How to Sell a House at Auction

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Correct at time of publication (3rd November 2020). The views and opinions expressed herein are those of the individual contributor and do not necessarily reflect those of the Chancellors Group of Estate Agents Ltd or its subsidiaries. References to legislation, best practice and other matters with legal implications such as fees, rules and processes are included for information and editorial purposes only and are not authoritative, nor should they be interpreted as advice. When in doubt you should only take advice from an industry professional or solicitor where appropriate. E&OE.

If you need to sell your home quickly, the traditional method of selling might not be the best route to a sale. Even when a sale is agreed, the timelines for the conveyancing process and the completion of the sale can vary greatly. Auction is a flexible way for those looking to sell their home quickly, using a process that just isn’t possible when selling by traditional methods. Once auctions were only reserved for cash ready investors and run-down stock, where they have now had a new lease of life and are now available to all potential property purchasers. In this guide we set out everything you need to know about selling a house at auction. This includes why you might want to sell your house at auction, the different types of house selling auctions, setting the reserve price and guide price, the pros and cons of selling at an auction, as well as the full process of selling a property through auction.

Why Sell Your House at an Auction

Selling your home at an auction is a great option if you are looking for a quick and highly probable sale. Once the gavel falls, the buyer is under a legal obligation to put down a 10% deposit. The successful buyer then has one month to pay the remaining 90%. If your property has a few issues which could dissuade many conventional buyers from putting down an offer on your house, an auction could be a particularly good option. This is because auctions often attract a certain type of buyer, typically those who are looking for homes that can gain value in the future. These types of buyers might be looking for unusual properties and ‘doer-uppers’. There is also the possibility of an auction bidding war if there are multiple interested buyers, which might cause interested buyers to bid more than you might expect in the heat of the moment. If you need to sell your home quickly, choosing the auction route is a wise choice. If you set a realistic selling price and there is enough interest in your property, chances are that your property will be sold.

What to Know About the Reserve Price

The reserve price is the absolute lowest price you are willing to accept for your house. This figure is kept private between you and the auctioneer, and if all offers are less than the reserve price, the auctioneer will withdraw the property from the auction. Ultimately, the reserve price gives you a sense of comfort, knowing that your property will not be sold at a price which is unacceptable to you. Keep in mind that the reserve price is legally binding, which means that if someone offers the reserve price (or above), the auctioneer will accept the offer, and you cannot back out. When deciding the reserve price, consider the offers (if any) which you’ve had on your property. If you haven’t had any offers around the price you wanted, it is possible that your asking price is unrealistic. You may need to lower your expectations in an auction setting. Also, keep in mind that you can still negotiate with interested buyers after the auction if you think you may have set your reserve too high.

Setting the Guide Price

The guide price is a figure used to guide potential buyers of how much a property is worth. This is a way to attract potential buyers to the auction room. The guide price can be a single figure, or a price range. You can set the reserve price to be higher than the guide price, which means you do not need to accept an offer of the guide price.

The Different Types of Auctions to Sell a House

There are two types of auctions for selling houses: the traditional method and the modern method of auction. Traditionally, house selling auctions were only conducted in auction houses. This is still the most popular method but in recent years, the modern method of auction has become more popular. Let’s find out more about the two different types of auctions to sell houses.

Traditional Auction Method

The traditional method is the most well-known type of auction. It usually takes place in an auction house, although online versions of this method also exist. This method of auction is quick, with the bidding process usually only taking a few minutes. If the property sells, you must exchange contracts immediately after the auction. As previously mentioned, the winning bidder will need to put down a 10% deposit immediately too. If the buyer backs out after the exchange of the contracts, you will keep 10% of the deposit. The traditional auction method is quicker than the modern auction method. Usually, you will have 28 days to complete the sale of the property. This also means that it’s harder for buyers to back out of the sale. Another advantage is that traditional auctions often attract cash buyers. This is due to the fact that individuals purchasing properties at traditional auctions may encounter difficulties securing a mortgage, making it highly probable that your property will be purchased by a cash buyer.

Modern Method of Auction

The modern method of auction has become increasingly popular over recent years. This type of auction provides a bit more time and flexibility to buyers and typically attracts a wider pool of potential buyers. The entire selling process takes longer than with the traditional auction method. The modern method of auction allows potential buyers to bid for a property online, which means that you can reach as many potential buyers as possible. The auction house will set a countdown timer once there are enough people watching the property online. The bidding on the property can last days, weeks or even a month. Sellers can benefit from online property auctions because the buyer needs to put down a significant non-refundable reservation fee upfront to secure the property. If the property sells, you have 56 days to sell the property. The first 28 days are used to exchange contracts and for the buyer to pay the deposit. The next 28 days are used to finalise and complete the sale of the property.

How to Choose an Auction House

If you choose to go down the route of selling your house at an auction, it is important to source a trustworthy auction house. A more established auction house might be more expensive, but it will be more experienced and more likely to know how to market the property effectively. One of the most effective ways of deciding which auction house to choose is to look at their promotional material for other houses. If it seems trustworthy and professional, this is a good sign.

Considering Offers Before the Auction

If you’ve had your property on the market before putting your property up for auction, you might run into a situation where offers are made on your property before it goes to auction. Whilst it might be tempting to accept an offer, if you have already paid all the necessary fees to sell your house at auction, it makes sense to delay on accepting the offer and allow your house to go on sale at the auction. If a buyer is trying to persuade you to sell your house before putting it up for auction, you know that they are serious buyers. If you know what that buyer is willing to pay, you can use that knowledge to set the price of your property accordingly at auction. In this situation, it’s possible that multiple potential buyers will fight it out and will be happy to pay what you feel your house is truly worth.

What to Do Before the Auction

Your auction house should be doing their utmost to market your property. However, some of the responsibility and work also falls on you as the seller. In the weeks leading up to the auction you can expect (and hope) that there will be viewings from prospective buyers. This means that it’s vitally important that your property is looking clean and can be presented in its best possible light. Also, make sure that you do all you can to get the word out to potential buyers. Add posts to social media about your property, and mention it to your family, friends and colleagues.

How Quick is the Sales Process After the Auction?

As we have spoken about, one of the main benefits of selling a house at an auction is the swift selling process. It might take as little as a month for a property to go up for auction, and the sale is generally completed within just a month. This means that you need to be ready to move quickly after the sale has completed.

What is the Cost of Selling a House at an Auction?

The cost of selling a house at an auction is usually around 2.5% of the sale price of the property. Bear in mind that the cost also depends on the auctioneer which you use. You may also need to factor in the costs of paying for advertising, even if the property does not sell. Some auction houses will operate a ‘no sale, no fee’ system, but this is not always the case. You will need to pay for a solicitor or conveyancer to help oversee the legal side of selling your home at an auction too.

What Happens if a Property Doesn’t Sell Through Auction?

Properties that remain unsold during the auction are removed from the sale. Following the auction, the auctioneer typically encourages potential buyers to engage with the auction team and submit their best offers. It's common for multiple parties to express interest in making post-auction bids, so prompt communication with the team is recommended. If a post-auction offer matches or exceeds the reserve price, the property can often be successfully sold through standard auction procedures. However, if the bid falls short of the reserve, the auctioneer will relay the offer to the seller for their consideration.

The Steps to Selling a House at an Auction

In this section, we will explain how selling a house at auction works. It is important to note that the auction house selling process will differ depending on whether you choose the traditional or modern method.

1. Choose an Estate Agents With Expertise in Auctions

The first step in the whole process is choosing an estate agents which specialises in auctions. They should be experienced and understand how to market the home and get it seen by as many people as possible. They can also help you set the guide price and reserve price. Here at Chancellors, we offer an auction service for sellers

2. Hire a Conveyancer or Solicitor

Auction sales require a lot of legal work to be done upfront. A conveyancer or solicitor will put together all the paperwork associated with selling your home, which is known as the legal pack. On top of this, they will source any surveys and valuations done recently, check any debts secured against the property and draft a contract, ready for the buyer to sign.

3. Prepare your property for the auction

It is extremely important to prepare your home ready for viewings and photographs, and to make sure it is presented in its best light. Find out more in our article on staging your home for selling.  Remember that a home which is well staged could command a higher price.

4. Set a Guide Price

As explained, the guide price is what buyers will see when they view your property listing. The price can be a specific figure, or a price range. Essentially, the guide price allows buyers to understand whether they want to bid on your property.

5. Set a Reserve Price

The reserve price is the lowest price which you are willing to accept for your property. This figure is kept secret between you, your estate agent and the auctioneer. Remember that if your house sells for this price or higher, you must accept the offer. The auctioneer will withdraw your property if the bids don’t reach the reserve price.

6. Marketing Your Property and Pre-Auction Inspections

Both your estate agent and the auction house will market your property for around a month. It is important to ensure that your estate agent is marketing your home effectively, and well in advance of the auction. Advertising the property in auction catalogues and through property portals ought to be part of your estate agents’ tactics. You will also need to open up your home for property viewings so that prospective buyers can view your property. Schedule open houses and property viewings to allow interested buyers to inspect the property before the auction.

7. Set Auction Date and Location

If you are selling through the traditional auction method, set a date and time for the auction. It can be conducted on-site or at a specific venue, depending on your preferences and the auction house's capabilities.

8. The Auction and the Bids

With a traditional auction, you can choose if you want to be there for the bidding or not. On the auction day, the auctioneer will conduct the bidding and manage the process. Bidders will compete to buy the property, with the highest bidder winning (as long as the reserve price is met). In the modern method of auction, your estate agent should keep you updated throughout the process and let you know about offers and interested buyers. As mentioned, the bidding process can last up to a month with this type of auction.

9. Finalise the Sale

If your property is sold, it is now time to complete the sale. If it is a traditional auction, the deal is already legally binding. Contracts are exchanged on the day, and the buyer must put down the 10% deposit. With the modern method of auction, you have 28 days to exchange contracts. The buyer needs to put down the reservation fee for the property too. If the buyer decides to pull out, they will lose their reservation fee and have to pay administration fees too.

10. Complete the Sale

The final step is when the ownership of the property officially changes hands. This happens within 28 days of the contract exchange for both types of auction.

Pros and Cons of Selling a House at Auction

There are certainly benefits to selling a house at an auction, but there are also some drawbacks which you should take into consideration.

Pros

Here are the main benefits of selling a house at an auction:

• Auctions are fast: The biggest advantage to selling at auction is the speed of securing a sale. If there is a winning bid, the buyer is committed, and you can expect the sale to be completed within a reasonable time, often within a couple of months
• High sales rate: Auctions have a high sales rate. In fact, data from EIG, the industry standard for property auction information, stated that 78.3% of house that go to auction sell successfully in the UK. This is even more impressive given that many properties which go to auction typically have some kind of issue
• Competitive bidding: Auctions can attract multiple interested buyers who compete to outbid each other. This competition can drive up the final sale price
• Attract serious buyers: Auctions attract serious buyers who are typically more committed than average buyers. They can also attract developers and cash-in-hand investors
• Secure: Selling homes at auction is a secure way of selling, particularly with a traditional auction
• As-Is Sales: Properties sold "as-is" at auction, can relieve the seller of the responsibility for repairs or updates
• No Negotiation: The final sale price is set at the end of the auction, so there's no need for lengthy negotiations
• Certainty: Once the gavel falls, the sale is legally binding, providing certainty for both the buyer and seller

Cons

Here are the main drawbacks of selling a house at an auction:

• Smaller pool of buyers. Many buyers simply do not look at house selling auctions, so naturally there will usually be fewer potential buyers.
• Typically only attract certain type of buyer. The buyer pool for auctions typically mainly consists of cash buyers, looking for a bargain which will make them money in the long-run. More conventional buyers are not likely to bid on houses at auction. (Note that more modern methods of house selling auctions, with more user-friendly bidding and longer timescales, may attract more conventional buyers)
• More expensive for sellers. In comparison to selling with estate agents, auctions are usually more expensive for sellers. The commission taken at an auction is often around 2.5%, and sellers also need to pay an entry fee to have their property listed, which is usually several hundred pounds
• Lower selling prices. The prices paid at auctions is typically less than those paid on the open market. Remember that the majority of buyers at an auction will be investors looking for a good deal. However, this con is somewhat offset if a bidding war breaks out on your property
• No guaranteed sale: While auctions can attract a lot of interest, there's no guarantee that the property will sell, especially if the reserve price (the minimum acceptable bid) isn't met
• Limited Control: The seller has limited control over the final sale price. If the highest bid doesn't meet your expectations, you might be forced to accept a lower price
• Stress and Uncertainty: The auction process can be stressful, and there's uncertainty about the final outcome. If the property doesn't sell, you may need to relist it or consider other sales methods
• Legal Requirements: Auctions come with specific legal requirements and regulations, and failure to adhere to these can lead to complications
• The need to be organised. The auction selling process is relatively quick, and this means that you will need to be organised and have all relevant documentation and information easily accessible to allow for a smooth selling process

Are You Looking to Sell Your House at Auction?

If you are thinking about selling your house through auction, we are here to help. We are experienced in selling properties at auction through both the traditional method and the modern method of auction. We have partnered with SDL Property Auctions, a highly regarded auction house. Whether your need to sell your property quickly or just struggling to sell your property, we are here to help you secure a sale by auction. We have an extensive network of buyers interested in buying houses through auction who we can advertise your property to. This will help to give your property the best chance of selling. We have estate agents operating in the following areas: Berkshire, Buckinghamshire, Oxfordshire, Hampshire, Surrey, London, Herefordshire, Wiltshire, Worcestershire and Mid Wales. Please get in contact with us today to find out more.