David Sandeman, Managing Director at Essential Information Group, reports:

We report on every property auction held in the UK and over the past two years we’ve seen not only a more challenging backdrop in terms of political situation, a hardening of attitude towards the professional property buyer with stamp duty hikes and section 24, but also, in the wider residential market, a slowing down in both price increases and the appetite to buy property and number of transactions. This is all under the cloud of an election that left the country with a weak government, uncertainty over Brexit and a small but significant interest rate rise. These events all happened in the second half of 2017, so how did they impact the property auction market?

You’ll see from the table below that when we compare the first half of 2016 with the first half of 2017, the number of lots offered fell by 6.3 per cent, the lots sold fell by 4.6 per cent, and the amount raised auctions fell by 7 per cent. The same comparison with the respective second half of the year, notwithstanding the clouds mentioned above, shows lots offered up 1.9 per cent, lots sold up 3.9 per cent, the amount raised 3.8 per cent.

Over the 27 years that we’ve been covering auctions I’ve often noticed that if there is uncertainty in the wider residential market place auctions tend to fare better.

WHY IS THIS?

I would suggest it is that the auction industry is very sensitive to changing market sentiment and whereas estate agents would be keen to list properties they are offered by vendors and agree an asking price set by an optimistic vendor, auctioneers will only take a property onto the books if a sensible and realistic reserve can be agreed with the vendor so that they can maintain their sale rates, with the national average being around 76 per cent. Added to this in an increasingly difficult private treaty market where the fall through rate of offers is uncomfortably high, vendors like the certainty of the exchange contracts happening on the fall of the gavel and not finding that several weeks after their offer has been accepted the purchaser is not proceeding.

EXPECTATIONS FOR 2018?

Well, initial feedback from the auction community is that the buoyancy of the second half of 2017 will be seen to continue through 2018. In addition, I think we will see a big increase in the number of lots being offered solely online at an eBay style auction. This method of selling properties at auction has been around for some time now, the first lot sold on our platform was over four years ago, but it is now gaining momentum. I have seen within the industry and partially as a response to the testing market conditions, estate agents looking to work with established auction houses to not only offer properties in the ‘room’ with the certainty of a sale on the fall of the gavel, but also to offer them either in the room or increasingly online using the ‘conditional sale’ method.

The conditional sale method has great appeal to potential buyers who are not in a position to exchange contracts on the fall of the gavel. What happens is that on the fall of the gavel the purchaser will, on payment of a fee effectively secure an option to exchange contracts on that property within four weeks. This crucially gives the buyer time to do his due diligence on the property, arrange finance, and prepare to move.

On the flipside the vendor will have a buyer who has paid several thousand pounds for this option, and the ‘fall through’ rates of these sales is very low, less than 5 per cent, and not the high rates that the wider market is currently experiencing. In addition timeframes are set and in the main adhered to allowing the vendors to plan his future more certainty. This, I think, will be a big growth area in auctions in 2018 and beyond. Existing auctioneers who are partnering with estate agents in this manner for online auctions include SDL auctions, Network Auctions, IAM sold, and Pattinson’s. I have no doubt other auctioneers and agents will enter the arena in the near future.

We live in changing times and certainly 2017/2018 will mark a big change in the way properties are sold by auction in the UK. Currently two per cent of property is sold by auction, with these innovations I am confidently that will grow significantly.