How the auction sector can increase its share of overall UK property sales is a key challenge for property auctioneers – and improving the property buying experience must be central to how we address it. This is something we will be discussing at the RICS 2017 Real Estate Auctioneering Conference next week, writes Philip Waterfield, auction director at Strettons.
According to David Sandeman at Essential Information Group, residential auction sales in England and Wales, compared with private treaty sales recorded at the Land Registry, represent only about 1.8% of total sales. I would like to think that, through achieving a greater dialogue with the mortgage industry, and being more vocal in promoting the benefits of buying and selling at auction, the sector can begin to enjoy a greater slice of the pie.
Setting the pace
As everyone in the property industry will know, we operate in a fast-paced market with ever increasing demand for flats and houses, especially in London and the South East. Why then, are so comparatively few residential properties sold via auction, which is arguably the fastest and most transparent way of selling property?
Private Treaty can be a very tortuous and stressful process and auction also has its stresses and strains. But, in the auction room, the buying process is front loaded with most, if not all, of the information on display before bidding starts. Bidding in the room is as transparent as can be.
This therefore begs the question, why is the market dominated by private treaty sales?
Buyer attraction
There is a perception that, traditionally, “damaged goods” go through the room. But, as auctioneers know, that’s not always the case. Buyers certainly need to go in with their eyes open, as they would with a private treaty sale, but if they’ve done their homework they should be well informed.
Maybe the quality of stock doesn’t appeal or the pick ‘n’ mix offer of properties in a catalogue is confusing?
I can’t help think that fear is the key. Fear of buying something that isn’t what it seems. Fear of underselling the property, fear that “auction fever” will mean paying too much, or simply fear of being filmed for a TV programme and they’ve not got your best side!
So, better education may be the answer. Or having a cooling off period, but that flies in the face of the concept of an auction.
Conditional sales are perhaps a halfway house. However, these seem to be more popular in other areas of the UK than in London and the South East where demand generally outstrips supply, and estate agents would argue their open house events and sealed bids satisfy that corner of the market anyway.
Could auctioneers be allowed, as in some other countries, to reserve the right to “knock down” a property to the highest bidder at below reserve and then negotiate a sale with that bidder? Again, this is not quite cricket when the essence of an auction is that a contract is formed on the fall of the hammer. Besides which, when a property fails to sell, there’s often a flock of vultures circling ready to do a deal and sellers may not want to be locked into negotiations with only one party.
So what is the answer?
I think it is down to the auction sector to show a united front, talk about the positives of buying and selling at auction, and educate the public. Certainly, auction TV programmes have made auctions more sexy than they’ve ever been, but the take up of buyers and sellers is marginal compared to private treaty sales.
One thing that would have a transformative impact on the sector and encourage more buyers would be for them to have easier access to mortgage finance. For first time buyers not afraid to get their hands dirty as they start to climb the property ladder, buying something from auction that needs work could be a very attractive option if lending on such properties (or to such buyers) was more flexible.
Lenders, of course, require a degree of security. There are many bridging lenders who like the idea of lending short term, especially on properties that need attention and often where mainstream lenders are loathe to tread. Bridgers are often prepared to roll over interest and lend against works but buyers are still expected to put something in the pot and it may be that a loan request to “Bank of Mum and Dad”, or potentially crowd funding, may be the only way to help fund the purchase. Alternatively, if government want to help new buyers they may consider setting up a help to buy at auction fund.
I hope we can air this debate at the RICS conference, but I do believe that as an industry we need to have greater dialogue with the mortgage industry to see if there is a more level playing field between buying private treaty or through auction.
If the apparent imbalance can be addressed, it is more likely that sellers and buyers will consider auction as their next move.
Philip Waterfield will be speaking at the RICS 2017 Real Estate Auctioneering Conference on Wednesday 28 June. As well as a discussion on the challenges facing property auctioneers, there will be a round-up of the key developments in the sector, together with practical case studies and legal updates.
