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Selling housing stock at auction can bring a host of benefits to organisations and investors looking to dispose of property assets and may be particularly appealing to charities, social housing entities, private investors, and institutional landlords.
What's more, an auction sale doesn't have to mean compromising on the price achievable.
While there is a common misconception that auctions are used to dispose of 'distressed properties' quickly for a lower price. The reality is that auctioned properties tend to sell for above their guide price, often exceeding the ultimate reserve price owing to the success of the competitive bidding process that auctions promote.
Foot Anstey Partner Rebecca Kibby explains why auctions are on the rise and why sellers should consider auction sales as a viable way to sell property and release that capital quickly and effectively.
The UK is facing a surge in properties being offered for sale at auction and is showing notable growth, with significant increases in both the number of lots offered and total funds raised.
In April 2024, the number of lots offered rose by 19.5% compared to April 2023. The residential sector saw a 22.4% increase in lots offered and a 23.8% increase in lots sold in April 2024 compared to the same period last year.
Property sellers are entering a challenging market. As the cost of living increases and mortgage rate volatility persists, affordability remains a challenge, with buyers being more cautious. The result has been a fairly sluggish residential market for the last year or so, which can be difficult if sellers need to achieve a sale quickly.
The upwards trend of auction sales is predicted to continue to increase as changing legislation for building safety and more regulation in the lettings sector is expected to come into force, prompting landlords to have to invest in improving housing stock.
Off the back of cases such as the Grenfell disaster and stories of unmanageable mould in rented properties, the government outlined policies designed to prevent landlords letting substandard properties and a result, some investors are electing to dispose of aging assets in favour of investing in new.
In March 2023, the government announced that all rental properties had to have an EPC rating of C or better by 2028, and although this proposal has now been jettisoned, the pressure to improve the standard of properties in the UK is high on the agenda and may well be back on the table following the election.
Landlords, including local authorities, may decide to sell assets and inject the cash into newer properties that meet the regulations to meet the demands of the rental market. Auctions will enable sellers to access that cash quickly to accelerate those investments.
So, why do auctions promise the speed that many sellers want?
Traditional property sales (by private treaty) take around 12 weeks to complete from the point at which an offer is accepted but often much longer. For auctions, the completion process is typically 10 days from the date of the auction but can be determined by the seller as a fixed date. For sellers an auction can be an efficient way of divesting assets, crystallising losses or any costs associated with holding void or empty properties and reducing risk.
As the successful bidder enters a legally binding contract “when the gavel falls”, the chance of a buyer pulling out is minimal as they pay the deposit immediately. You will also have a set timeframe for completion, making it easier to predict and forecast cash flow.
Although it is perfectly possible to obtain a mortgage for a property bought at auction, it can be difficult as a buyer would have limited time to secure the loan in the post-auction window or for buyers who form part of an ongoing chain.
An incoming lender would require full due diligence conducted in accordance with the UK Finance Handbook, which is not always possible if a property has been deliberately placed in auction due to its desirability or the presence of a title issue or defect and where the strict requirements of the Handbook cannot be met.
For that reason, auctions tend to attract a larger pool of cash buyers and investors when compared with a private treaty sale and who are looking to purchase property quickly and may be willing to take a more commercial view as a longer-term investment.
Importantly, sellers should seek to ensure that the auction legal pack is comprehensive and is produced and made available in plenty of time for a buyer to scrutinise the documentation and conduct the due diligence. This will promote marketability to a wider range of buyers and allow sufficient time to raise pre auction enquiries or satisfy the incoming funders requirements before auction day.
Traditional property sales (by private treaty) take around 12 weeks to complete from the point at which an offer is accepted but often much longer. For auctions, the completion process is typically 10 days from the date of the auction but can be determined by the seller as a fixed date. For sellers an auction can be an efficient way of divesting assets, crystallising losses or any costs associated with holding void or empty properties and reducing risk.
As the successful bidder enters a legally binding contract “when the gavel falls”, the chance of a buyer pulling out is minimal as they pay the deposit immediately. You will also have a set timeframe for completion, making it easier to predict and forecast cash flow.
Although it is perfectly possible to obtain a mortgage for a property bought at auction, it can be difficult as a buyer would have limited time to secure the loan in the post-auction window or for buyers who form part of an ongoing chain.
An incoming lender would require full due diligence conducted in accordance with the UK Finance Handbook, which is not always possible if a property has been deliberately placed in auction due to its desirability or the presence of a title issue or defect and where the strict requirements of the Handbook cannot be met.
For that reason, auctions tend to attract a larger pool of cash buyers and investors when compared with a private treaty sale and who are looking to purchase property quickly and may be willing to take a more commercial view as a longer-term investment.
Importantly, sellers should seek to ensure that the auction legal pack is comprehensive and is produced and made available in plenty of time for a buyer to scrutinise the documentation and conduct the due diligence. This will promote marketability to a wider range of buyers and allow sufficient time to raise pre auction enquiries or satisfy the incoming funders requirements before auction day.
Sellers opt for auction for all kinds of reasons. For charities, they provide a route to sell legacy property and generate income from the sale without incurring additional costs of holding void or empty assets or improving marketability.
For social housing organisations, it's a great way to raise capital from aging stock so that the cash generated can be invested into modern and more environmentally sustainable developments for tenants in need.
Selling via auction also enables organisations to reach buyers who are willing to navigate challenges such as the unknown position with tenancy or occupancy status or where there are known issues regarding the condition and state of repair that may be unattractive to buyers on the open market or involved in a chain.
We work with a range of national and regional auctioneers who have extensive databases of investors seeking to acquire assets via the auction route, providing an excellent opportunity for sellers to reach a large and diverse pool of potential bidders!
Auctions are different from traditional private treaty sales for a key reason: a legally binding contract forms as soon as the gavel falls during the conduct of the auction itself. Exchange of contracts is therefore immediate, provided the reserve price has been met.
The successful bidder will complete on the purchase on a set day, typically 10 days from the auction. If they decided to pull out of the purchase, the buyer may stand to lose their deposit.
The seller can also set a reserve price, as well as a guide price, which is the minimum they would sell the property for. Only the seller and the auctioneer know this reserve price to prevent buyers from aiming for it.
In our experience, the majority of properties that fail to meet the reserve are subsequently successfully sold in a deal brokered by the auctioneer afterwards with those bidders that have shown interest and placed bids.
Buyers will review a legal pack created by the seller's solicitor in advance and can request to view the property first. That means they are ready to proceed with the purchase quickly, having raised any enquiries before the auction commences and satisfied due diligence.
Traditional auctions used to take place in person, with a room full of bidders for various properties and an auctioneer managing the bidding process.
Nowadays, many property auctions happen virtually or in a hybrid setting with a video showing the auctioneer. There is plenty of governance surrounding the conduct of auctions and many auctioneers require bidders to be pre-registered and often request a registration deposit to ensure the legitimacy of bids both online and in the room.
Reducing perceived risk among buyers and enhancing marketability is critical to a smooth auction process and achieving the best price. For this reason, it is crucial to allow plenty of time to prepare all the documentation ready for sale and to ensure that the legal pack is as comprehensive as possible to attract buyers.
Buyers need time to carry out their due diligence, view the property and decide if it is the right investment. Anything that feels rushed or the market hasn't had time to digest can be seen as too risky and sellers will want to maximise the opportunity that a competitive auction bidding process will provide.
Given that much of the legal work is completed pre-auction, it is important to instruct a legal team at least six weeks before auction. That will allow time for searches to take place, to draw up contracts and create a legal pack, ready to present to buyers at least two weeks before the auction date allowing plenty of time for scrutinising the pack and raising enquiries.
At Foot Anstey, we help a whole range of businesses and private clients achieve a capital return from their assets quickly through fast and efficient auction property disposals.
We work in partnership with a number of national and regional auctioneers that have significant experience and who can provide advice on sales strategy and expected guide price achievable.
Our legal team has significant experience in drafting legal pack documentation and are experts at drafting auction special conditions to cover complex title, marketability, and occupancy issues together with conditional contracts of sale for assets of all values.
Speak to us for advice on whether an auction sales strategy may work for you. We would be delighted to help you navigate the auctions market and maximise your organisation's returns.
