How do online property auctions work?
These have seen a huge increase in popularity recently, but they’re still a relatively new way of selling and buying.
They’re quick, guaranteed and avoid the difficulties of a property chain. But, there are many things sellers should be aware of beforehand.
We take a look at what they’re all about, plus the pros and cons, in this handy guide.
What is an online property auction?
There are very few things that can’t go online in this day and age – property auctions are no exception. It essentially takes place over a live stream, open for bids 24/7 until the end of the auction period that will have been set beforehand.
How do they differ to traditional auctions?
Traditionally, selling your home at auction takes place in an auction house, which must be carefully chosen by the seller. For example, some are more expensive, but you might just get a better sale price.
Much of the process is still the same, e.g. you must set a reserve price – which is the lowest price you’re willing to accept. This is kept private – the only prices people see are the starting and actual bids.
Also, the buyer must still pay a reservation fee. Note: if they withdraw from the auction, you won’t receive that money.
However, you can watch the bids being made online. The whole thing is very transparent. Plus, it allows you to attract a wider range of buyers, from all over the place. Also, buyers can bid at any time of the day. But, you’ll also miss out on the competitive spirit of all being in one room. This can fuel higher bids.
Plus ‘the hammer falling’ tends to be when the pre-agreed online time period ends, rather than a physical hammer. Of course, this is subject to whether the reserve price is met.
Why have they increased in popularity?
Due to the events of 2020, namely COVID-19 and the need for social distancing, online property auctions provided a solution for people to still sell their homes.
However, that’s not the only reason. They have also made things easier for sellers in a difficult housing market. These types of auctions are much speedier than the traditional selling route. For those looking to secure a sale fast rather than deal with potential delays, it’s an appealing option. There’s no need to wait for the next physical auction – you can put your property up today.
What’s more, online auctions are more accessible for those leading busy lives. They don’t need to commit to attending the auction on a specific date, but can bid as and when suits them. This flexibility is partly responsible for the rise in popularity.
How do online property auctions work (UK)?
As a seller, you have two options.
- Unconditional (traditional) auctions – exchange of contracts happens immediately, essentially as soon as ‘the hammer falls’. Completion is usually 28 days after that
- Conditional online auctions – This gives the successful bidder longer to exchange and complete, usually around 40 days, sometimes more
With the first option, it guarantees things will go through as quickly as possible, one of the perks of auctions. However, the second can be more appealing to the buyer, as it gives them more time.
Whichever one you choose, buyers must give their payment details prior, to ensure they can pay their deposit immediately if they’re successful. The whole auction process is geared towards guaranteeing a sale and avoiding delays.
Weighing up the pros and cons
Deciding if selling via an online auction is right for you requires careful consideration. There are a number of myths around online auctions that need busting. To help you get a better understanding of it all, let’s take a look at some of the main positives and negatives.
There are many reasons why this method of selling is attractive, including:
- The process is very transparent
- It completely avoids a property chain, which can bring with it complications and delays
- Online auctions are usually considered final, meaning there’s less of a chance of the sale falling through or of you being gazundered
- It’s much quicker than the traditional selling route
- There are fixed dates for exchange and completion
- You can carry out the process from the comfort of your home
- The costs of selling via online auction are the buyer’s responsibility
- You can attract people from a wider area, both nationally and internationally (more bidders may mean a higher sale price)
Of course, there are some inevitable downsides:
- Some online auction houses will charge extra costs
- The sale price can be less than if you put your property on the housing market
- The aim of the auction is a guaranteed sale: not always top dollar
- Buyers will often work the reservation fee into their bid (you will not receive this money)
- For example, they might be willing to pay £100,000 for a property, but they’ll bid £95,000 to incorporate in a high reservation fee of £5,000
- You may not benefit from competitive bidding that thrives on the energy of everyone in one room
- Some buyers won’t think to find a property this way, meaning you’ve lost potential interest
- Speedy sales can put some buyers off
Is an online auction right for you?
Of course, auctions aren’t for everyone. But they can be particularly well-suited to certain types of properties, vendors and circumstances.
While this isn’t an exhaustive list, let’s take a look at some of these:
Sellers who need a speedy sale
As mentioned before, online property auctions will significantly speed up what can be a long, drawn-out process. While this might sound attractive to everyone, there are some of us who will need a fast sale more than others. Particularly during uncertain times, a low-cost, secure, speedy option is desirable to many.
For example, those who are relocating or moving to a new area. Time might be of the essence, and a delay in selling their property might cause this move to fall through.
Other reasons for needing a fast sale include for probate reasons, downsizing, or because someone is in debt.
There are some types of properties that will take a long time to sell on the traditional open market. This includes those:
- With short leaseholds
- Which need doing up or renovating
- In need of a complete rebuild
- That are unmortgageable (cash buyers might be interested still)
- With high ground rents or service charges
- In less desirable areas
- With structural issues
- That are ex-council
- That are commercial or mixed-use
- Which are unusual or unique
In short: auctions can be an ideal place for any property that would be difficult to sell either privately or via an estate agent. Many buyers will head to auctions looking for a bargain when it comes to the initial sale price.
Tips for online auctions
Decided this is the method of selling is for you? Here are some top tips to help the process go as smoothly as possible:
- Think very carefully about your reserve price. What is the lowest you’re willing to sell it for?
- Resist any pressure from others (e.g. estate agents) to set your reserve price low to secure an easy sale
- Be aware that you can roughly expect to sell the property for 70-80% of its market value
- Have all your legal documents ready before opening your auction to bids
- How long you advertise your property for is key (it can be 30 days from the date your auction goes online)
- A shorter period of time will guarantee speed, if that’s essential
- A longer period of time might help generate higher bids
- Ensure your home looks its best in the photos/videos
- Don’t just go with the first online auction platform you see advertised – weigh up your options
- Work with your estate agent, they’ll be able to help you
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Need a solicitor?
Whatever way you choose to sell your property, you’ll need a solicitor. They’ll provide invaluable services, from dealing with all legal documents to the Land Registry.
If it’s a smooth, easy sale you’re looking for, we can connect you with the right people to make this happen.
Want to sell the fast way?
If you’re itching to get started – don’t wait any longer. We can help you find the right people to make your selling ambitions a reality. Get your online property auction started below.