Why auctions are an excellent way to sell tenanted properties

Hallo Martin. What percentage of the price that would normally be achieved by selling the property via the 'traditional' ways (i.e. vaccate and put it up for sale with the high-street agents) would you say can be achieved in an auction ? Of course is difficult for you to give a hard number, but what is your feeling ? thanks

@ Sian Hemming-Metcalfe

Hello Sian,

I’ll try to answer your question. The auctioneers considers a number of factors when considering advising a vendor of the ‘Reserve’ price (the level at which on or over the auctioneers believes the property should be sold at and remains private between vendor and auctioneer) and the publicly quoted ‘Guide’ price range.

The auctioneer’s advice is based on:

• Comparable evidence of actual sales prices achieve for similar property in similar location
• Local knowledge of the property market and any local external factors, direct or indirect, that might have bearing on sales price
• The type of tenancy, length of tenancy, rental yield, length of time tenant has been in residence
• Is there any head-room to increase rent level

Clearly the greater the rent yield the more attractive the proposition from an investment point of view but other factors such as the quality, condition and location of the property influence value.

The auction method of selling is designed to get maximum buyer interest so that on the day buyers pitch up and compete to purchase, the competition element should ensure that the property achieves the best price on the day.

@Cristian Stoian

Hi Cristian,

Good question and not one that has an accurate answer as many variables are in play….like no one property is the same, location, condition and vendors motivation for sale. What I can say is that there is plenty of circumstantial evidence that would suggest that the sales price achieved for similar properties (et al B2L) would be similar.

It is worth remembering that the auction room provides a high degree of speed and sales certainty (Auction House UK average 80+% success), additionally its worth remembering that agents when valuing for private treaty sales value top down whereas auctioneers value bottom up the later relying of competitive bidding in the auction room to find the property’s value and sell on the day.

Reply to the comment left by "Cristian" at "06/07/2013 - 09:17":

Hi Christian

I feel I can answer your question from an investors perspective having purchased properties from auction. From my perspective, I like to think I am picking up a bargain. Having said that, doesn't everybody? In truth though, when I was buying aggressively at auction I was only successful on around 1 in every 30 lots I bid for. In other words, 29 times out of 30 people paid more than I thought a property was worth. What astounded me on occasion is that some properties sold for substantially more than they would have done on the open market via an estate agent. I not just talking slightly more either, I've seen 20+ plus over what I would consider to be a realistic open market value.

Generally, my experience is that properties sell for between 15% and 30% above the guide price. However, it is very hard to generalise as the highs and lows are enormous. I suppose it just depends on how many people are committed to buy a property and the potential they see in it. You only have to get a few inspired amateurs getting carried away with the excitement in an auction house and the bidding can go crazy.

If I was selling at auction I think my strategy would be to set a guide price at around 30% BMV and a reserve at close to market valuation on the first time the property was entered into the auction. The low guide price would attract more viewings and hence more competition on the day. As I've said above, you only need to get a few inspired amateurs getting a bit carried away and you could do very nicely indeed 🙂

I hope that helps and I look forward to reading what Martin thinks of my response.

Reply to the comment left by "Martin" at "08/07/2013 - 12:35":

LOL - clearly we were typing at the same time. Great minds think alike!

apologies to all in my tardiness in responding....had a bit of a disaster at the weekend....left my iphone on the roof of my car and drove off...suffice to say no more iphone and loss of contact with the outside world 🙂

Reply to the comment left by "Mark" at "08/07/2013 - 12:36":

Good advice around pricing strategy Mark....

Reply to the comment left by "Martin" at "08/07/2013 - 12:23":

Thank you Martin; that is very detailed and most helpful 🙂

Hi, I've just read this conversation with great interest. I am fascinated by the "Deed of Assurance" as the tenants reaction to a property being sold is key if trying to sell as an on-going BTL. It is ideal if the tenants are handled with care by the landlords agent/auctioneer throughout the marketing to ensure a smooth change of ownership.
The auction method of sale attracts buyers from a wider geographical area and a high percentage of cash/investor buyers and then creates competition. In the cheaper end of the market particularly the result is usually a sale at a substantially higher price than that achieved by private treaty.

Reply to the comment left by "Toby" at "09/07/2013 - 10:02":

I am delighted that the deed of Assurance has fascinated you Toby. There is a VERY long discussion about it and how it may influence the evolution of the Private Rented Sector to read via this link >>> http://www.property118.com/the-private-rented-sector-evolution-deed-of-assurance/40949/