homes4u: Property auctions explained
When buying or selling a property, it can seem like there is only one option and the process is set in stone. We’ve become accustomed to long completion times and the threat that the sale or purchase could fall through at any time.
When the phrase ‘property auction’ is mentioned, many people would jump to the conclusion that only certain types of property are sold at auction, or that auctions are solely for those houses that don’t sell in private treaty.
In fact, thousands of properties are sold each year at auction. While this is a popular way for investors and buyers to find properties to snap up and sell on, they also attract plenty of mainstream buyers and sellers too.
We want to dispel the myth that property auctions are difficult, stressful, or just for houses that can’t be sold on the traditional market. All types of houses are sold via property auctions, and all types of people buy them. So, how do property auctions work for sellers?
How do property auctions work?
In the traditional sense, auctioning is the process of buying and selling goods by offering them for bidding. Bids are taken once the item or property is live and the items are sold to whoever bids the highest amount, which will be the purchase price.
Auctions are commonly opened with ascending prices and bidders compete openly with each other. Each subsequent bid must be higher than the last.
In relation to property auction, interested buyers will bid for your property and the highest bid will win the auction and complete the purchase
Property auctions can be planned months in advance, with auction houses publicly releasing the catalogue of properties, known as lots, to potential bidders ahead of the auction date.
How does the Modern Method of auction work?
The Modern Method of auction puts the seller at the forefront, putting you in much more in control of the sale from beginning to end.
An estate agent will be appointed to arrange viewings to generate interest in the property, and to encourage potential buyers to submit an offer. All interested parties have to submit their offer online, which acts as their ‘bid’.
Another key difference between the Modern Method of auction and the traditional auction is the longer timeframe for the sale to complete. In a traditional auction the completion time is 28 days, whereas with the Modern Method you’ll enjoy a far more flexible completion time. These timescales allow people who need a mortgage to buy your home, which 35% of people did last year, making the Modern Method of Auction more accessible to a wider pool of buyers.
Modern Method auctions provide security for the seller, as the winning bidder pays a reservation fee and signs a reservation agreement, meaning on average the Modern Method of Auction has a 95% completion rate.
Selling a house at a property auction explained
If you’re looking for a straightforward and easy sale on a property, selling at an auction can be the way to go for you.
In a traditional auction, once the hammer falls the buyer will put down a 10% deposit and a non-refundable reservation fee. From here, the buyer must pay the remaining 90% of the purchase price within 28 days.
In the Modern Method of Auction the buyer will pay a non-refundable reservation fee in addition to the purchase price. This reservation fee is normally a set percentage of the purchase price, and must be paid when the auction ends to reserve the property for the buyer.
While properties that need renovation or are unique are traditionally sold via property auction, all different types of properties are sold regularly, and quickly via this method.
How much does selling at an auction cost?
In the instance of the Modern Method of Auction, the vendor (seller) will cover any marketing and advertising fees.
Don’t forget as with Private Treaty property sales you’ll also need to involve a solicitor to assist with the legalities of the house sale. These fees can vary so it’s a good idea to shop around for the best price and service.
As with Private Treaty property sales, there’s research to undertake and a few auction fees to factor in.
The key difference between selling at a traditional auction and selling at a Modern Method auction is timescale for sellers. If you require a quicker sale, traditional auction may be more suited to you, but if you want to attract wider interest and benefit from slightly longer timescales the Modern Method is likely more beneficial for you.
When a buyer makes a successful bid, the reservation fee will be taken on the day of sale, to secure the property. This can be up to 5% of the property costs. In both instances, the buyer will take into account any fees when considering their final bid.
Accepting offers in advance of the auction
You may receive offers from buyers ahead of the auction, but once you’ve decided to sell with an auctioneer and the necessary fees have been paid, don’t be swayed into selling ahead of time. While it can be tempting to accept the offer if you need a quicker sale, a keen buyer will pay what the property is really worth at the auction. Using this knowledge will help you set your reserve price, which is explained below.
How to set your reserve price?
The reserve price is the lowest price you’ll accept for the property. This information is kept private and only shared between you and the auctioneer. If all the offers on the day of auction are below the reserve price you have chosen the auctioneer will withdraw the property.
On the day of the auction, the auctioneer will open bids to your property, and the hammer will fall on the highest bid of the day.
If you realise you have set your reserve price a little too high, you can negotiate with buyers after the auction to reach a settlement.
How do I set the guide price?
This is the price the public is allowed to know, and it can be used to attract buyers. The auctioneer will help you to list this price, and it gives a rough estimate of what the house is worth, so even if this is set as lower than the reserve price you don’t have to accept it.
How do I list my property for auction?
If you have a property you wish to sell using the Modern Method of auction and you want to explore your options, let homes4u help! Through the Modern Method of auction, the sale is far more predictable, there’s far less chance of the sale falling through, and your sale will be completed quicker. If this sounds like something that would work for you, get in touch with our team of experts today.