With property sales via auction increasing in popularity during the global pandemic, more estate agents and property owners are opting to sell via auction over sealed bids and with a range of benefits, it’s clear to see why.
So, are auctions set to take over sealed bids? I believe so for several reasons…
Selling or buying a property isn’t always a straightforward process and because of this, estate agents, buyers and sellers are always looking for the easiest and most straightforward route. Almost everybody you speak to has either experienced or knows somebody who has, a property sale via private treaty being a total nightmare.
Whether this is due to the long process from offer through to completion or because someone has pulled out and broken the chain, there is a long list of things that can ‘go wrong’.
With buyers and sellers seeking transparency and ease during the purchase/sale of a property, auctions provide something that sealed bids do not – the ability for all parties to see where the bid is. Not only does this provide the transparency required, but it also often ends in a higher sale price too. The competitive bids and fast pace of an auction typically drive up prices, which for anyone selling a property, is clearly’ the desired end-result.
Of course, the main benefit of selling via auction is the low fall-through rate. In Q4 2021, according to Quick Move Now, 39% of property sales fell through due to the buyer changing their mind or attempting to renegotiate the offer and 27% because the seller accepted a higher offer from a different buyer or switched buyers due to slow progress.
This makes up a staggering 66% of property sales falling through for reasons which can be avoided when selling via auction. On the contrary, sales via auction have less than a 1% fall-through rate. When the results speak for themselves like this, it is clear to see that sale via an auction rather than a private treaty is certainly a more attractive offering.
There is no doubt that a property sale falling through has a domino effect on everyone involved. Of course, firstly it affects the seller or buyer of the particular property, often pushing them back to square one after what has sometimes already been a process spanning over several months.
A property falling through also breaks the wider chain which as we all know, trying to complete the chain in the first place isn’t always an easy task. Again, this sets many buyers and sellers back to the beginning and could end in multiple sales falling through in addition to the original one.
A broken chain can also result in properties being sold for a lower price due to sellers accepting offers out of desperation in order to not lose out on their ideal property or to meet timeframes.
This knock-on effect also impacts the estate agents who are waiting on the commission from the sale. As well as this, the more times a property falls through, the more work the estate agents must do with no financial return – therefore making the process less profitable each time it happens. This, combined with no sales progression or paperwork to deal with makes selling via auction a very attractive option for estate agents.
The benefits for estate agents don’t only arise in terms of the workload and fall-through rate being far lower, auction lots also tend to attract a higher number of interested parties, helping increase exposure for estate agents and reach new potential buyers and sellers.
For the buyer and seller of the property, benefits also come in the form of having additional experts involved. Unlike a private treaty sale that is done just via an estate agent, sales via auction benefit from having both an experienced estate agent and auctioneer working on the sale. After all – two minds full of knowledge and experience are better than one.
Historically, auction sales have a reputation for ‘problem properties’. Whilst it is true that auctions are the best place to sell certain types of properties such as short lease flats, properties facing EWS1 form issues, properties that High Street banks won’t lend on, properties with structural issues, etc, it is also equally true that perfect properties sell just as well, if not better.
In fact, with a higher sale price often being achieved, auctions make a better avenue of sale for many properties and more importantly, clients who are looking for a certain sale figure by a certain date and don’t want to go through the hassle of sales falling through.
Sales via auction typically exchange within 28 days and with the buyer legally bound to pay a 10% non-refundable deposit, the chances of the sale falling through reduce significantly creating a win-win situation as well as peace of mind for buyers, sellers and of course estate agents who receive their commission quicker and enjoy a healthier profit.
The world has completely changed in the past two years, and this includes the property market, and the rise in sales via auction. There has been a substantial increase in first-time buyers taking part in auctions and buying. This could be a generational thing but also, sub-35-year-olds are more au fait and trusting of buying things online and this even includes properties.
In 2021, lots sold via auction raised around 30% more than sales in 2020 and I am confident this number will continue to rise in 2022 as house prices continue increasing and so does the number of lots being sold.
With the current suggested changes to legal documentation being made available pre-marketing for properties, I predict that there will be a seismic shift in how properties are bought and sold in the UK. Auctions will continue to rise in popularity amongst buyers and sellers who want the convenience and security of a guaranteed sale/purchase vs the existing long, drawn-out and unpredictable private treaty method of sale currently used by the majority of property sellers who opt for private treaty sales.
This article is written by Stuart Collar-Brown, director of My Auction.
Millie is a perfectionist with a passion for property and writing articles. You’ll find her researching the latest housing trends and the newest up and coming areas worth investing in.