you find out that an estate agent is trying to charge you for these things, then you should try and get out whilst you can. A good agent will include these costs as part of the commission fee and is required to lay out what’s included in that fee by law.
There are many honest estate agents out there who won’t attempt to overcharge you at any opportunity. In some cases, using an estate agent may even work out cheaper than going to auction. You just have to be vigilant with your research to guarantee that you’re using a reliable company.
Auction Companies That Charge The Buyer Commission
As you’re researching places to sell your property, you may come across auction companies that claim to “move the costs” of the sale onto the buyer. This means that the buyer is charged the main commission rather than the seller.
As a seller, avoiding hefty auction fees certainly sounds inviting. After all, the commission is usually the biggest charge that you’ll have to account for during the selling process. However, this isn’t always the perfect solution that it sounds like.
A buyer that has to cover a commission will add this expense into their calculations. As a result, buyers will usually place lower bids than they would otherwise, knowing that the commission will add a considerable chunk to the price. The seller is then left with a smaller slice of the pie.
Moving the costs to the buyer isn’t an inherently bad idea and in some cases, it may even lead to the seller making more money. But in a world where the majority of auction houses don’t charge buyers any commission, it can be hard to convince them that it’s worth their while.
Top Tips For Selling At Auction
Find a good solicitor
Despite online services making property auctions more accessible than ever, the auction process can still be a minefield for new sellers. Having a great lawyer by your side is the very best way to ensure you get the most out of your property with a smooth and efficient sale.
For many in-person auctions, having a solicitor in attendance is a requirement. You’ll also require a legal professional to prepare your legal pack and check over any contracts.
Be wary of low-fee solutions
Selling property at auction comes with a range of fees and expenses. So, when you spot an auction company offering low fee solutions, it can be very tempting to give them a chance. Unfortunately “low fees” is sometimes used in place of “hidden fees” and you can quickly discover that you’re not going to save any money after all.
As discussed above, some auction companies may cover their costs by charging the buyer a commission, rather than the seller. Although this could have potential benefits, in most cases it leads to less interested buyers and a lower purchase price.
Any respectable auction organisation will clearly lay out their fees and actively help you understand what charges you’ll have to pay. Sometimes, a company that seems to have expensive fees may work out to be the cheapest in the long run.
Modern Method Of Auction
So far in this article, we’ve centred our discussion around the “traditional” method of auction. This is when contracts are immediately exchanged when the hammer falls, and the buyer is given up to 28 days to complete the payment.
The traditional approach is not the only way to run an auction. Over recent years, the “modern method” of auction has gained some traction.
What Is It?
The modern method is the same as the traditional method in most ways but has a couple of key differences. When the auction ends, the buyer and seller are given 28 days to exchange their contracts. After this has occurred, the buyer is then granted a further 28 days to pay the full purchase price.
The purpose of the modern method is to give buyers more time to contact mortgage lenders to finance the property they successfully bid on. Under the traditional approach, buyers usually have to have a finance plan set up before bidding in the auction.
Traditional auctions have typically been best suited towards buildings that need refurbishment or unique properties that struggled to sell on the open market. They also attract specialist buyers and property developers, who often have the funds available to make a quick payment.
On the other hand, the terms of a modern auction are more in line with an estate agent sale. This makes them more appropriate for standard houses and buildings that might not have gone to auction in the past.
It’s worth pointing out that traditional auctions can still accommodate new and conventional buildings. In fact, the majority of properties sold at traditional auctions fit this description. The modern method is just another way of doing business.
Why Do Sellers Opt For It?
The main reason a seller might opt for a modern auction is that they can attract a broader range of buyers. The extended contract exchange and payment windows can appeal to buyers who would be deterred by the rapid turnaround of a traditional auction.
Some sellers may even appreciate the slower pace themselves. One of the main benefits of a traditional property auction is that sales are completed quickly and efficiently. If the speed of sale is not important to a seller, then they might prefer to take their time.
Potential for a higher purchase price
Thanks to the attractive terms for buyers, sellers using the modern method have the potential to receive higher bids for their properties. Since the buyer has more time to secure financing, they are more likely to commit extra cash in order to secure a successful bid.
For a seller, the biggest drawback of the modern method is a reduction in the speed of sale. Traditional property auctions work on the basis that sales are completed extremely quickly – if you successfully bid on a property, then you’re required to pay in 28 days by law.
Although the modern method has its advantages, it gives up this critical aspect of property auctions.
Not much different from an estate agent
In the end, the modern method of auction isn’t very different from selling through an estate agent. The only real difference is how buyers purchase the property (by bidding rather than making an offer). Sellers don’t benefit from the speed of sale and instead, are hoping that the longer time frame for buyers will result in a higher price.
Of course, the risk with that approach is that the property ends up selling below market value.
Online Auctions With Edward Mellor
Here at Edward Mellor, we operate reliable online auctions for all our clients – buyers and sellers alike. So whether you’re looking to sell your property quickly and efficiently or hoping to purchase new buildings for your portfolio, an Edward Mellor online auction is the service you’ve been searching for.
Our Online Service For Property Buyers
Taking part in a property auction has never been more straightforward. With virtual viewings and digital bidding, every stage of the property-buying process can be completed from the comfort of your own home.
You’ll receive all the benefits of a traditional auction, including quick sales, fair bidding and varied lots, alongside Edward Mellor’s famous customer service. Our online auctions are the easiest and most transparent way to secure high-quality auction properties.
The process begins with a simple registration stage, followed by an easy verification process. Once you’re signed up, you can flick through our virtual auction catalogue and pick out any properties you might be interested in.
If anything’s caught your eye, then it’s time to register interest in the property. We will approve your registration and get in touch regarding the deposit. Once everything’s in place, wait until the auction begins and start bidding!
Our Online Service For Property Sellers
Our online auctions are just as easy for sellers too. With over 20 years of experience in the auction industry, we’re in a great position to help you get the most out of your property. Transferring our service to the digital world has dramatically increased the buyer pool, giving your auction properties the best chance to reach their potential.
Our service begins with a free expert appraisal of your property. Then, on the basis of the appraised value, we’ll work closely with you to determine the desired sale price and set a sensible reserve price to minimise your risk.
Once the correct contracts have been drawn up, sit back, relax and let us take care of the rest. If your property sells, then contracts will be automatically exchanged with the buyer, and you’ll receive your full payment within 28 days.
Why Use Our Auction Services?
For years, Edward Mellor has been one of the most trusted property auction houses in the North West. As we move into the online realm, we bring with us a wealth of experience operating fair, reliable and efficient auctions.
Our proven history of success has resulted in a strong community of clients that wouldn’t go anywhere else to sell or buy property. With a focus on powerful advertising and no-nonsense sales, you get the perfect combination of estate agent publicity and auction simplicity.
Whether you are a buyer or seller, Edward Mellor will ensure that your auction experience is as seamless as possible. To learn more about our services, don’t hesitate to get in touch today.
Property Auctions: Final Thoughts
As we come to the end of this article, we hope that we’ve given you a good understanding of how property auctions work. It’s clear that there are plenty of considerations that both buyers and sellers need to make before heading to auction, and our aim was to lay them out transparently.
If you still have more questions about property auctions, you shouldn’t hesitate to contact our friendly team. We’d be more than happy to provide unbiased advice to help you decide whether an auction is right for you.
Is it worth buying auction property?
If you’re considering heading off to a property auction, then you’re probably wondering whether it’s going to be worth your while. If you haven’t been convinced by the information above, let’s take another look at the unique benefits of buying property at auctions.
Perhaps the most significant advantage is that buyers can often secure auction properties at much better prices than they would on the open market. If a building has made it to the auction house, then it’s often the case that it has struggled to sell on the open market, or it needs to be sold quickly.
This isn’t always true though, and some sellers simply prefer selling at an auction than dealing with estate agents. Whatever the case may be, buyers can expect the best property prices when they shop at an auction.
What does auction property mean?
“Auction property” is exactly what it says on the tin – a property that has gone to auction! There are a number of reasons why a seller might head to property auction houses to sell their buildings, which we’ve talked about in-depth throughout this article.
Auction property is no better or worse than properties on the open market. Some people assume that auction houses only sell off old or derelict buildings, but this is far from the truth. A property auction is usually extremely varied, with something for everyone.
How do you win a house auction?
In principle, you win a house auction by being the highest bidder on a property. It’s not always that simple, though, and there are usually a few hoops to jump through before you can secure a property. For example, many sellers will put a reserve price on their properties – if the bidding does not reach the reserve, then the property won’t be sold.
A house auction will typically take place in a physical location where buyers can bid in person. Often, the auction house will operate a simultaneous online auction so that people can bid remotely at the same time. You can also ask a friend or colleague to bid on your behalf – this is called bidding “by proxy”.
There are various steps you have to follow before being able to bid on a house, such as putting down a deposit in case you win a property. We discuss these steps at length in the main article above, so be sure to read these if you have any more questions.
How does a property auction work?
When you attend your first property auction, the experience can often be intimidating or overwhelming. In truth, there is absolutely nothing to worry about, and you’ll quickly start to enjoy the thrill of a great auction.
The auctioneer will announce the property that is about to be sold and will commence the bidding. They will select an appropriate starting point and wait for a buyer to get the ball rolling. If there are no bids, then the auctioneer will slowly lower the starting bid.
You can bid at any time during the auction, but there’s some standard etiquette that buyers are expected to follow. If you’re the highest bidder when the auctioneer brings the auction to a close, then the property is yours!
How much does an auction cost?
If you’re selling a house at an auction, then you can typically expect to spend the same amount that you would pay a high-street estate agent. However, this isn’t always the case, and some buyers use auctions because they can work out cheaper than using an estate agent.
The auctioneer will usually charge a 2.5% commission for selling a property through their auction house. This fee covers the costs of putting on the auction. In addition, sellers can expect to pay an entry fee to the auction (around £300) and cover the cost of an auction legal pack for their property (£200)