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Auctions under the hammer

House under auctioneers hammer imageYou might assume that traditional property auctions would be battening down the hatches at the moment. Several storms are raging around them including a property market that lacks stock, a government hell-bent on subduing buy-to-let and a slow rise of online-only auctions.

One thing is clear – the number of properties being sold at auction has been dipping. Nationally, it’s down by 6.4 per cent year on year according to the Essential Information Group (EIG), which also says the total value of properties sold over the past year has dropped, albeit marginally.

David Sandeman“It’s the drought in properties that everyone is talking about and it’s dragging down the number of lots offered and sold,” says EIG’s David Sandeman.

This, of course, is a national picture, the regional one is much more varied. East Anglia appears to be having a very rough time – the number of lots sold has dropped by 34 per cent year-on-year while in Scotland it’s down by 12 per cent and in Northern by 46 per cent.

It’s the drought in properties that everyone is talking about. It is dragging down the number of lots offered and sold. David Sandeman, Essential Information Group.

On the other hand, there are other areas where the number of properties sold are rising including the West Midlands, South East, North West and North East. So when you talk to the larger regional auctions houses, their performance will depend on which parts of the country they cover or dominate.

The auctioneers’ view

A good example is Merseyside-based Pugh Auctions. “We’ve seen a two per cent increase in the number of lots offered to us and a four per cent increase in the number of lots sold, plus we’ve sold 80 per cent, which is an increase from the previous year [2013],” says its Managing Director Paul Thompson.

“There are many investors from the south buying and selling properties up here. Property has always been strong here in the north west and although it was a slow start to the year caused by the General Election, during the second half of the year nerves settled and overall we’ve had a strong year.”

Paul reckons that’s because he’s got properties coming in from every element of the market including public sector entities such as local authorities, hospitals and police authorities; asset managers such as insolvency practitioners as well as private buy-to-let investors.

Toby Limbrick of Network Auctions, on the other hand, says he’s had a good year because his auctions are closely aligned with the agent-controlled private treaty market.

“The other big players have seen their lot numbers drop but unlike us that’s because they are supported by the corporates such as property trusts, mortgage lenders or pension funds,” says Limbrick. “These kinds of institutions are, for various reasons, selling off fewer assets at the moment.

“The majority of our stock comes from private vendors through our estate agency network.

We’re training our partner network to make the most of their auction businesses and that’s starting to bear fruit. So we haven’t seen a fall back in lots offered.

“Instead we’ve seen a small growth but paired with a huge increase in the average price of the lots we’re selling.”

This has fed through to the company’s turnover, which jumped 50 per cent from £26m to £36m during 2015 on the back of an increase of just five per cent in stock numbers, reflecting the significant price increases in its core markets in London and the West Midlands. In these areas, houses prices have risen on average by 10.6 per cent and four per cent respectively.

“It’s been a brilliant year,” says Toby.

Buy-to-let bubble bursting?

What’s worrying many people, including Toby, is what will happen in April when George Osborne’s extra Stamp Duty for buy-to-let properties kicks in. Investors and landlords will have to pay an extra 3 per cent Stamp Duty when they buy a property, adding an extra £5,520 to the average buy-to-let purchase of £184,000.

One thing it may prompt is a huge rush among investors to complete on purchases before the 1st April 2016 deadline, something some agents are already noting.

“There is little doubt that some investors will bring forward their planned purchases to beat the April 2016 deadline,” says Bob Crocker, Director and Auction Co-ordinator at Savills Nottingham.

Market leader Allsop says it has seen a gathering rush too after their final auction of the year, which took the company’s turnover both online and via auction rooms to £457 million. “We sensed that the buoyancy in the room reflected buyers’ eagerness to invest before the three per cent stamp duty hike on buy-to-let investments and second homes which is due next April,” says Allsop’s Gary Boyle. “There’s no doubt this will be reflected in prices paid in the new financial year. As a result, we are advising our clients to take advantage of our February auction sale.”

Toby Limbrick, Network Auctions, imageToby Limbrick says it was the busiest December ever for property appraisals, a good indicator of what may happen in the auctions in the first quarter of 2016. “For our 25th February sale we’ve already got quite a healthy number of instructions, I think that’s going to be a bumper auction as sellers get out of (what they perceive to be) the peak of the market and before the Stamp Duty increases in April,” says Toby.

Our February auction is going to be a bumper one, as investors buy before Stamp Duty rises, but it’s interest rates that will change the market. Toby Limbrick Network, Auctions.

“Whether they are calling that right, your guess is as good as mine, but I don’t think it’s the Stamp Duty increases that’s going to change the market. It will be interest rates.

Higher interest rates, he says, would slow down house price increases in the UK and prompt more investors to withdraw as the market starts to cool down. “I think we’ll do more deals in 2016 than in 2015. People are waking up to the fact that auctions are an alternative to private treaty and the growth of online auctions only emphasises this.”

Paul from Pugh Auctions is more cynical about the the Stamp Duty changes. “The Chancellor knows that property forms one of the key drivers of this country’s economy so he would never do anything to stifle that,” he says. “It’s purely an opportunity to take more tax from a vibrant market knowing that the investment will continue.”

Is online a game changer?

Many auctioneers are increasingly taking onboard the ‘online’ concept. Last year EIG launched online-only auctions for single lots, while iam-sold.com – which gives buyers longer to sort their finances and paperwork out after making a bid – is doing very well with its ‘live events’ model.

The battle is whether online auctions can open up auctions to a new audience. Remember, auctions make up at best just three per cent of house sales in the UK leaving agents with the other 97 per cent.

Many in the industry – unlike the online-only agents in the private treaty market – are hoping online can broaden their appeal to the public by making ‘bidding’ for a home more accessible and less daunting. Until now many inexperienced homebuyers have been too apprehensive about the loud bang of the gavel.

“Our new online auctions give our estate agent members an alternative to private treaty sales and we see it as an instruction gaining tool for our network,” says Toby. “So effectively at the close of the auction it’s an exclusivity agreement – a lock out clause – and then seller and purchaser to towards exchange of contract.

“If you’re coming to auction for speed and certainty you wouldn’t go down the private treaty route. But equally if you’re a buyer who needs more time to finalise their mortgage and other paperwork then an auction isn’t compatible. We think our ‘hybrid’ offering has the potential to drive more stock through auctions.”

Auctioneer imageNot everyone thinks online is such a bright and shiny future. Paul from Pugh Auctions says, “Our experience is that people still want to come to the room; online auctions have been talked about for years and in other sectors, such as plant machinery, it’s common practice.

“But they’ve not gained traction in the residential property. It may have made it easier for new people to get into the market but the good quality room auctions are still thriving and well attended.”

People still want to come to the room. Online auctions have not gained traction in residential property; good auction rooms are still thriving. Paul Thompson, Pugh Auctions.

Rob Ellice of EasyProperty.com and the City backers funding him clearly disagree. Ellice recently sought extra funding to launch an online-only auction which the company plans to launch in ‘early 2016.’

New ways to pay?

Another area of innovation within auctions that’s been bubbling during 2015 and is likely to break out during 2016 is payments and bidder identification. David Sandeman says he’s had SagePay in recently to talk through what additional opportunities their system has to offer auctions.

“Essentially, a bidder has to prove who they are. So they first of all lodge a sum of money with the auctioneer before bidding starts – it could be 10 per cent but equally it could be just a £1. You’re just exchanging contracts and are therefore under contract to pay the balance,” says David.

“Or the auctioneer may ‘reserve’ or ‘hold’ the funds on your credit card so that, although the money hasn’t been taken, they know that it’s there.

“I was with Allsop in Ireland a couple of months ago and you’d see on one screen the hammer falling, while on another screen the system is sending a request to SagePay for the £5,000 [deposit] for example and it within a few seconds the money was in Allsop’s bank account on a third screen. It was seamless.”

David thinks this is a major change. By having this kind of system auctioneers know a lot more about bidders because, “during a traditional auction, after making a successful bid, the clerk of the auction walks up and asks for the bidder’s details,” says David. “But with these more ‘online’ systems, people have already uploaded their legal documents including money laundering paperwork, credit card details and mobile phone number.

“And it could go further; I’m having discussions with credit check providers like Experian to see what we else we can do to ‘pre-register’ bidders even more.”

It’s a brave new world out there in auctions!

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