Inside the Auction House: What makes a good prospect

Inside the Auction House: What makes a good prospect



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Answers from the Rostrum...
 

Benjamin Tobin, Chartered surveyor and director of Strettons, has been selling properties by auction since 1979. Each month he will correct our common auction misconceptions, giving us the real answers from the Rostrum...

Over the past few years there have been a stream of television programmes on the subject of buying properties at auction. Frequently these have followed a similar format: the camera follows a buyer or buyers around the property market, inspecting buildings, most frequently houses or flats (but occasionally small business premises) with the suspense provided by following the auction process and watching either the joy or the disappointment of the successful bidder at the auction.

I have featured on numerous such programmes and I am still questioned by clients who see me on daytime satellite TV selling a property that went through our auction sometimes several years earlier. One lady tells me that her trips to the gym would not be the same without me selling (or occasionally not selling) a property.

But why the fascination with a part of the property market that the vast majority of buyers never get to engage in?

My guess is that it is the element of the unknown - the roulette of whether the buyer, the seller or sometimes both, will be overjoyed, disappointed or merely satisfied with the price.

Bridging lenders, however, frequently use auction, yet sometimes fail to have a detailed understanding of how it works. The rational seems to be “it does work, so don’t get involved”.

In any event, there is never any shortage of questions when people (whether or not they are from a property background) find out that I am a property auctioneer.

With that in mind I have gathered some of the most frequent questions and answers:


Question

Is there any property unsuitable for auction?

Answer

No!

But of course the answer is never that simple.

There are some properties that will always sell well by auction; others may be popular but auction may not be the best way to get the best price.

A lender selling after dispossessing a borrower has an obligation to achieve best price – this may not necessarily be highest price.

So what properties would I normally recommend against selling by auction?

Probably a typical suburban house, in reasonable condition, which is likely to appeal to a family who might be trading up or down, but who will be dependent on a high level of borrowing, and a linked sale as part of a chain.

In these circumstances the buyers need time to raise mortgage finance, and perhaps more importantly, to co-ordinate with other buyers and sellers. No part of the chain can be subject to the strict and absolute timetables that auction buying and selling involves.

The highest price for such a property will usually be achieved through a high street estate agent who knows the local market and knows his local buyers and sellers.

On the other hand, if the borrower is in default with a bridging mortgage so that interest is accruing at a fast rate, perhaps it is better to accept a lower price and have the certainty of a quick sale in a certain time scale, so that the flow is stemmed.

If the house is ‘special’ in some way, however, auction may not be the best way, and ‘special’ can be special – good, or special – bad.

If the house is in a high value area where the majority of buyers will not be dependent on a high proportion of mortgage finance and may not even be dependent on a chain, then buyers may well be able to cope with auction timetables.

In a high value area houses often differ markedly, contrasting with a typical Victorian terraced house where the basic accommodation is similar even if decorations and finishes can be individualised. These are the sort of factors which make properties hard to value.

Perhaps the house is on an unusually large plot so that there is room to extend or even build another house. Perhaps the design is unusual. Add in the complication of a highly desirable school catchment area or the “snob value” of a well known conservation area.

Special – bad can be a structural fault which could restrict the availability of auction finance, or a locational disadvantage – perhaps next to a particularly smelly restaurant or a noisy night club.

Flats above street markets are often unpopular because stall holders can regularly start setting up very early in the morning, perhaps six mornings each week.

All of these factors make it harder for the agent to value – after all buyers may have widely differing opinions and in these cases, where value is difficult, perhaps it needs the “floating” market of an auction to establish where value lies.

Apart from anything else, in these cases auction is the best way of protecting against claims of under-selling, or that the agent has not marketed as fully and as widely as they might.

More unusual examples of hard-to-value properties which we have sold by auction would include fishing lakes, plots of land with no vehicular access, underground public toilets, islands or properties with negative value – perhaps where the Council have undertaken safety works under a Dangerous Structure Notice at a cost which, together with accrued interest exceeds the value.

So the answer is that there is no property which is unsuitable, just some where all of the factors need careful consideration.

Benjamin Tobin is a Chartered Surveyor and director of Strettons, who has been selling properties by auction since 1979 and taking LPA Receivership appointments for lenders since 1992.

He co-wrote the original Guidance Notes for Auctioneers and is a member of the IPA/RICS body that registers Fixed Charge receivers. Strettons are a UK top 30 Property Agent and a UK top 10 Property Auctioneer.

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