When it comes to selling your home, there are a number of routes you can take. Traditionally sellers would sell their property by Private Treaty using an Estate Agent, but in recent years, auction sales have become an increasingly popular alternative. So, is selling your home at auction a better option? In this blog, we'll explore the positives and negatives of selling through an auction, the impact this may have if you require a mortgage, and help you decide whether this route might work for you.
What is selling your home via auction?
Before diving into the pros and cons, it’s important to understand how selling a property at auction works. Instead of waiting for an offer over a period of months, an auction is a more time-constrained process, so ideal for motivated sellers. The property is listed for sale with an auction date set at a specific time and date, with bidders competing against each other to secure the property. The highest bidder wins, and once the hammer falls, the sale is legally binding.
What are the positives of selling your home at auction?
1. Speed and Certainty
One of the biggest advantages of selling your home at auction can be the speed of the process. Auctions typically take place within 4 to 6 weeks of being listed, and once your home is sold, the deal is final. Unlike traditional sales, which can often be delayed by weeks or even months due to negotiations, chains, or the conveyancing process, the auction process provides a set date and removes some of the uncertainty.
2. Competitive Bidding
At auction, your property is priced more attractively and is exposed to a competitive bidding environment, which can work in your favour. When multiple buyers are interested in your home, the price can go above the listed price. Auction bidders often have the drive and enthusiasm to secure a property, pushing the price up in the heat of the moment. And with modern methods of auction, your property can still be advertised across all the property portals, so it is there for all to see.
3. More Certainty
Once the auction is over, the buyer is legally obliged to proceed with the sale. There’s a much lower risk of the buyer pulling out at the last minute due to a change in circumstances or financing falling through. This is a major advantage, particularly for sellers who are on tight deadlines or looking to avoid last-minute disappointments.
4. Less drawn out Negotiations
With auction sales, there’s usually less of the back-and-forth that comes with negotiating offers and counter-offers. Your home is advertised for a fixed period leading up to the auction (often with a reserve set too), and after that, the sale happens quickly.
What are the negatives of selling your home at auction?
1. Limited Buyer Pool
Not all buyers are comfortable or able to move forward with purchasing at auction, and it’s often the case that auction buyers are looking for a bargain or properties that need significant work. This can limit the types of buyers who will be interested in your property. For homes in good condition or in prime locations, traditional methods might be a better fit, as they attract a broader spectrum of potential buyers.
2. Little room for negotiation
Unlike a traditional sale, where you may be able to negotiate with buyers on price or terms, auctions are all-or-nothing. Once the bidding closes, the highest bidder secures the property with no room for further discussion. For some sellers, this lack of flexibility can be a downside, particularly if the bidding doesn’t go as planned.
3. Fees
While "no sale, no fee" is common practice, as it is when you use a traditional selling agent, auction houses do often charge other fees, such as listing fees, marketing costs, or administrative charges to create a legal pack. These can add up and reduce the overall amount you take home after the sale. It’s important to fully understand the fee structure before committing to an auction sale.
4. Risk of not meeting your expectations
Although auctions offer quick results, there’s a risk that you may not achieve the price you had hoped for, particularly if the property does not attract competitive bidders. This can be frustrating, especially if you were counting on a higher sale price for your next move, however as stated before, you are able to set a reserve for the property to ensure your bottom line is met.
So what impact does buying at auction have on buyers that require a mortgage?
We work very closely with a fantastic independent mortgage broker, Lucra Mortgages, who have helped us dive a little deeper into the complexities of buying at auction. Perhaps it's not as scary as you first thought...
Ben Tadd, Director at Lucra Mortgages, explains further...
“It can be harder to secure a mortgage for auction properties through high street lenders, especially if the property is in poor condition, however, there are options available. Specialist lenders, such as those offering bridging loans or auction-specific finance, are often required, depending on the situation and the property itself.”
Ben goes into further detail below...
Obtaining a Mortgage for an Auction Property Purchase
Challenges in Mortgage Financing: Auction properties can often present challenges for high street lenders, who are hesitant to offer loans for properties bought at auction, particularly if the property is in a poor state of repair or if there is a lack of a long-term lease or the proper legal documentation.
Types of Properties: Lenders may have concerns about the property's condition and whether it is habitable, its legal standing, or if it requires significant repairs to make it acceptable as a residential dwelling. Properties needing major renovations or those that are uninhabitable often present difficulties in securing financing via standard mortgage products.
High Street Lenders: Some high street lenders will offer mortgages for auction properties, but they may require more stringent conditions such as a full survey or additional indemnity insurance, and they may only lend on properties that are in a habitable state. Many mainstream lenders also require a deposit of around 25% to 40% for an auction property, depending on the level of risk.
Auction-Ready Mortgages: There are specific mortgage products available for auction purchases that high street lenders won’t touch, called "bridging loans." These are short-term loans designed for buying property at auction, typically to cover the period until the buyer secures a longer-term mortgage. These loans are particularly useful for buyers who may need to make repairs or address legal issues before refinancing, on a property deemed to be unmortgageable by a high street lender.
Specialist Lenders: If you're buying a property that is in need of renovation or is uninhabitable, specialist lenders may also present a better option as they specialise in offering loans for properties in a poor state of repair, and they might also provide bridging finance, which can be used to complete the purchase quickly whilst you arrange for longer-term financing on a traditional mortgage.
Deposit and Terms: In auction purchases, the deposit is usually 10% of the purchase price and is required immediately after winning the bid. However, mortgage lenders may want proof of a larger deposit, especially, if the property requires significant work. The terms for auction purchases tend to be more rigid than for traditional home buying, as the sale is binding right after the auction.
“Our advice would be to always speak to a mortgage broker and provide the property details with them before the auction takes place, in order to understand your financing options.”
How Heart & Home and Whoobid can help
If you're considering selling your home via auction, partnering with a reputable traditional Estate Agent, that works along side an auction house is crucial. We work closely with Whoobid, an auction house that can guide you through the entire process, offering professional advice on how to present your property and market it effectively.
Whoobid has a track record of successful auctions, helping sellers achieve great results in competitive bidding environments. Their expertise in property auctions ensures that you’re supported at every stage, from setting a reserve price to handling any post-auction negotiations.
Is auction the right choice for you?
Ultimately, the decision to sell your home at auction or through a traditional estate agent depends on your circumstances. If you're looking for a quick, hassle-free sale and are willing to accept the risks of not getting your desired price, auction may be a great choice. On the other hand, if you prefer more time and the possibility of negotiating a sale price, the traditional route may be a better fit.
For those considering the auction route, partnering with an experienced auction house like Whoobid can make the process smoother and more transparent. Whether you choose to go with an auction or a traditional sale, understanding the pros and cons will ensure you make an informed decision.
Would you like to know more about the auction process working along side us, and Whoobid, or how it compares to traditional selling methods? Feel free to get in touch – we’re here to help!
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