Selling at Auction V’s Estate Agent

The main criteria for choosing to sell your property at auction will typically be (1) needing a quick sale, (2) needing a transparent sale, or (3) selling a property in need of modernisation.  This article is intended to help you choose between an auction sale or an estate agency sale.

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Some properties (and the owners circumstances) are without doubt much better suited to an estate agency sale rather than an auction sale. In fact, if you take a typical property sale, say a family selling one property to purchase another, an auction sale would not be sensible. When you take into consideration how the chain of transactions need to be managed and the sale price needs to be known in order to arrange a mortgage for the next property, then an auction sale would not be the best decision.

However, where there is either some flexibility in the seller’s circumstances, or indeed a requirement to sell very quickly, then for the right type of property an auction sale can be the best way to achieve the highest price.

This article looks at the factors to consider when deciding whether to sell a property at auction versus selling with an estate agent.

Updated by Mark Grantham on 6th March 2020

Managing the timings of your sale

For some buyers and sellers the guarantee and immediacy of an auction sale doesn’t help; they need to coordinate the sale of their current property with the purchase of their next property. If it turned out that they successfully sold their current property at auction and the purchase of their next property fell through, then they would need to find temporary accommodation before the property they wanted to purchase became available. That’s no big deal, but it’s added inconvenience. So sometimes, whether you like it or not, it helps to be part of the chain.

Estate agents have won their place in the property market because, in part because buyers and sellers have a requirement for a “managed sale.”

Estate agent versus auction…?

Deciding whether to sell with an estate agent, at auction or direct to a property buyer will depend on (1) the type and condition of the property and (2) your personal circumstances. This guide is designed to help you decide what route is best for you.

That’s not to say that an auction sale cannot be managed. Within reason the seller can have whatever they want in the contract of sale (or special conditions). The seller is in a position to set out the terms of the sale and can specify the completion date or other conditions in the contract to help them with their onward move.

Managing the sale price

Is there a guarantee of achieving my asking price at auction?  In the same way as the managed process of an estate agency sale can help a seller with the timing of their onward move, especially where there is a chain. Sometimes the sale price needs to be managed too. While the sale price can be managed with an auction sale through the setting of a reserve price, sometimes that’s not high enough. Auction reserve prices are typically set in the region of 85% of market value, and through competitive bidding the final sale price can reach closer to market value. But there is no guarantee.

Example: We’ve helped in a case where a property owner needed to achieve a sale price of £1.45M to clear their mortgage. The auctioneer suggested entering the property into auction with a reserve price of £1.25M and test the waters i.e. withdraw the lot from auction if there was a low level of interest. Our advice to the property owner was to only enter the property into auction if they could agree a reserve price of £1.45M+ because even if there was a good level of interest in the run up to the auction, there is still no guarantee that bidding would reach the £1.45M level. In this case the property was a very desirable, Grade 1 listed house that would have created a lot of interest anyway (but not necessarily from prospective buyers), so there could have been a danger of the curiosity-type interest being mistaken for genuine, buyer interest. And with the value being so high it’s not a risk worth taking. If the property only sold for the £1.25M reserve price the owner would lose £200,000 but the auctioneer would still make their commission!

In case you’re wondering why the property owner didn’t just ask the auctioneer to enter the property into auction with a reserve price of £1.45M, please read our article on how auction reserve prices are determined.

If you think your property might suitable for auction, but an estate agent has told you otherwise, then we encourage you to read this:

My estate agent has told me not to sell my property at auction, why is that?

The auction rooms (particularly in London) are full of properties that have been purchased through an open market estate agency sales and sold within a month, for considerably more at auction. Property traders make healthy profits from doing this, and in most cases the opportunity comes down to the simple fact that sellers often feel safer in the hands of an estate agent than selling at auction, when in fact that really needn’t be the case.

“There’s no shortage of property traders who purchase properties through open market estate agency sales and resell at auction, typically achieving profits of £20,000 to £50,000 on each sale.”

The process of buying through an estate agent and selling at auction works so well for property traders because of the simple fact that auction offers a more efficient transaction process. The process for negotiating a sale price with an estate agent is clunky and sluggish; the buyer has more negotiating power in a private treaty sale, even the best estate agent in the world can’t create the competitive bidding environment that auction offers, for the benefit of seller. The fact that this trade (buying through an estate agent and selling at auction) is so common serves to demonstrate how some properties are much better suited for sale at auction than with an estate agent. When we explain this trade to property owners, they’re usually as surprised as we were when we first found out. And we’re often asked if there must be some secret arrangement between the buyer (property trader) and the estate agent. We can confirm that the estate agent sales are normal open market sales, with no incentive offered to the estate agent. We know because we’ve been involved in these sales ourselves.
The origin of the word “auction” comes from the Latin word meaning “to increase” and is a method of sale designed to have a buyer pay as much as possible without setting a ceiling price.

Reliability of sale – auction versus estate agent

What’s more reliable, an estate agency sale or an auction sale?

Most people are familiar with the property transaction process in the UK, but for those who are not we’ve provided an overview of the basics:

If you were selling a property through an estate agent or direct to a property buyer, you would be selling by “private treaty.” The property owner typically enrols the services of an estate agent to help find a buyer. The property is advertised on the portals (e.g. Rightmove & Zoopla) and prospective buyers are invited to view the property. Assuming there is a good level of demand for the property and it’s priced realistically the seller can expect to receive offers within a month of marketing the property. 

 All offers put forward by prospective buyers are subject to contract, this means the buyer can withdraw from the sale (without giving a reason) at any time up to the point when contracts are exchanged and the buyer pays a non-refundable 10% deposit. It’s the job of seller along with the help of the estate agent to choose one buyer to proceed with. Choosing the right buyer is the most important part of an estate agency sale; the seller should not only consider the price being offered by the prospective buyer, but also their credibility – how likely are they to see the deal through? Factors to consider when selecting a buyer include the prospective buyer’s finances, are they applying for a mortgage, to what stage has it been approved? If they claim to be a cash buyer can they provide proof of cash funds? Do they require a mortgage? Do they need to sell their property in order to buy yours? How many buyers and sellers are there in the chain? It’s also worth finding out about the prospective buyer’s personal circumstances, that’s if they’ll tell you! The checklist could go on, the point is that until contracts are exchanged the buyer can pull out of the sale or change their offer for any reason, or no reason at all.

How much does it cost to sell a property at auction?  It costs about the same as selling with a high street estate agent, typically in the region of 2% + VAT.  However the sellers costs can be passed to the buyer to pay.  Find out more about the cost of selling a property at auction.
Once the buyer is selected, all other buyers generally fall by the wayside and move on to pursue other purchases. For the next few months, whilst the buyer takes care of arranging their finances, makes legal enquiries, conducts surveys and searches etc, the seller has to keep their fingers firmly crossed that the buyer is offered their full mortgage, that the buyer for the buyers property doesn’t fall through, that the buyer doesn’t change their mind and move on to a different purchase. Again, the list goes on! When selling through an estate agent, the sale is very much at the mercy of one single buyer.

With private treaty sales, it’s not at all unusual for the first one or two sales to fall through – the number banded around is that one in three estate agency sales fall through.

Auction is considered a more reliable method of selling because the sale is not dependent on one single buyer. There could be as many as ten or twenty prospective buyers at auction and it only takes two motivated buyers to bid the sale price up. Not only does that ensure a reliable sale, it also means the property finds it top price through the process of competitive bidding.

Certain types of property sell for more at auction

What types of property are best suited to an auction sale versus an estate agency sale?

Virtually all property types can be sold at auction, but of course some properties are better suited than others. The article on what makes a suitable auction property covers the subject in more detail, but to briefly summarise; properties in need of modernisation or with development potential make the best auction lots – they usually sell for more at auction then they would with an estate agent.

Find out more about auction reserve prices and why they’re so important!

Efficiency of sale

When considering the efficiency of an estate agent sale versus an auction sale it can be helpful to put yourself in the position of a prospective buyer.
If you’ve ever purchased (or attempted to purchase) a property through an estate agent you will probably be familiar with the frustration, rejection, delays and not really knowing what’s going on. You could be a cash buyer with flexible timings but the seller cannot commit to a sale because they haven’t lined up their next purchase. And even if it is a chain free sale, there’s still the possibility of gazundering or buyer changing their mind.

From the buyer’s perspective; after all the frustration of trying to purchase a property through a private treaty sale, if there’s the possibility of securing the purchase of a property at auction just by paying more, then that’s what prospective buyers will do.

The fear of selling at auction!

Moving home can be one of the biggest decisions of your life and the sale of your property is a fundamental part of that decision. Even if the property is not your home (e.g. you’re selling an inherited property) it’s a big decision with a lot of financial and emotional investment at stake.

Property owners generally choose the method of sale that they’re most familiar with and that route is usually the estate agent (private treaty) route. The estate agent route is commitment free; if the seller isn’t happy with the sale price or if their onward purchase falls through then they can withdraw from the sale at any point up until exchange of contracts. And the estate agent is always on hand to offer reassurance, which can be comforting when things don’t go according to plan.

For most property owners, the idea of selling at auction doesn’t sit well and that’s largely due to the fact that they don’t know very much about the process – the fear of the unknown. Many of the properties sold through estate agents are much better suited to an auction sale, but property owners feel safer knowing that an estate agent if on hand to help manage the sale.

With more information about the auction sale process becoming available, property owners are able to make an informed decision about the suitability of auction. And not a decision based on fear!

In some parts of the world (including Australia and New Zealand) auction is the first point of call when selling a property. Who knows if that will also be the case in the UK in ten years time?

More auction help

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ℹ Private Treaty Sale

What is a private treaty sale? This article refers to “private treaty sales”, the type of sale you would expect if you were selling through an estate agent, where a property is listed for sale with an asking price, the buyer makes an offer to the estate agent who then presents the offer to the seller, who can then decide whether to accept the offer. The offer can change at any point up until exchange of contracts. Selling at public auction is different, as the article explains.
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