According to estimated statistics published by the Land Registry, approximately 1.2million residential properties were sold in the UK in 2015. Of these, around 21,000 residential properties were sold by live room auction. This means only 1.75% of residential properties sold in 2015 were sold by auction in the UK.
These figures are relatively unchanged on 2014 and are still far below peak numbers experienced in 2006.
Auctions are a great way to sell a property. They allow for exchange to occur quickly, so there is no risk of gazumping. They allow buyers to bid for the property in a transparent way, so there is more clarity compared to a sealed bid process. Finally, they allow buyers a chance to purchase the property for the price that they are prepared to pay, and provide sellers with a chance to maximise the value of their property. Auctions are a decent barometer for the property market as a whole.
And yet, only 1.75% of all properties sold in 2015 were sold using this method. Why? It’s certainly not because of a lack of suitable properties. Auctions are not just perfect for probate or distressed stock. Auctions are perfect for all chain free properties, including land and new homes.
In 2015, 156,140 homes were registered to be built in 2015. This is up from 141,000 in 2014 and 135,500 in 2012/2013. Auctions would be a very efficient way for developers to liquidate this stock. The units are subject to a reserve and the properties exchange immediately.
According to a research paper by Countrywide, “More homes have been sold without an onward chain in 2015 than in any of the previous 10 years”.
In 2004, 90% of second hand properties were sold with a chain across the UK on average. This number has been steadily decreasing and now stands at 67% on average. This means that on average, 33% of all second hand properties in the UK are sold chain free. In London, this number is 25%.
Countrywide also report that “75% of homes sold with no onward chain are bought by someone who isn’t reliant on the sale of a property.”
So, despite the large potential market for auctions, why is it that auction sales in the UK only account for 1.75% of the total number of sales?
One of the reasons for dwindling market share could be the public perception of auctions. Some vendors still see auctions as a method of last resort or a sign of desperation. Some vendors are offended by the mention that their property might be suitable for an auction, and they actively resist it, even if it means that their property sits on an estate agent’s books for months.
In their annual residential review, Allsop report that “the trend of a decrease in distressed residential lots offered at auction continued in 2015, falling to 25.7% [of all residential lots offered by Allsop]”. Crucially, the number of lots from private sellers increased to 25.3% in 2015 from 15.5% in 2014.
This is perhaps indicative of a shift in mindset as more people start to realise that auctions are not just for distressed stock.
For all the benefits that selling a property in a live room auction has, it is also a very public affair. There is no lack of discretion in the way that the property is marketed or presented for sale. In fact it is the opposite; for the very point of an auction is to reach out to the maximum number of potential buyers for that property.
For some sellers, this is problematic. Some sellers want to retain an element of discretion in their property sale. Perhaps this is down to one of those “anglo-isms”, that we really don’t like publicising our financial affairs and any discussion around how much money was made from our property sale is “quite uncouth”.
A Lack of Conformity
There is a lack of conformity amongst auction houses. Some will charge a buyer fee, others will not. Some will disclose reserves, others will not. Some indicate that a reserve will fall within 10% (as required by the Advertising Standards Agency), others will adhere to more stringent rules. This creates confusion for buyers, who don’t want to have to study the small print of every single auction house before raising their hand. More conformity around how auctions work might do the trick in helping new buyers into the auction world.
There are several ways to resolve the issues outlined above, but here are a couple that will start to push that 1.75% figure higher:
The public perception of auctions needs to change. The statistics from Allsop does indicate this is afoot, but more needs to be done to inform consumers of just how useful auctions can be as a method of sale.
A prime example of how shifting mindset can work to great effect is to look at Auction.com (soon to be Ten-X), in the USA. Auction.com started by selling distressed properties, but now sells more “normal” properties through its online platform as the market has changed. It is now worth around $1.2bn. In a recent article, Doug Dreher, CEO of The Hotel Group, who is using Auction.com to sell one of its hotels, calls the website a different type of marketing platform that “adds a degree of certainty”.
The more sellers like Doug there are speaking out in favour of the auction sector, the more sellers will be reassured and persuaded that auctions are not just for distressed stock.
Innovation is crucial to stay current, relevant and effective. In a world where 90% of buyers are starting their search online, it seems logical that some of those 90% will want to purchase online as well. There will always be those investors who enjoy the cut and thrust of the live room auction (see our previous article on live room v online auctions), but the convenience and privacy that buying online brings is very attractive to others. With our technology, the single mother of three wanting to purchase a buy to let, the banker in Canary Wharf who has no time to attend an auction and the overseas investor in Hong Kong can all now gain access to auctions hosted by prestigious and reputable auction houses in the UK. Widening the pool of potential buyers, will increase the number of properties being bought and sold.
Boosting the regular marketing strategy (print ads, portals etc) with new forms of marketing, such as video campaigns and growth hacking could prove very effective at engaging buyers.
Bamboo is working together with auction houses in the UK and will soon be introducing neat tech-orientated marketing tools that will excite sellers and engage buyers. Watch this space because together, we believe we can help increase 1.75% to where it should be in the market.