Pros and Cons of Selling a House at Auction

When it comes to selling a home, we all want three things. A good price, a fast house sale and minimal expense. Finding all three though can often be tricky and unless you approach a cash house buyer, you might find your options quite limited.

One route to sale that many consider in the hope of achieving these goals is the property auction. As with all things property though, there are a host of pros and cons worth weighing up before you take the plunge.

So, in this blog, we take a look at property auctions and investigate the pros and cons so you can make a decision that suits your needs.

What is a property auction?

A property auction is where a house can be sold, without much of the hassle that comes should you try and sell via a high-street estate agent. Often favoured by those with problem properties or those in need of a speedy sale, homes are listed with bids coming in from potential buyers. Depending on the style of auction chosen, bidders will bid on a set day or over a set period. Upon conclusion, if the reserve price is met, the house is sold with the buyer having to pay for it within a timeframe determined by the type of auction the house was sold at.

For example, in what is known as a traditional auction, the winner pays a 10% deposit the moment the gavel falls. Contracts are exchanged at this point and then the buyer has 28 days to complete the purchase.

In the modern method, a non-refundable reservation fee is paid with the purchase price paid and contracts exchanged within 56 days.

Each method has its fans. The traditional method being seen as the faster, safer method for sellers. The modern method is often preferred by buyers as the initial outlay is smaller than it would be at a traditional auction.

Selling your house at auction: The pros

If you have carried out some research about property auctions in your area and think it’s the best route for you, you’ll benefit from a host of things that the more traditional estate agent can’t present you with.

Speed

We mentioned in our intro that a fast house sale is often among the key goals of a seller. Auctions can certainly provide this. The traditional market currently sees it take as long as six months to sell a house. In some cases, much longer. At auction, you can sell your home in a matter of weeks. The traditional auction is the faster of the two options thanks to the 28-day term buyers must commit to. With listing, auction marketing and the auction itself, you can see it take 10-12 weeks in total.

The modern method is a little slower but still fast when compared to selling via an estate agent. This route can take up to 16 weeks in total, but this is largely because of the 56-day period after the gavel falls.

No chain

A smooth sales process is always favoured by a seller. An auction can provide this. With no risk of a chain break, there are fewer obstacles to overcome and instead a much more stress-free path to sale.

More guarantee

Selling your home with an estate agent may get you in front of lots of people but it, unfortunately, doesn’t always translate to a sale. Auctions provide a greater degree of certainty that your property will sell. With a non-refundable deposit or a reservation fee paid, it becomes less likely that buyers will change their minds and be happy losing that cash.

Perhaps it is also worth noting that with auction properties, all the due diligence you would see carried out after an offer is accepted when selling via an estate agent, is carried out in advance. This means that bidders are fully aware of what they are bidding on and are less likely to pull out.

Referring to our earlier point, the lack of a chain also adds further substance to the certainty of the transaction.

Sell any property

At auctions, you’ll often find a host of property investors who look to find a bargain, then refurb and upgrade the property before selling it later for a profit. This means that even if your home has seen better days or has had issues you cannot fix, there is likely to be someone who sees value in buying it from you. Now think about trying to sell an unsellable house via an estate agent. Buyers may not be able to secure a mortgage for it and estate agents may even be reluctant to take it on due to an anticipated lack of interest.

The cons of selling a house at auction

The pros of selling your house at an auction certainly sound enticing but as with anything, there are disadvantages too. Let’s take a look.

High fees

You might get the sale quite fast, but it does come at a price. Auction houses charge fees for selling your home that can eat into your sales price quite significantly.

If you sell via the traditional auction method, you’ll first pay a fee to the auction house. Think of it like an entry fee. This can be around £300-£500. Once the home sells, 2%-2.5% of the value is taken as the commission for the auctioneers. In addition, there are legal costs to pay your solicitor, and these can add a further £300 to your expenses.

If selling via the modern method of auction, you could expect the commission to be closer to the 4% mark. With the legal expenses and any entry fees still to be added.

No guarantee of sale

Whilst bidders are keen on snapping up properties, if yours doesn’t fit the bill, it could go unsold. You won’t get your entry fee back and will have to go through the process again if you want to try and sell it at another auction. The completion rate of sales at auction is much better than via an estate agent but if the buyers aren’t interested, your home could remain unsold for a long time.

Low selling price

Auctions can be competitive, and this occasionally means you might sell a property for more than you expected. The reality is a little different. You need to set a guide price first. This is the price the auction house will use to lure in potential bidders. This price goes public, so everyone has an idea of what kind of bid to make. You then need to inform the auction house of your reserve. This is the minimum you’ll sell for. This price remains between you and the auctioneer. The thing is some people will see the guide and come in at that. If nobody else bids, you can either sell at that price, lose a lot of money or decline the sale and lose your entry fee. On average properties will sell for around 10-15% less than they would on the more traditional market.

Can’t sell if part of a chain

If you are chain-free, then an auction can be useful. If you aren’t then an auction isn’t the route to take. Imagine if your home receives a bid and you’ve found a new home to move into, but something stalls your new property purchase or sees it fall through. You remain legally obligated to sell your house to the winning bidder from the auction. As a result, homes that would be part of a chain are not ideally sold via auction. There is just too much risk.

How much does it cost to sell a house at auction?

It will vary depending on the type of auction that you choose to use. It is worth remembering though that with entry fees of £300-£500, a reduction in value of around 10-15% and a commission ranging from 2-4%, you could see thousands wiped off the value of your sale. We’ve put an example below to show you just how much it could cost you to sell at auction:

Property value: £250,000

Value at auction: £225,000

Less Entry fee: £224,500

Less commission: £215,520

This means, against market value, you’ve lost almost £40,000. And, if the home doesn’t sell the first round, you can deduct a further £500 each time you try and sell at auction.

Is there an alternative to selling your house at auction that is just as fast?

There is, and it’s actually much faster and less expensive. A fast sale specialist like Bettermove buys any home and makes an offer on your property, regardless of its condition, location or type. If you then accept it, we can buy the home from you in as little as seven days. We also present your home to a network of buyers if you prefer. This can take up to thirty days to secure a sale, but it means you have multiple eyes on your property at the same time. Perhaps the best part is that you can kiss goodbye to the fees. We sell your house for free so you have no concerns about huge commissions eating into the proceeds from your sale.