Why do Properties Go to Auction?

While many UK homes and commercial premises are bought and sold via estate agencies or similar, property auctions are also a very popular way to undertake transactions of this kind.

But why do some sellers choose this option?

In this article, we’ll explore why people put up properties for sale by auction, as well as how to find auction properties. We’ll also discuss the pros and cons of using this method to sell or purchase a property.

Why do People Auction Properties?

Difficult to Mortgage

Estate agents often struggle to sell properties that are difficult to mortgage.  Most refer such properties to auction houses (like ours) in order to increase the vendor’s chances of securing a sale.

Here are some of the main reasons properties can be difficult to mortgage:

• The structure is unusual or unique;
• The property is unhabitable (the rule of thumb is that there is no functional kitchen and bathroom);
• It has multiple uses (i.e. a live/work arrangement);
• It’s an asset at risk of depreciation;
• The property is of non-standard construction.  Airey houses built in the 1940s or flats with cladding are examples of this;
• It has serious damp or Japanese Knotweed;
• There are flood risks;
• The property is an anti-social area or the guide price is too low to finance.  The threshold we generally see is between £40,000 and £50,000;
• The property has a short lease (usually under 80 years);
• There are planning issues or other potential blights;
• The property is in a high rise building or in a location where there are mainly council houses;
• No formal registration of the property exists at HM Land Registry;
• There are punitive service and/or ground rent charges;
• Legal checks have flagged up issues such as undisputed restrictive covenants / negative easements, flying / virtual freeholds etc.

Buyers should beware of these (amongst other) potential pitfalls before bidding at a property auction.  However, at the same time, many of the opportunities at auction lie within these properties.

Tenanted Properties

It’s very common to see tenanted properties at auction. This is because they often struggle to sell on the open market as most buyers prefer vacant properties.  You’ll also find Houses of Multiple Occupation, studio units and other purpose-built housing catered to the rental market amongst auction listings.

Even if the landlord is able to sell without a tenant (i.e. as a vacant property), the condition is often not great.  It therefore often makes more sense to get rid of it quickly to buyers with an appetite for properties like these and benefit from the accelerated sales process.  Indeed, many would have bought the property at auction in the first place.

You’ll also find portfolio landlords looking to dispose of their rental properties in bulk or in a more piecemeal fashion.

With all the punitive tax, regulatory and legislative changes – effectively pushing out smaller landlords – the number of tenanted properties coming to auction is likely to increase.

Inherited Properties

Inherited and post-probate properties also frequently go up for sale at auction.

In many cases, the sellers of these properties are the beneficiary / beneficiaries who don’t want the hassle of using an estate agent.

For example, we’re often contacted by people selling properties at the opposite end of the country that has fallen into disrepair.   They haven’t got the time, funds and/or inclination to do the required work to bring the property back into a habitable state themselves.

A good auction house can effectively market the property to auction buyers with keen interest.  Auction buyers are often willing to take properties like these, refurbish and either sell on or rent out.

A Death Intestate

Related to the above, a property can be sold at auction if its owner has died ‘intestate’. This means that they have not made a will before their passing.

With no clearly determined heir to their property, their family may decide to sell any buildings or land they owned and include the proceeds from that sale in their financial estate to be more easily divided.

Auction is a quick and easy way to achieve this within a set timescale.

Commercial / Mixed Use Properties and Land

Commercial property and land buyers frequently head to auctions to buy new stock, making it one of the most popular places to buy.

Although there are commercial estate agencies and brokerages, auctions provide a greater level of security of sale with set deadlines for buyers to meet.

• Office / mixed-use buildings, serviced offices, shops, retail stores;
• Public houses, hotels, B&Bs, restaurants, takeaways, cafes, halls, former churches / places of worship, sports facilities;
• Redundant nursing / care homes, healthcare facilities;
• Industrial / light-industrial / agricultural buildings, office / warehouses, garages, storage / data / distribution centres;
• Dilapidated and empty shelled buildings;
• Land and development sites (with and without planning consent), houses of multiple occupation (HMOs), single / multi-lets, multi-unit freehold blocks, studio apartments, landlord portfolios, listed buildings.

Note that, due to the extra complications involved with commercial property and land sales, most auction houses provide a longer timeframe between exchange and completion.

Here at Property Solvers, we typically provide 6 weeks (as opposed to 4 weeks for residential sales).

Repossessed Properties

Some auction properties for sale are available as the result of repossession. This usually occurs where mortgage borrower has failed to keep up with their repayments and the lender has therefore seized back possession of the property.

Usually, the lender (or receiver) does not have the time or available budget to put the property ‘back to rights’ or go through the sale process with an estate agent. As a result, these buildings are usually sold via auction in the exact state in which their previous owner left them.

Banks are required to get the maximum price resulting from competitive bidding.  This means that the seller (mortgage lender) would likely reject any pre-auction offer.

A Quicker Sale (Compared to Using an Estate Agent)

It’s also fairly common for a property to be sold at auction because its owner needs to relocate quickly, due to a time-sensitive career move, family matters or otherwise.

There’s a high chance that a property will sell on the date of the auction, which means it’s easier to effectively work the sale into a schedule. This takes away the guesswork involved in putting a property on the market and waiting for offers to come in via an estate agent.

But what happens if a property doesn’t sell at auction? UK auctions tend to withdraw a property from their “lots” if no suitable bids are made. 

However, unsold auction property may still be available to buy in a separate arrangement.  Here, the buyer will approach the auctioneer and make an offer.  It’s worth noting that guide and reserve prices usually still apply in these instances.  The seller may accept a price under the set reserve or choose to re-auction the property.

Guaranteed Minimum Price

At a UK property auction, a reserve price is set by the seller. This is an asking price below which auction attendees are not permitted to bid. 

There is also a guide price that appears on the marketing material.  This is to give buyers an idea of what kind of level the property should sell for.  Often, the actual sold price can go way beyond this point.

This element often appeals to sellers, as it means they will be guaranteed a certain amount of cash for their property – and it may be that the final bid is significantly higher than that figure.

Of course, it is important for sellers to set a sensible and well-informed guide price, or their property may be withdrawn from the lot and could remain unsold.

Security of Sale (The Buyer Can’t Pull Out)

When learning how to buy a property at auction, potential bidders must remember that the final bid is legally binding. Once the property is sold (and the hammer or ‘gavel’ falls), the buyer cannot drop out.  If he/she does, there are huge financial penalties.

This factor is highly beneficial to sellers, as it does away with the anxiety and uncertainty that can come with a regular estate agency sale. When auctioning property, sellers are not at the mercy of chains or other outside factors – all that matters is what occurs on the day itself.

Maintenance Issues or Structural Problems

If the current owner of a property has come to a decision that rectification of any structural or maintenance issues is likely to be beyond their budget, practical capabilities or the amount they are ever likely to receive via a sale, auction may be the easiest way out of their situation.

Again, this is something that a prospective buyer should take care to investigate before placing a bid.

Property auctions are usually quick and easy ways for a seller to achieve a quick sale.  Vendors can also guarantee a minimum price or rid themselves of a problem property. 

There are usually more risks to the buyer than there are to the seller.  This is because there is the possibility of mortgage, structural or any of the issues mentioned above.   The main potential downside for a seller is that the property may go unsold – or that they won’t receive anything above than the guide price.

To find auction properties in the UK, simply go online. There are plenty of sites promoting online and in-person auctions.  Auction listings also appear on the main portals like Rightmove and Zoopla.  Here, the auctioneer will highlight the terms and refer you to it’s own page for you to find out more.

Contact Property Solvers

Property Solvers offers a great alternative to people wanting to achieve a quick sale.  We provide a free cash offer upfront for your home.  As genuine cash buyers, we’ll complete the sale in as little as 7 days with no estate agency or legal fees.

We also offer traditional (28 day) and modern method (56 day) auction options as well as an estate agency too.

For more information, simply get in touch with the team at Property Solvers today. We’ll be happy to assist you.