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Using a house auction - what types of property are selling well?


House auctions are no longer the preserve of professional property people. First time buyers and members of the public looking to pick up buy to let investment properties make up a significant part of the audience at residential auctions.

There is significant demand for some types of properties sold through house auctions, with many routinely coming within 15% of their open market value or even exceeding the open market value...

Why do bidders exceed the open market value? There are probably a number of factors encouraging this trend:

  • more inexperienced buyers who havenít done their homework
  • bidders anticipating strong price growth
  • demand for some types of property exceeds supply
  • bidders looking to hold a property for 5 years or more
  • bidders who have spotted latent development potential
  • in relatively affordable areas properties can still look cheap


    House auctions..and prices - the evidence..


    A friend of mine recently attended a top London auction in the hope of picking up a bargain one bedroom flat not needing too much work. Fraser and his wife currently live in a shared ownership property and are keen to buy something outright. For Fraser, on his current salary, anything selling at 20% below market value in their area becomes affordable.

    He had done his research on local property values and was prepared to bid one of four flats within a three mile radius of where he currently lives. As it turned out he didnít bid on any. The table below has the details of the auction properties he was tracking.




    comparisontable
    One bed flats - auction prices and  open market value
    Lot
    Auction price (£ 000)
    Estimated market value (£ 000) % Below market value
    1 128 145 12
    2 114 120 5
    3 sold prior to the auction
    4 106 120 12




    Not only did these properties sell for close to market value also notice that one sold beforethe day of the auction.

    And for properties requiring more work the prices from house auctions are even more surprising. Over the last year we have taken a close look at a number of portfolios being sold by housing associations in relatively affordable parts of London. We actively monitored these lots for a period of about four months. Some of the results appear below:




    comparisontable
     Properties with buy to let potential - South East London 
    No Guide price (£ 000) Selling price (£ 000) Estimated market value (£000) % Difference
    1 215 347 320 +16
    2 235 386 350 +8
    3 170 291 280 +4
    4 200 305 280 +9
    5 170 252 240 +5



    Notice that in this table we have included the guide prices so you can get a feel for way they can encourage people to bid. As you will learn it is important to the psychology of bidding at a house auction that the bidder believes they may get a bargain. It does not necessarily follow that they will. But once a bit of competition kicks in between determined bidders - anything is possible. This is what makes house auctions so exciting.

    We already had a good idea that these properties would do well at auction despite some of them requiring quite significant amounts of money spending on them. The viewings we attended were exceptionally busy and there was a lack of similar properties in the area for sale at the time.


    Where does this leave you?


    When assessing the suitability of your property to be sold at a house auction there are a number of things to bear in mind. If you can answer 'yes' to two or more of the following then in all probability your property will sell at auction:

    √ does your property appeal to a certain type of buyer?
    √ does your property have development potential?
    √ does your property have any "issues" or problems?
    √ does your property have tenants?
    √ is there a healthy buy to let market in your area?
    √ is the property unusual?
    √ is the property close to a university or hospital?
    √ you did not buy the property off-plan?
    √ locally, is there a shortage of your kind of property?
    √ you're able to sell at 10-20% below open market value?



    After forming your initial view on your property's suitabilty you then need to speak to some auctioneers. But more about this later.

    Selling at a house auction does not suit all properties or vendors but is a viable option for many house sellers looking to sell quickly.



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