What happens if your house doesn’t sell at auction?

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What happens when bidding doesn’t reach the reserve price?

This article provides information for homeowners when their property fails to sell at auction. It is intended to help those who have entered a property into auction themselves (i.e. where the seller has control over the sale) rather than having their property auctioned by their mortgage lender as part of a voluntary arrangement or similar agreement.
Last updated by Mark Grantham on 11th June 2018

Even though an auction sale is viewed as one of the most reliable methods of sale, there are exceptions. On average 25% of properties fail to sell at auction, so it’s important to be prepared for that eventuality. Understanding the consequences of not selling at auction and having a backup plan will help avoid any unnecessary costs or further delays.

Why do some properties fail to sell at auction?

When bidding fails to reach the reserve price at auction a property will be classified as “unsold”. There are various reasons why bidding won’t reach the reserve price, usually stemming from 2 primary causes; (1) the legal pack not being ready in time for auction day and (2) a low level of interest in the property.

If the auction legal pack has not been prepared in time for auction day then prospective buyers will not have the information they need to bid with confidence. When important legal documents are not available for buyers to inspect, they’re likely to fear the worst and bid very low or not at all.

The legal pack is considered so important that some auctioneers will withdraw a property from auction if the auction legal pack is not ready before auction day – they know that no (or a limited) legal pack will scupper the chances of a sale. And in some cases auctioneers include a clause in their terms allowing them to charge sellers a withdrawal fee if the legal pack is not ready in time. In practice, as long as the property is entered into a subsequent auction they’re unlikely to charge a withdrawal fee.

A low level of interest in a property is the other main reason for a failure to sell at auction, and that usually has something to do with price. One of the ways auctioneers try to generate interest in a property is by setting a guide price that’s lower than the reserve price.

“Auction works best when there’s a high level of competition amongst buyers – the more buyers there are on auction day, the higher a price the property will eventually sell for.”

In fact, the tactic of setting a low guide price works so well in generating interest that the Advertising Standards Authority set a rule limiting guide prices from being any more than 10% below the reserve price, so if the reserve price is £100,000 the guide price is not allowed to be any less than £90,000.

It’s important for sellers to know how effective an attractive (low) guide price is at generating interest in a property, but also to be aware that a low guide price might not help future marketing efforts if the property fails to sell at auction.

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What costs are there if my property doesn’t sell at auction?

The short answer is nothing. There are no costs if a property fails to sell at auction because commission is will not be due to the auctioneer. The only costs a seller would have incurred would be in preparing the auction legal pack and any entry/catalogue fees charged by the auctioneer. Read more about the costs for selling at auction.

When a property doesn’t sell at auction, what happens next?

If bidding fails to reach the reserve price but there has been interest in the property, the auctioneer will try to secure a sale as soon as possible after the auction. In some cases that might be within a few minutes of bidding – the auctioneer will ask any interested parties to talk to one of their colleagues in the auction room, who will phone the seller and try to agree a sale there and then.

If a sale cannot be concluded on auction day the property will be advertised as “unsold” and the auctioneer will continue to advertise the property on Rightmove and/or Zoopla for a period after the auction. The auctioneer will usually have an exclusivity period written into their terms that allow them to continue marketing the property for a month or so after the auction. The post-auction marketing can often be very successful, because some prospective buyers just need a bit more time to carry out their research and arrange financing.

Entering the property into a subsequent auction

If a property fails to sell at auction, most auctioneers will be happy for the property to be entered into a subsequent auction with no additional fees (i.e. they won’t charge the catalogue fee again).

In cases where a property fails to sell because of a low level of interest, the auctioneer will usually want the reserve price to be reduced, which will give the property a better chance of selling, but there’s no obligation for a seller to re-enter their property into a subsequent auction if they’re not comfortable with a lower reserve price.

Using an alternative to auction

Assuming all the auction preparation went according to plan (for example the legal pack was available to prospective buyers before auction day and viewings were not blocked by disruptive tenants etc) then you can say you’ve given auction your best shot. Rather than re-entering the property into a third or fourth auction with an even lower reserve price, it might just be that a property is better suited to a private treaty (estate agency) sale.

There are a few things to consider when exiting your auction agreement and engaging the services of an estate agent. The most important of these is to make sure you’re no longer liable to paying the auctioneer a commission. As with most property sale agreements, when you appoint the services of an auctioneer or an estate agent, the costs incurred and the work carried out by the agent in generating interest in the property needs to be rewarded. So a typical auction agreement will include a clause whereby the auctioneer will be due a commission even if the property sells a month, two months, three months, or more, after auction day. And it might be necessary for the seller to serve notice in writing to the auctioneer in order to be completely free of any ties. Just as you would need to check the terms of a previously appointed estate agent when switching to sell at auction. When it’s the other way around you will need to check the signed with the auctioneer to ensure you’re not liable to paying two lots of commission if the property sells a through an estate agent a month or so after auction day.

As mentioned in the first section (why properties fail to sell at auction), the guide price plays an important part in marketing the property, but some sellers view it as a double-edged sword. That’s because if a property fails to sell at auction the portals (Rightmove, Zoopla etc) sometimes keep a history of marketing activity, including the auction guide price. The concern some sellers have is that the low guide price might de-value the property in the eyes of any new prospective buyers.

In our experience low guide prices don’t affect the future marketing of a property. Any reasonable estate agent will be able to explain to prospective buyers about the marketing history of the property and offer them the reassurance they need to commit to a purchase.

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ℹ Auction Sale Tips
Setting a low “guide price” will attract more interest in the property and can help in achieving a higher final sale price. But if the property fails to sell, the low guide price might need explaining in future marketing efforts.

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