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Who’s up for auction?

publication date: Jul 1, 2009
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David SandemanThis month we look at how estate agents can get involved in the auction business. The popularity and press coverage of property auctions has never been higher than it is now. More and more agents and individuals are looking to see if they can share and enjoy this side of the property market.

This increase in exposure is partly due to the rise in repossessions over the last two years and the increase in the number which are finding their way through to the auction room. With the maturing internet it is now much easier for auction houses to reach a potential buying market. Indeed, in a recent Ombudsman case an estate agent was fined for not considering the use of auctions when advising a client on the disposal of a property.

There are numerous benefits of being involved in auctioneering. Firstly fees will be generated on the sale. Secondly, auctions have always attracted a great deal of media interest and for a regional auction you will be able to generate much in the way of press interest for what might be a single branch agency. In addition, the buyer and vendor may well be in the property business, which would lead to repeat business and sales, rather than a one-off purchase or sale by a private individual.


FIRST STEPS TO WIELDING THE GAVEL

There are two key ways one can get involved in auctioneering. Firstly you can set up a new auction department with everything that entails, or become a joint auctioneer and team up with an existing auction house. Before looking at the two different ways, it’s prudent at this stage to consider what makes a good ‘lot’ and what does not generally sell at auction. My observation, after watching auctions over the last 25 years, is that the vast majority of vendors will never have lived in the property, it is not their principal residence and they are not emotionally attached to the property. Often it will be unmodernised, the vendor will be a bank, property company, executor or a local/municipal authority. The timescale to achieve a sale will often be as important as the ultimate price achieved. Having said that, it should be noted some auction lots sell at prices in excess of the last asking price in the estate agent’s window. The swift timetable and certainty of sale on the fall of the gavel is also a motivating factor for a vendor when choosing the auction route.

In order to make the property attractive in the catalogue the guide and reserve need to be set in the order of 20-30 per cent below the last asking price. What will generally struggle to sell at a property auction is a typical modernised house being offered by a vendor who lives there and has failed to sell it through an estate agent and wants to set a reserve equal to or very close to the last asking price. The property has to appear to be attractive to the trade buyers. Having identified a suitable source of stock does one set up a new auction department or become a joint auctioneer? To set up an auction department will involve a great deal of work but the reward can be satisfying. Firstly you need to make sure that you will have a supply of suitable stock to offer and that you have a route to market and a mailing list to whom you can send your catalogue. It would not be enough just to take out a series of adverts in the local paper and hope that local developers will find you, either that way or through the internet.


AuctionTHE RIGHT AUCTIONEER

In addition once you have the stock and the buyers you will need expertise in running the auction, there are many rules and regulations unique to the auction industry. You will need to understand the auction process and also have the services of an auctioneer who understands property. Some new auction houses in the past have found it very difficult when attempting to use an experienced chattels auctioneer to sell property. The pace is very different between the two disciplines and not many make a successful transition. With all that in place the marketing and advertising will have to be arranged to attract a large crowd in to the room to get a bidding atmosphere underway. All of this can take up a great deal of time and also A very successful ‘half-way’ house would be to become a joint auctioneer.

If you can see that you have a stream of suitable properties coming to auction then many estate agents have successfully joined forces with either a national London auctioneer or a local auctioneer, agreeing to be a joint auctioneer. In general terms the auction house provides the back up, auction facilities, marketing, catalogue production, auction expertise and a mailing list. The estate agent as joint auctioneer provides the property and will be involved in the viewings. The commission on the sale would then be split at a rate agreed between the two parties often at 50/50 once the property is sold.

Some of the benefits to an estate agent joining an established auctioneer are:

• a minimal exposure to costs
• guarantee that the property will have wide marketing with the existing mailing list
• a very short time from finding a suitable property to holding an auction for that particular lot

There would obviously be no need to set up a whole new business as one could be a joint auctioneer with just one lot in the catalogue. In addition by handling the viewings you will get to meet many local developers who may not be known to you, but given the nature of their business they may well instruct you, if they are the successful purchaser of the property to either let it or sell it on, once it has been developed. In all cases your profile will be raised in the local market place.


TAKE THE LEAP

In conclusion, property auctions are seeing a continued growth both in the number of lots and in public interest and awareness of them. Estate agents can capitalise on these two facts by being involved in the industry. Both solutions have their merits though joining with an established auctioneer does limit the risk and speed up the time to market. Some estate agents have started off as joint auctioneers and now have set up their own auction departments having gained some experience as a result.


Contact David Sandeman if you’d like to discuss it with him: davids@eigroup.co.uk