There is some debate about where the auction sector sits in the table of the world’s oldest professions – but it is generally accepted that it is somewhere within the top two. Yet despite this longevity auctions have traditionally struggled to be accepted within the mainstream property sector.

The auction sector is also a great indicator as to the perception of the strength of the property market from those that matter – the buyers. Toby Limbrick, Director, Network Auctions says, “The auction market is an excellent barometer of market conditions and trends can be easily recognised by the levels of interest and sale activity and pricing.”

The arm’s length position of the auction sector has not had any negative effect on its success and it has fared far better than other selling methods during the recession. Roger Lake of Auction House UK says, “More and more properties are being sold by auction and the sector has performed so much better than private treaty since 2008. Demand from buyers has also remained strong and the success rate is a great deal higher than the estate agency norm. Auction offers ‘speed and certainty’ to vendors with competitive bidding ensuring that best price is achieved.”

The sector has also opened up in recent years. There is more competition as barriers to entry are being eased with third party providers springing up to join forces with the traditional estate agency sector.

BENEFITS ABOUND

The benefits are spread all round – the agents have another outlet to make a sell to a previously remote audience, the sellers have more choice and the buyers have more opportunity.

With an auction offering, an agent demonstrates that they are a professional business that can handle all types of property transactions.” Toby Limbrick Network Auctions

The prominence of auctions within the wider property market is expanding substantially, bringing greater opportunities for agents, says Toby, “The fall of the gavel at a traditional auction creates a binding contract and therefore speed, transparency and certainty are assured. This is always important but absolutely vital in many sale situations for example when acting for beneficiaries, trustees, public bodies, LPA receivers etc.”

For the majority of traditional agents that don’t have an in-house department, the changing face of auctioneering brings many benefits. Gary Murphy of Allsop says, “An agent has a duty to advise on the method of sale that is likely to achieve the best price and they must demonstrate to the owner that they have done this. An unmodernised property
will appeal to the cash buyer or the speculative buyer who the local agent may not be able to reach to the extent of the auction house.”

Jamie Cooke of iam-sold comments, “Agents can gain a competitive advantage whilst at the same time to expanding their range of services. Selling at auction can increase conversion rates; reduce withdrawal rate; increase average fees; reduce fall through and bad debt and provide additional revenue through additional properties to sell.”

Utilising the services of an auction house can provide a new revenue stream. Toby points out that auctions provide opportunities for agents to gain instructions on properties that they may not otherwise receive as well as
providing an outlet for selling property that’s proving difficult to sell by private treaty, “The residential auction sector is growing as clients realise the benefits of speed, transparency and certainty of sale via auction. By having a powerful auction offering an agent demonstrates that they are a professional business that can handle all types of property and transactions. By offering auction services an agent can raise the profile of their brand
and demonstrate a clear differentiator over their competition.”

BUYERS AND SELLERS

The success of any auction house and its sales will come down to its understanding of the drivers of the market – the sellers and the buyers. Auction rooms are attended by a growing mix of buyer groups – private owners, local landlords, property investors and builders.

On the buying side the individual prospective homeowner is coming to the fore; driven by market conditions, increased knowledge, TV programmes, ease of buying or just the thrill of it. Roger Lake says that buying at auction is increasingly seen as an opportunity to pick up a bargain or to acquire a property where value can be added through refurbishment. There is also a trend of buyers choosing to purchase auction lots for their own occupation or to help their children onto the property ladder. Roger says, “Buyers love the certainty that auction offers, if their hand is up when the hammer comes down they have exchanged and the property is theirs –
no last minute negotiation, chain failure, change of mind or mortgage difficulty can get in the way.”

”Buyers love the certainty of auction, if their hand is up when the gavel falls, they have exchanged and it’s theirs! ” Roger Lake Auction Network

It is the increase in awareness and knowledge that is bringing these buyers the auction rooms. Toby says, “Clearly buyers need to have prepared in advance, particularly in regards finance but for unencumbered buyers this is a real option.”

But while private residential buyers are increasing, investors still drive the market and set the pace – and usually prices. This is because, quite simply, “investors understand the benefits of auction,” says Roger Lake.

Investors will spot potential in a property that others may ignore and buy a property that a private occupier could not or would not consider. Pugh & Co Director, Stephen Swainson, says, “We see continued interest from local investors, who are prepared to buy even if there is only a short-term or ad-hoc income profile. This is because they are able to manage the assets closely and ensure long term capital growth in comparison to current pricing levels.”

Roger Lake agrees, “Investors are looking for solid returns which, in a low interest rate climate, can be considerably ahead of other investments.”

PROPERTIES AND PRICES

In this sector, fair pricing always dictates the success of a sale. Robin Cripp, proprietor and senior auctioneer, Andrews and Robertson’s says, “Investors remain price sensitive and although demand for London residential property is very strong, where buyers perceive regional property has been priced to reflect value, then there is strong demand. With lending on secondary commercial property still at a low, investors put security high on their list of requirements.” Of course the auction house still needs the right properties at the right price – traditionally the place for properties that are quirky, incomplete, un-mortgageable, in bad shape or just not right for the high street agent.

This is still the case but more mainstream homes are coming on from sellers looking for a quick, guaranteed sale, but overall the market is still characterised by investment institutions, mortgage companies, corporate landowners and professionals disposing of groups of properties.

Toby Limbrick says, “Organisations wanting to dispose of large portfolios see auctions as an attractive route of disposal as it doesn’t preclude agreeing a sale prior to auction. Sales ‘outside the room’ are usually contracted under auction terms and so transparency and certainty is still assured.”

There has also been a drift of properties from London into Regional Auction Rooms – now 80 per cent of auction lots are sold locally to local buyers, says Roger Lake. “More repossessions are offered in region and achieving better prices on the back of intensive local marketing. Vendors with difficult to sell commercial lots are using auction to generate competitive bidding and a speedy sale; anxious home owners are putting properties into auctions with speed and certainty being the strong attraction.”

One single thing dictates the success for buyers, sellers and investors – price. Robin Cripp says, “Even in the residential sector in regions such as Liverpool where the local economy is under pressure, it can prove difficult to engage with buyers unless the risk is reflected in the price.”

Accidental landlords often expand their portfolio when they see that letting can be profitable.” Scott Hendry Auction Finance

THE ACCIDENTAL LANDLORD

There is also a rise in number of the accidental or novice landlords. Scott Hendry at Auction Finance Limited, the specialist lender, says there are five top reasons for people becoming an ‘accidental landlord’:

● Inheritance – families who inherit a property and need to let it while agreeing long-term plans.
● Divorce – going through a divorce in a recession can often mean the family home can’t be sold for the price wanted. Letting it brings in cash and enables couples to go their separate ways.
● Children – unplanned pregnancy or multiple births can mean more space is needed quickly! Letting the existing home is often quicker than selling.
● Student property – holding on to a highly rentable student property bought for offspring after they have graduated is a common way people start their life as a landlord.
● Economy – with the state of the property market, many people in negative equity prefer to let their home rather than sell.

Scott says, “There’s been a huge increase in the number of accidental landlords in the past five years and they often expand their portfolio when they realise that letting a property can be profitable. It can even cause a career change. If you can leverage a mortgage on an ‘unexpected’ property you can quickly build a portfolio. High rental yields are currently achievable with the right properties even though house prices are falling in some areas.”

Allsop: www.allsop.co.uk
Andrews & Robertson: www.a-r.co.uk
Auction House: www.auctionhouse.uk.net
Clive Emson Auctioneers: www.cliveemson.co.uk
Countrywide Property Auctions: www.countrywidepropertyauctions.co.uk
iam-sold: www.iam-sold.co.uk
Network Auctions: www.networkauctions.co.uk
Pugh & Co: www.pugh-auctions.com
Sequence: www.sequenceauctions.co.uk