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What types of property are best suited to an auction sale?

Most types of property can be sold at auction, but some property types sell better than others. In fact some properties achieve higher sale prices at auction compared to selling through an estate agent, for example properties with potential for improvement or development always generate a high level of demand and benefit from the competitive bidding environment that auction offers.
by Mark Grantham on 28th September 2016

When appraising the suitability of a property for auction, an auctioneer will consider the “auction saleability” of a property. If the property falls into one of the following categories it will be considered a good candidate for auction:  (i) properties with a high level of demand (ii) niche property types (iii) properties that are difficult to sell through private treaty (estate agent). In favourable market conditions, most properties achieve good prices at auction, the only exception being high-end/luxury properties that are generally better off being sold through an estate agent.

We’ve provided some examples of the types of property that are likely to sell better at auction than through an estate agent.

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Standard residential properties (high demand)

Standard construction properties are those constructed with brick and/or block walls under a tiled pitched roof sat on concrete foundations. Almost every mortgage lender will offer loans against standard construction properties, subject to survey. As such, if you’re selling a standard construction property at auction you should expect a high level of demand from a wide audience of buyers. Standard construction properties that sell particularly well at auction have scope to add value in some way e.g. requiring modernisation or likely to obtain planning permission for an extension or development.

Selling a residential property at auction

Auction facilitates competitive bidding for high demand properties.

Non-standard construction properties typically have concrete walls or steel frames. Most mortgage lenders will have restrictions on financing non-standard constriction properties, so selling at auction to a cash buyer can be a good way to ensure the property is sold quickly, without having to wait on decisions from mortgage companies. When calculating a purchase price prospective buyers will take into consideration the cost of converting the property into a more standardised type of construction so that the a mortgage can be secured against the property.

Poor condition properties

To some people, the idea of owning a run-down, dilapidated property is considered a burden and selling to the first person who’s prepared to “take the property off their hands” doesn’t seem like a bad idea. That’s understandable; there may be worries about the security of the property, the risk of squatters or concerns about the property falling into a further state of disrepair.   Also the prospect of selling may seem complicated and uncertain, which adds to the motivation to sell as soon as possible, even if it means reducing the price. Sadly in these situations, it’s not uncommon for prospective buyers to take advantage of a seller’s vulnerability, sometimes in collusion with other parties – we’ve even heard stories about estate agents being involved.

If you’re selling a property in a poor state of repair, it’s worth remembering that you’re selling an asset, not a liability.  There will be people who see potential in the property and it’s important to open the property up to the widest possible audience.

Selling a poor condition property at auction

Properties in poor condition often sell particularly well at auction.

The best way to sell a “property with potential” is to generate a sense of competition by inviting as many prospective buyers as possible to make an offer. Then, rather than closing the process down to one buyer (as you would with an estate agent) allow buyers to compete for the property at auction.

For a property investor, whether they are experienced or first timers, seeing the classic signs of an avocado green toilet suite and worn-out swirl-patterned carpets, even an overgrown garden, are all signals for the potential to make a profit.

In terms of the price you can expect to achieve for a property in poor condition; experienced property investors will be in a position to renovate the property cost effectively, whilst first time DIY’ers will usually underestimate the cost of refurbishment, so end up paying more.  In many cases a poor condition property will achieve a higher price at auction than an estate agents suggested asking price.

There are good reasons why mortgage companies (banks and building societies), local councils, housing groups and major corporate property investors “dispose” of poor condition properties at auction rather than with estate agents. The main reason being profit!

Properties with structural issues

The likely buyer of a property with structural issues will be a builder or property developer who has the know-how to remedy the issue. They will be able to accurately calculate the cost of work and make a reasonable offer for the property. The benefit of selling a property with structural issues at auction is there will be an audience of builders/developers who are looking for projects and are prepared to compete for the property, knowing they will have a project on their hands within a month.

Selling a house with structural issues at auction

Properties that have been structurally underpinned often require cash buyers.

It is important to disclose any structural issues that you are aware of, in fact it’s a legal requirement. If you don’t the buyer could make a claim against you. Anyway it’s best to provide full information about a property at auction – the more information there is, the more confident a prospective buyer can be when bidding. Your solicitor will be able to advise you on what needs to be fully disclosed.

We’re often approached by owners of properties with Japanese Knotweed who believe they can quickly dispose of their property without disclosing the fact that the property has issues. Auction is a good way to sell properties with Japanese Knotweed, but sellers should always disclose any issues they are aware of.

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Short lease properties

Short lease properties can be sold at auction, but there is some important preparation to take care of to ensure you achieve the highest sale price.

It’s quite common to see short-lease properties being sold at auction. In a lot of cases properties (like the lease) have been neglected, which makes them particularly suitable for auction. This is typical if the property is inherited or being sold as a probate sale.

Rather than going through the process of extending a lease prior to sale, it’s most common to sell the property with a short lease, but give the seller the right to extend. This requires the current owner to serve notice (section 42 notice) to the landlord, usually after exchange. Upon completion the seller and buyer execute a deed of assignment which gives the buyer the right to continue with the lease extension process as if they had owned the property for 2 years.

However the lessee can only serve notice if they have owned the property for atleast 2 years. On in the case of a probate sale, Personal Representatives of a deceased lessee can serve a Notice provided that the right is exercised within 2 years of the grant of probate.

For further information read our guide to selling a short lease flat.

Ex-local authority properties

Assuming you have the right to sell your ex-council property, there are a number of things to consider when choosing the best route to sale. For high-rise and concrete built flats it will be difficult for prospective buyers to obtain a mortgage, so selling through and estate agent might not be ideal. Some mortgage lenders also look at the number of privately owned properties in a block, if it is less than 50% they will have difficulty offering a mortgage. In these cases auction can be the best way to achieve the best price for a property, marketing the property to a wide audience of cash buyers. A typical buyer might be a buy-to-let investor; there are a lot of ex-council properties in the rental sector owned by private landlords.

selling an ex-council flat at auciton

Ex-local authority properties in London reach record sale prices at auction.

In areas of the country with housing shortages, ex-local authority properties are often just as sought after as private housing stock. In cases where an ex-council house or block of flats is particularly well presented (i.e. not much scope for improvement or development) and suitable for an owner occupier purchase, then just as with private accommodation, a sale through an estate agent can be a better option, depending on the seller’s circumstances.

Probate/inherited properties

The term “probate property” describes a property that is part of a deceased estate, and in the case of the sale of a probate property being sold at auction, the property is being sold before the estate (money or property) is distributed to the beneficiaries named in the will.

A recent survey by MoveWithUs estate agents found that one in ten properties coming to market are probate sales. These are properties that have to be sold and often represent the largest part of the estate. Probate properties are particularly suited to a sale at auction because they usually require some level of upgrading, whether that’s old fashioned décor or out-dated heating and electrics, where prospective buyers see scope for improvement, they see potential.

Auction has traditionally been the preferred method for selling probate properties.

There’s very high demand for these types of probate sales at auction, especially for those located in desirable areas. Prospective buyers often bid at prices very close to the value of comparable, but better condition properties on the same street, sometimes underestimating the time and cost involved in the work required to refurbish the property. The demand for these types of probate properties can be witnessed from the number of people who attend the viewings in the run up to the auction. It’s not unusual to see queues of twenty to thirty prospective buyers outside the property. The total number of people viewing the property can sometimes run into the hundreds. That in itself helps create the competitive bidding environment for the property on auction day. Read more about selling a probate property at auction.

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Tenanted & investment properties

Generally speaking it’s usually better to sell a property with vacant possession rather than with tenants in place because there’s is a wider audience of prospective buyers for a vacant property. For a tenanted property the audience of buyers is restricted to investors, but for vacant properties the audience is opened up to everyone, including owner-occupiers. The increased demand results in a higher sale price.

However, vendors do not always have a choice, sometimes it’s not possible to sell with vacant possession. Some vendors have become “accidental landlords” with no planned exit route, but their personal circumstance might change, requiring them to sell their tenanted property quickly. Rather than asking their tenant to vacate the property at short notice they might feel more comfortable selling with the tenant in place. Or there might be legal reasons why the property has to be sold tenanted, due to the type of tenancy agreement that’s in place e.g. a regulated tenancy or life tenancy.

For illegally tenanted properties, auction can be the best way to sell.

Whilst the audience of buyers will be restricted, it is by no means small. There are many buy-to-let landlords who attend auctions looking for rental investments. Investors look at the rental yield as well as the capital value of a property, they also take into account the tenants situation i.e. are they going to be a good tenant in the future.

In some cases the tenant might be occupying the property illegally; whether that’s not paying rent as agreed, or breaking-in to squat at the property. It can be very costly and time consuming to evict stubborn tenants, especially if they “know their rights.” It’s often easier and more cost effective to sell the property with the tenant in place and let someone else deal with the problem – someone who knows how to taken on a problem tenant. Whilst an estate agent might be able to find this type of buyer, the eventual sale price might be a lot less than market value. Within reason it’s up to the investor to pay whatever price they feel comfortable with, they have the control. But at auction the property will find its price from the competitive bidding of the many prospective buyers who are interested in the property. This is an example of the benefit of the transparency when selling at auction.

Request a no-obligation offer estimate to find out more about selling your tenanted property at auction.

Commercial & mixed-use properties

Broadly speaking, there are two types of buyer for commercial properties; (i) business owners looking to occupy the property themselves, and (ii) investors who are interested in the yield of a tenanted property.

Both types of buyer attend auction and as with any property type, for a vacant commercial property where there is potential for improvement there will be a strong demand. But it’s the type 2 buyer, the investor, who sees auction as a trading place for tenanted commercial properties. There are specialist commercial property auctions that cater for commercial property investors e.g. the Allsop commercial property auction will sell around two hundred lots every other month. Prospective buyers are looking for a yield in excess of ten percent (lower in London) along with a tenant with a good covenant i.e. they would favour an established chain shop over a new independent shop.

Specialist commercial auctioneers specialise in sell high yielding investments. 

Mixed use properties can be quite difficult to sell through the estate agent route because it’s quite a niche area. A mixed use property typically consists of a ground floor commercial property with residential upstairs, often under separate titles with separate tenants. Again, in most cases the buyer for these properties will be an investor interested in the longer term rental yield. But in some cases there may be scope for development e.g. extending into the roof space or converting the commercial part into residential.

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Unmortgageable properties

If a property is not suitable for lending from a mortgage company it is described as being unmortgageable. The problem to the owner is that it limits the audience of prospective buyers, with only cash buyers being able to proceed with a purchase. The limit in demand can reduce the value of the property by as much as 20%.  So what makes a property unmortgageable and can anything be done to make the property suitable for mortgage?  Or is it easier and more cost effective to sell an unmortgageable property at auction?

Banks, building societies and other mortgage lenders want to see that a property represents suitable security, one of the key requirements is that a property can be insured. So if you are selling a property that is unmortgageable due to not being insurable for some reason (e.g. there are structural issues) then it’s worth trying to find a specialist insurance company who can underwrite and insure your property, then you know when you sell the property is no longer unmortgageable, so you’re not limited to cash buyers. If you sell at auction you may be able to include a copy of the insurance schedule in the legal pack so prospective buyers know they too should be able to insure the property.

The list of properties that are considered unmortgageable is quite varied. One of the general rules is that a property must be fit for human habitation, so that obviously includes derelict and abandoned properties. But surprisingly it can be very difficult to obtain a mortgage if a property does not have cooking facilities or a refrigerator. Properties with very dated bathrooms are also considered unmortgageable, if they are unusable.  These properties sometimes struggle to sell through an estate agent and are generally better off being sold at auction.

Unique properties

An unusual or unique property can be difficult to value because there are no directly comparable property sales to measure the value against. For example, a very small studio flat in a desirable area, which has been refurbished to a very high standard with smart, space saving utilities cannot accurately be valued on a price per square foot basis, so setting an asking price when selling through an estate agent can be difficult. Where there’s a strong demand for a unique property it can be a good idea to let the market determine its true value and this can be done by selling at auction.

selling a unique property at auction

Unique properties can be difficult to value, an auction sale can help.

Another example of a unique property might be modern, bespoke designed house. Whilst auction does cater well for niche properties, this is probably not an example of the type of unique property that would sell well at auction. Just as with very high-end, luxury properties where there is limited potential to add value to the property, these types of property are often better sold through an estate agent, rather than at a property auction.

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Land & building plots

Development sites and land with or without planning permission is frequently sold at auction. As with properties with development potential, prospective buyers know that when the hammer falls they will be in a position to move ahead with their plans without the long drawn-out delay that’s sometimes experienced with a private treaty (estate agent) sale. It’s not just the convenience of a quick purchase the helps drive up the price. Where there is competition from other buyers, a sale at auction can be the best way to sell land or development sites.

selling land at auction

Auction can be the preferred method for selling land with strong demand. 

Even small parcels of land with development potential can reach surprisingly high prices at auction, as long as there is strong demand. Where there is completion from neighbours for example, sale prices for plots of land can reach staggering levels.

Garages

Lock-up garages make very good auction lots, especially blocks of garages. That’s because they’re affordable and may have development potential. A single lock up garage in the provinces might sell for £10,000 or closer to £20,000 if it’s in a town centre location. And in central London a single lock-up garage could easily be selling for the £100,000 level.

selling land at auction

Blocks of garages sell particularly well at auction

When selling a garage at auction it’s worth bearing in mind that auctioneers charge a minimum sale fee. Due to the low sale price of a single garage, rather than the usual 2% or so commission the minimum sale fee will apply; the amount will vary depending on the auctioneer and can be anywhere between £1,000 to £3,000, so it’s especially important to shop around to find the auctioneer with the lowest fees.

Next steps…

Why not request a free pre-auction appraisal for your property? It only takes a few seconds. Or feel free to call us on 020 7183 2623 if you have any questions.

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Property types

ℹ Top auction tip

Reserve prices are negotiable. It can be worth asking an auctioneer for an increased reserve amount or shopping around for a reserve price you are happy with.

Need help choosing a property auctioneer? Please feel free to call us on 020 7183 2623 or send us an enquiry online.

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