Selling a house at auction
If you’re looking for a quick sale, selling a house at auction may seem like the natural choice. But what exactly does selling at auction involve?
In this guide
- Why sell a property at auction?
- How to sell a house at auction
- How much does it cost to sell a house at auction?
- How do I choose an auction house?
- How are the reserve and guide prices set?
- What happens after a house is sold at auction?
- What if your house doesn’t sell at auction?
- What are the pros and cons of selling a house at auction?
- What are the alternatives to selling a property at auction?
Why sell a property at auction?
Selling a property at auction has many potential benefits, if done successfully. The key to an auction sale is the ability to create demand and competition. If your property is well marketed and attracts a lot of attention, competing buyers may push the price of the property up beyond the level buyers would be willing to pay via an estate agent.
Auctions also, typically, attract more investors and buyers looking for a ‘project’, so if your property is run-down, unmortgageable or unusual, selling at auction could be a good option.
Another benefit to selling at auction is that it offers a definite ‘end date’ to the process. Unlike selling to the open market, the auction date will be set from the start of the marketing process. Any successful auction sale will then need to complete within 28 days. Contracts exchange at the point of the hammer falling, and a deposit is payable on the day. This reduced the chances of the sale falling through before completion.
How to sell a house at auction
Choose an auction house to sell with
Choose your preferred auction house and instruct them to act on your behalf, as you would an estate agent. You will likely need to sign a contract with the auction house and pay upfront for your listing or advertising costs.
Prepare the legal pack with your solicitor
You will need to instruct a solicitor to put together a legal pack for the property you are selling. A legal pack generally contains copies of a property’s title deed, special conditions of sale, land registry search, lease information (if applicable), and other documentation relevant to the sale.
Legal packs are available to prospective buyers to inspect in the lead up to auction day.
Set a reserve price
You’ll need to set a property reserve price in advance of the auction. This figure can be decided with the advice of the auction house and is the minimum amount you are prepared to accept for your property.
Once you instruct your auction house and they have your legal pack, they will begin to market your property. They should discuss the different types of advertising and any associated costs with you before the marketing of your property begins.
It’s worth noting that most auction houses will insist on marketing your property for a full month ahead of the auction day. These timescales need to be factored in if you are looking to achieve a quick house sale.
You may want to be present when the auction takes place, however this is not mandatory as the auction house will give you an update on the sale outcome once the auction is complete.
The auctioneer will normally start by inviting bids lower than the reserve price, allowing potential buyers to start a bidding war to secure the property. As well as bidders who are physically present, the auctioneer can also take commission bids and telephone bids from buyers who are unable to attend. In the case of a commission bid, the auctioneer will bid on behalf of the absentee up to their maximum bid. A telephone bidder will have the assistance of an auction house employee to communicate their bids. If your property receives any bids above the reserve price, a sale to the highest bidder will become legally binding.
How much does it cost to sell a house at auction?
Auctioneer’s fees for selling house:
You can expect to pay around 2.5 per cent of your property sale price to the auctioneer as commission. In addition to this, you will need to pay advertising costs. Advertising costs (or entry fees, as they’re sometimes known) will vary from auction house to auction house, so it’s important you find out about all of the costs involved before proceeding.
Other fees to consider:
You will also need to factor legal fees into the cost of selling a house at auction. You will need to pay a solicitor to prepare the legal pack in advance of the auction and to handle the legal completion of the sale after the auction.
How do I choose an auction house?
There may be a choice of auction houses in your area. If this is the case, research them before choosing which one you want to use to sell your property. Request to see examples of their marketing materials. Also, find out where and how properties and auctions are advertised. You can also ask about properties that have recently sold through the auction house to see how much experience they have selling properties like yours. Finally, decide if you are confident that this auction house will do a good job of marketing and achieving a good price for your property.
How are the reserve and guide prices set?
When you’re selling property at auction, the reserve and guide prices will be set after discussion with the auction house. The auction house will make recommendations, based on their knowledge of the market, but ultimately the reserve price will be your decision. If someone makes a bid at or above the reserve price, the sale will be legally binding, so it’s important that you are happy with whatever figure you decide on.
What’s the difference between the reserve price and the guide price?
The guide price is the figure the property will be advertised at in the lead up to the auction. You want your guide price to be low enough to attract a lot of attention, but high enough that the people attending the auction will be serious about paying what the property is worth.
The reserve price is the lowest figure you’re prepared to accept for your property. If you fail to receive any bids at or above the reserve price, your property will remain unsold.
Knowing what similar properties in your area have sold for recently might help you to set your reserve price. You can search property sold prices on the government website.
What happens after a house is sold at auction?
If the reserve price has been met or exceeded, the property sale is legally binding when the hammer goes down. The buyer will be required to pay a ten per cent deposit on the day of the auction and prove that they have the cash available or mortgage in place to pay the remaining 90 per cent within 28 days. Contracts will be signed and exchanged on the day of the auction. You will then be required to pass the contracts on to your solicitor, who will handle the sale through to completion at the end of the 28-day period.
What happens if your house doesn’t sell at auction?
If your property doesn’t receive any bids at or above the reserve price you have set, the property will remain unsold. Regardless of whether your property sells on auction day, you will still be required to cover the costs outlined to you by the auction house.
If you change your mind and decide you are willing to sell at a lower figure than your reserve price, it may be possible to get in contact with potential buyers who bid on the day and negotiate a sale after the auction has ended.
What are the pros and cons of selling a house at auction?
Is selling your house at auction a good idea? Selling your property at auction can be a great option for those trying to sell an unusual or unmortgageable property. But, they do not offer a guaranteed sale.
So, what happens to houses that do not sell at auction?
If your house does not sell at auction and was advertised at an attractive guide price, it can be difficult to then secure a sale on the open market. Potential buyers may have seen your property advertised at the low guide price and will notice the property failed to sell at auction. As a result, this may result in fewer buyers being willing to pay the guide price figure or higher.
It is estimated that only around 72 per cent of the properties listed at auction actually achieve a sale. Unfortunately, if you’re one of the 28 per cent that fail to sell, it is likely to seriously affect your property’s saleability on the open market, and ultimately the price you achieve for the property when you do sell it.
Choosing to sell your property at auction will also have time and privacy implications. You are required to let any interested parties (and their surveyors) view the property before the auction. If the property receives a large amount of attention, that could mean a lot of property viewings.
What are the alternatives to selling a property at auction?
If you need a quick sale but you’re not sure an auction is the right option for you, a professional buying company could be the ideal solution.
Unlike a property auction, a genuine professional home buyer will be able to offer you a guaranteed sale on a date of your choice. A genuine professional home buying company will have its own cash funds available, ready to purchase your property. This means a sale can often be completed in as little as 7 days, if required.
If you’re looking for a quick, guaranteed sale, a professional home buying company is likely to be your best option. However, any genuine buyer with funds available to buy your property direct will do so at a discount. You can expect to receive around 80-85 per cent of the market value.
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- Structural survey – all you need to know
- What is a memorandum of sale when buying or selling a house?
- What are title deeds?
- When was my house built?
- Should I sell my house to pay off debt?
- Retirement planning – should you sell your house?
- How to stop house repossession
- Selling an inherited property