If you are considering whether to sell a house at auction it’s worth just pausing for a moment to think how this works. An auction is a public sale where items or properties are sold to the person who makes the highest offer in a transparent and competitive process, known as bidding.
Bidding works by the interested parties making successive offers to buy, each next offer being higher than the previous. The process ends when no one is willing to pay more than, or outbid, the last bid made.
A lot of people in the UK opt to sell their homes at auction. In 2022 alone, more than 19,000 homes were sold via this method.
While selling at auction can sometimes have slightly negative connotations and is sometimes associated with hard-to-sell properties, the reality is selling your house at auction just offers different advantages and disadvantages when compared to using an estate agent.
In this Ultimate Guide, we explore the pros and cons of selling your house at auction. We also look at the processes used by auction houses in Britain and guide you through how you can sell your property this way.
Why sell a house at auction?
While many people choose to sell a property at auction for a variety of reasons, a few in particular tend to stand out.
Firstly, property auctions are fast, often taking less than two months from initial contact with the auction house through to completion of sale. This could be an important factor when trying to establish how long your house sale will take. Many people can suddenly find themselves in a situation where they need to sell a property quickly. Reasons range from divorce and inheritance to the rapid need to relocate for a career. In these situations, the speed of an auction can be highly desirable.
Secondly, property auctions offer a certain amount of, well, certainty. Your house or property will be presented to buyers, and provided the bidding reaches the Reserve Price, you can practically ensure you sell. This is because once a bid is placed the bidder is legally obliged to buy unless a higher bid is placed.
You are not obligated to accept any offer below an amount called your reserve price, which is the minimum amount you tell the auctioneer you will accept for the property.
If the bidding does not reach this price, you do not have to sell the property, although you can negotiate with the bidders, who are identified afterwards as potential buyers.
Finally, some properties typically do better at auction than on the open market via an estate agent. In the next section, we discuss these properties.
What kind of properties do auctions work best for?
Many properties will sell well at an auction, with some even achieving higher prices than they could through an estate agent.
However, there are a few things which make a property particularly suitable for selling this way.
- If a property is in poor condition and needs refurbishment, an auction is likely to be an effective way to sell it. This is because auctions often attract property developers and landlords.
- Similarly, properties with development potential, such as room for an extension or an additional property to be built, often sell well at auction, for the same reason as fixer-uppers. By investing their time and money into these properties, developers can hope to make a substantial profit.
- Tenanted properties and those which are set up as Houses in Multiple Occupation (HIMOs) often sell better at auction. This is because people looking to build their buy-to-let portfolio often look to auctions to buy property quickly for this purpose.
- Difficult properties, including those with legal issues, neighbourhood problems, short leases, or those that are un-mortgageable, and those with structural or environmental issues, often sell best at auction.
- Finally, if your property is mixed-use, such as a flat with a shop below, or is set on a commercial lot, an auction is likely going to be the best way to sell it.
How do traditional property auctions work?
Selling a property at a traditional property auction works in a fairly straightforward way.
First, you would approach an auction house offering traditional property auctions and engage their services.
There are many property auction houses in the UK, operating on both an online and in-person basis, often using technology to integrate the two seamlessly. Which you choose should depend on your property’s details and your specific needs.
Once you have chosen an auction house, they will ask you which auction day you want to sell on. Typically, auction that sell houses run sales days regularly, often monthly, or bi-monthly, and have limits as to how far in advance or how late they will accept a property.
After you choose a date, the auction house will add your property to a document called an auction catalogue. This document lists all the properties going up for auction on that auction day and serves as a key marketing tool, being distributed to potential buyers. These can be viewed both in a printed catalogue and online.
On the day of the housing auction, all the properties in the catalogue will be put up for bidding, one after the other.
If the highest bid on a property exceeds the reserve price, the property will be considered legally sold to the person who placed that bid.
Once a bidder buys a property at auction, they must immediately pay a deposit. This is usually either £6,000 or 10% of the property’s sale price, whichever is higher.
After buying the property, the bidder has 28 days to complete the transaction and pay the remaining portion of the sale price. If they fail to do so, they will be considered as in breach of contract and you as the seller get to keep their deposit for the frustration caused.
What is the Modern Method of Auction (MMoA)?
The modern method of auction, sometimes referred to by the acronym MMoA, is an alternative to traditional property auctions best described as “eBay, but for houses”.
While it is sometimes called an online auction, this is a bit of a misnomer. This is because, since the pandemic, traditional auctions have often been live streamed online, allowing buyers to place bids from anywhere around the world.
The modern method of auction works by advertising a property online, typically on the auctioneer’s website, as well as Rightmove and Zoopla. This allows buyers to place bids on a property over the entire period it is advertised for.
Normally, the property will be listed online for a month, with the current bid amount being public knowledge throughout the process. This is advantageous compared to the opacity of estate agents, where not all potential offers are necessarily made known to the seller.
Once the property auction period has been completed, the highest bidder must pay a payment in addition to the cost of the house, known as the reservation fee. The buyer then has a 56-day period to exchange contracts and to pay for the property.
If the buyers does not complete the transaction, the terms of the contract typically state the seller can keep the reservation fee as compensation for their time off the market and any inconvenience caused.
How do you choose an auction house?
When selling a property at auction, your choice of auction house decides a lot, including your commission and costs, the details of the auction process and the buyers your property is exposed to.
There is no one best property auction company and so your choice should be directed by your property’s specifics and your particular needs. Generally, you should look for auction firms that have sold property much like your own, in similar areas, for good prices recently. Bigger auction companies are not necessarily better than smaller ones, although smaller auction houses tend to be quite highly specialised.
You should also consider how much time you have. Auction houses offering traditional auctions can sell your property substantially faster (8-12 weeks) than those offering the modern method of auction (MMoA) (12-16 weeks). Those offering MMoA can at least theoretically get your property seen by many more potential bidders.
Note that in addition, live auctions can see bidders making heat-of-the-moment decisions they wouldn’t have when using the modern method, potentially pushing your eventual sales price higher.
When it comes to considering price, cheaper is definitely not always better. Higher fee-charging auction houses are typically able to more than make up that difference on your final sale price. Additional fees for advertising and even catalogue entry fees tend to be worth it to get the right property into the right auction house.
It is always worth checking the reviews for any auction house before you engage them to sell a property. Watch out for any with a large number of bad reviews. Good reviews can be bought, but bad reviews are hard to get rid of, and so should be taken into strong consideration.
How do you prepare for an auction?
Before you decide to sell your house at auction, there are a few things you need to do.
Firstly, you need to make sure your house looks the best it can and ensure it is available for potential bidders to come to view it during the period leading up to, or in the case of MMoA, during, the auction.
Second, you need to prepare the auction legal pack. This includes copies of the title deeds, the fittings and contents and property information forms, details about the lease/freehold status of the property, plus local authority, and environmental searches. It is necessary to get new searches just before you put your property up for auction, as this will provide up-to-date information about the property and its surroundings. Buyers can also be encouraged by a recent building survey, which shows your property is structurally sound.
Often sellers seek legal assistance when attempting to put this pack together. Given you will need a conveyancing specialist anyway, this is often a sensible place to get help.
Sometimes properties are put up for auction before the legal pack is completed. Typically, this often reduces bidder interest as buyers cannot be sure of what they are buying.
Third, you will need an energy performance certificate (EPC). This is a document which is required when selling any residential property in the UK. This shows how energy-efficient a certain building is.
Finally, you need to be able to prove that you are the owner of the property, or that you have the permissions required to sell it on someone else’s behalf.
Setting a Guide and Reserve Price
Before the auction begins, you will need to agree on a guide price and a reserve price with your auctioneer.
The guide price is an estimate of the minimum expected sale price. It is not necessarily the price the property will sell for, but it can serve as a rough estimate to start advertising. Choosing a good guide price is important. A lower guide price can help attract interest from potential buyers and stimulate bidding, while a higher price can alter the way the property is received in the market.
The reserve price is the minimum amount you would accept for the property. If none of the bids are higher than the reserve price, the property will not be sold, and the auctioneer will withdraw it from the auction. If this is the case, you can then negotiate with the bidders to attempt to agree a sale. The reserve price is kept private, with only the auctioneer being privy to it.
Generally, your auctioneer will help you select a guide and reserve price, though it is worth doing your own market research, and perhaps seeking a valuation.
Do not let the auction house bully you into setting too low a reserve price, as there is no going back from it. If you pull out after a property is sold you will have to pay substantial compensation to the buyer and the auction house.
How much does selling a house at auction cost?
The costs of selling at traditional auction can vary quite substantially, but they are typically broken up into five elements.
- Entry/catalogue fee (£100-£500): The entry fee is an upfront payment charged by property auctions to put your property in their catalogue. The fee covers the cost of including and marketing the property, as well as other administrative expenses. Sometimes, the auction house will agree to defer payment of this until after the property has sold.
- Marketing fees (£200-£1000): Auction houses typically offer further in-house marketing services. These can include additional advertising, professional photography, and professional listing creation.
- Auction house commission (2-4% sale price plus VAT): Auctioneers’ commission can vary dramatically, between 2 and 4% of the property’s selling price (+VAT). More unique or expensive properties, and leaseholds typically incur higher fees due to the added complexity of marketing and dealing with these properties respectively. While the level of commission can be negotiated down with some auction firms, don’t expect it.
- Legal Costs (£500-£1500): When you sell your property at auction, you will need a conveyancing professional to handle the legal aspects of the sale. They will help you prepare essential documents, such as the contract of sale, property information, and legal pack. While standard conveyancers can normally handle the auction process, it can still be worthwhile working with a company familiar with the process.
- Ancillary costs (various): Sometimes, additional expenditures are necessary to secure a good sale price. These can include the cost for extending a lease for a leasehold property, architectural plans and planning permission for properties with extension potential. Other additional costs could include independent property surveys showing the condition of the building.
In addition to the above fees to the seller, traditional auction houses often also charge something called a buyer’s premium. This is a fee paid on top of the winning bid to the auction house, and most buyers will consider it when working out their maximum bid.
When using the Modern Method of Auction (MMoA), the cost structure is similar but switches some of the financial responsibilities to the buyer:
- Commission Fee (1-2% plus VAT): This is charged by some MMoA platforms and can vary. Commission fees are typically lower than in traditional auctions ranging from 1% – 2% of the final sale price (+VAT).
- Listing Fee (£300-£1500): Some platforms may charge a listing fee to cover the costs of advertising and marketing the property.
- Legal and Conveyancing Costs (£500 to £1,500): Preparing the legal pack for the auction, including title deeds, property information, and other necessary legal documents, can incur costs.
- Additional Marketing Costs (various): Depending on the platform and the level of marketing required, there may be further fees for enhanced advertising or additional promotional activities.
- Reservation Fee (£4,000-£6,000/ 2.5% sales price, whichever is higher, paid by the buyer): The most notable cost in MMoA is the reservation fee paid by the buyer, usually a percentage of the final sale price or a fixed amount. This fee is in addition to the purchase price and is non-refundable if the buyer fails to complete the purchase.
The modern method of auction tends to offer a more buyer-focused fee structure, with the significant reservation fee often being the primary cost associated with this auction type. This approach can sometimes lead to a higher net return for the seller, albeit potentially influencing the final bid amount due to the buyer’s additional costs.
What are the advantages of selling a house at auction?
There are a number of advantages to selling a property using both the traditional and modern methods of auction.
Below we examine these in more detail:
- Speed: Traditional auctions typically take 8-12 weeks, while modern auctions can take 12-16 weeks, offering a faster process compared to estate agents.
- High Certainty of Sale: Setting a low reserve and guide price almost guarantees a sale within the timescale of the auction. This is ideal for urgent sales if you need to sell your house fast.
- Fixed Timelines: Property auctions provide a set date for the exchange and completion, independent of buyer’s chains.
- Potential for Bidding Wars: Traditional house auctions might encourage higher bids due to the limited bidding time with some buyers ultimately paying more because of the excitement in the room. Modern auctions can also see increased enthusiasm in the final moments, albeit to a lesser extent.
- ‘As-is’ Sale: Properties needing refurbishment or offering development opportunity often attract buyers at auctions. Some sellers have even been known to ‘distress’ properties by making them appear more tired before auctioning a house for sale!
What are the disadvantages of selling at auction?
Selling your house at auction is not a flawless strategy and can have disadvantages. If it was perfect route, every house would be sold this way.
Here we examine the potential downsides of selling at auction:
- Uncertainty of Sale: If no bids meet the reserve price, your property simply does not sell. The alternative, setting a low reserve to ensure a sale, risks undervaluing your property and forcing you to sell it for too little.
- Lower Sale Price: There is the very real risk of selling your property for less than its market value. Bidding wars do not happen for every property and reserve prices are often estimated to be, on average, around 10% lower than what estate agents might achieve.
- Time Constraints: Although faster than estate agents, auctions still take about two months from start to finish. This might not be swift enough if you really do need an urgent sale. For a quicker sale, cash house-buying companies can often be the best route to sell your house faster.
Is it ever worth accepting an offer in advance of an auction?
Generally, not, especially if you have already paid the auctioneers fees.
If a buyer is willing to come to you with a private offer, you know they will be more than likely willing to bid on the day of auction.
Accepting an offer before an auction is only worth considering in a situation where the offer is significantly higher than your target sale price and if the property has unique features that particularly appeal to a specific buyer.
Examples where this is the case can include offers made by owners of neighbouring property, who would benefit from them being contiguous, and those with previous connections and emotional attachments to the property, who will pay more for these reasons.
Even in this kind of situation, you should do your research. It is quite possible that the buyer knows something you don’t, and your estimate of your own property’s value is too low.
What are sealed/closed bids?
Sealed or otherwise called ‘closed’ bids are a method used in property sales where potential buyers submit their best offer for a property in a sealed envelope by a specified deadline. This approach is often used when a property is likely to attract a lot of interest, creating a competitive bidding situation. The seller then reviews all the bids at once after the deadline and chooses the most favourable one.
Sealed bids are not a type of auction in the traditional sense, but they share some similarities with auction processes. Both methods involve competitive bidding to determine the sale price of a property. However, in an auction, bids are made openly, with participants aware of other bids, creating a dynamic, competitive atmosphere. In contrast, sealed bids are submitted privately, with each bidder unaware of others’ offers.
The seller can set the terms, conditions, and deadline for the bids, offering more control over the sale process, while buyers may submit higher offers to outbid unknown competitors, potentially resulting in a better sale price for you.
What are the alternatives to selling a house at auction?
Using an auction is not the only, or even the most common way to sell a house.
Most houses in the UK are sold through high street estate agents, who advertise the property on the open market and encourage potential buyers to make offers. This can often achieve a higher sale price but comes with the downside of potentially taking a very long time. Estate agent sales are also often fraught with property chains where many buyers and sellers become dependent on each other for their own purchase or sale to progress.
The average estate agent-directed sale property sale in the UK takes approximately 25 weeks or almost 6 months, with the potential of it taking much longer than that.
If time is of the essence, and you cannot afford the 12 weeks for an auction sale to complete, selling your house to a house-buying company could be ideal for you. While these companies typically offer you less for your house than you would get at auction, they can sometimes make up for this in part by paying your property within just 28 days.
Finally, if an individual is particularly interested in your house, you can sell it to them through a private transaction. This is very rare and requires you to know the perfect buyer at the time when you want to sell, if it is the case, it can save everyone involved a lot of hassle.
Property auctions offer a very useful service for people who need to sell property under certain conditions.
By selling a house at auction, you can reduce the time it will take to sell from 25 weeks via a high street estate agent to a more manageable 8-12 weeks.
In addition, auctions are ideal for fixer-uppers, and properties with substantial development potential as many developers shop at auctions. This can help sell properties that everyday buyers are unlikely to be interested in.
However, selling a house at auction does generally come at a cost. While occasionally bidding wars can produce a grater sales price than the reserve figure, properties sold at auction on average only sell for 90% of the price they would have on the open market.
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