AUCTIONS – OFFERING CERTAINTY IN AN UNCERTAIN MARKET
23 May 2013It is 18 months since Osborne King re-engaged with property auctions as another means of disposing of clients’ assets following the plunge from the dizzy heights of the boom. In mid-2010, we took a considered decision to re-launch the auction when transactional activity in the general property market was at its weakest level for many years. There were sceptics from competitors to clients alike who seemed to be of the opinion that this wasn’t the brightest idea in a static market with a dearth of funding. Fast-forward 18 months; with six property auctions under our belt and an average success rate of 90%, we have proved that our decision has paid off. Moreover, many other property consultants are following our lead!
Property auctions are now a widely acceptable form of asset disposal although many sceptics still believe that a sale by auction means a “fire sale”. Across the water, auctions are part of the property landscape with hundreds of property auctions held each year. Although some lots are sold as a last resort, an auction is an efficient method of sale compared to traditional methods of sale.
For example, with a sale by private treaty, the passage of time from commencement of marketing to actually agreeing terms can be protracted. Even if the vendor and purchaser have agreed terms, more often than not, difficulties arise jeopardising the proposed transaction. The vendor’s solicitor will arrange for the draft sale contract and title pack to be forwarded to the buyer’s solicitor. Once in legals, many issues can arise from unidentified restrictive covenants, rights of way or inability to secure funding. In many instances, prices are “chipped” or the purchaser walks away from the deal.
Contrast this with the auction scenario where the title pack along with the auction contract is available to view at any time via our website. Obviously, a purchaser has to do his/her due diligence upfront without the guarantee that he or she will be the successful bidder.
In addition, buyers must have funds available. During the marketing period, a bidder should inspect the property as often as possible and arrange for any prior surveys in good time. On the fall of auctioneer’s gavel, the purchaser will be required to sign an unconditional contract and pay a 10% deposit. The sale will then conclude usually within four weeks. A major advantage of the auction process is that it eliminates the possibility of “gazumping” or more commonly at present “price chipping” thus providing certainty to both parties. Unlike most other auction houses, Osborne King does not charge purchasers a premium or administration fee.
The buyer profile has radically altered with today’s bidder likely to be unknown to the auction house in stark contrast to the boom period. Currently, the strongest market is the domestic housing market up to the £125,000 mark. This market is very strong with many now acquiring houses at affordable levels within the exemption of stamp duty bracket and backed up with a strong letting market. Commercial property and development land are much harder to sell due to limited end-use demand, rates liability, lack of build finance and fixed holding costs.
UK auctions have continued to hold their own with nearly 60,000 lots offered for sale in 2012 with an average success rate of 75% and raising approximately £3.5 billion (EI Group). Auction statistics for 2012 have increased positively from the previous 12 months showing the growth in demand for auctions for the all types of assets. We envisage that locally the trend for auctions will continue to see healthy growth in lots offered and sales in the next couple of years. In time when a more “regular” property market returns, we expect that the auction process will continue albeit on a smaller scale.