Key differences between Property Auctioneers and Estate Agents
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When looking to buy or sell a property there are generally two main options to choose from, using Property Auctions or your High Street estate agent. There are many different factors to consider when assessing which may be the most successful method of sale for you and your property depending on what is most important to achieve.
Whether selling your property through a Property Auction or an Estate Agent both methods of selling aim to market the property to achieve the highest sale price for the vendor and they are incentivised to do so through the pricing structure though there can be a considerable difference in how long the sale takes depending on which method of sale you choose.
The key differences between selling a property through a property auction and through an Estate Agent tend to fall within the following categories:
• Marketing process
• Pricing strategy
• Type of buyers
• Type of properties
• Legal checks
• Timescale for exchange & completion
There are similarities to how properties are marketed as both Auctions and Estate Agents use the popular search portals to list their properties to reach a wide audience. Auctioneers will also include the property details in their auction catalogue which is posted out or emailed to potential buyers that have registered their interest in the auction and can also be viewed online.
Differences in the buying process: With estate agents - you make an offer, have it accepted, do your due diligence, then exchange. With auctioneers - you view the property, do your due diligence, bid, and if you are the highest bidder at or above reserve, you exchange contracts on the fall of the gavel.
The property details provided when a property is for sale by auction are very often much less detailed than those prepared for sales by private treaty through an estate agent.
The opportunities for property viewings of an auction property can be limited due to the swifter nature of the process. There may be time slots advertised when open house viewings are available and depending on the condition of the property as for example with derelict properties there may be restricted access for safety reasons.
If you are interested in viewing an auction property, information may be linked to the advertised lot details otherwise just contact the Auctioneer directly. Viewings for properties offered through an estate agent are usually arranged at a mutually convenient time with the vendor or tenant and are much more flexible. The Estate Agent would generally hold a set of keys to the property to facilitate last minute unplanned viewings.
Auctioneers quote a ‘Guide Price’, whereas estate agents generally quote an asking price. If you made an offer to an estate agent above or around the level of the asking price that would generally be accepted dependant on there being no other competitive offers.
Auctioneers advertise a guide price for an auction lot to encourage interest from potential bidders as it is usually set lower than the considered market value. Despite using the word 'Price' the guide is only an indication as to where the reserve is currently set and not necessarily what the auctioneer expects to sell the property for. The reserve price is not disclosed and is the agreed price between the vendor and Auctioneer where they have the authority to sell it. You cannot rely on the guide price as any indication of the final sale price as it is interest in the room that sets the market value on the day. Read more guide prices explained.
Estate Agents typically charge a percentage commission between 0.5 – 2% depending on what is negotiated between the vendor and the agent for differences such as sole or joint agency of the property sale. This generally includes all the agreed marketing activities, accompanied viewings, offer negotiations and sales progression.
Stamp duty tax is payable either way.
Potential Auction fees:
• Administration charge
• Buyers premium
• 10% deposit
• Disbursements – searches, legal fees, additional documentation and supplements
• Reservation fee (only relevant to Conditional auction method)
Some properties may require a purchaser to pay a Buyer’s Premium to the auction house at the point of exchange. If this is applicable it will be shown in the property details.
An administration fee or charge (plus vat) is payable alongside the 10% deposit after the fall of the gavel. This may be a fixed fee or percentage of the sale price.
Traditional auctions tend to take place in formal hospitality setting such as hotel ballrooms with enough space to accommodate all the interested parties in the lots for the whole auction. More rural auctions particularly those involving agricultural land and or buildings often take place onsite. This is changing now with an increasing number of auctions being hosted on an online platform so bidders would not need to attend the auction and can bid from their own device at home or wherever they happen to be. For those not able to attend an auction in person there is the option of telephone bidding on the day or placing a proxy bid with the Auctioneer so they bid on your behalf up to the value of your highest bid if required.
Estate agents offer property within a very tight radius of their office (just a few miles) whereas auctioneers work over a much wider geographical area. Several London auctioneers cover the whole country. Estate agency stock is often on the market for some while, whereas the period between catalogue release and auction day can be as short as two weeks, depending on the auctioneer.
Estate agents usually have a convenient office located close to the property for interested parties to call or visit to find out more information about the property of interest to them, arrange viewings and discuss the situation of the seller. The seller may or may not have found a property they wish to move to already as there are often chains involved with the purchase of property via private treaty and the sale of the property is crucially linked to the successful completion of the whole chain.
Type of buyers
Buyers at auction tend to be more experienced in buying property, holding small to large scale property portfolios. They could be property developers, investors in the commercial and residential markets and sometimes owner buyers that don’t require the traditional mortgage lending framework. Auctions are typically seen as a market for cash buyers due to the reduced availability of mortgage lending on auction properties. This more stringent lending criteria makes it much more difficult for the average buyer to purchase at auction.
Buyers and sellers through estate agents tend to favour the option to link their house sale or purchase to that of their own so they move directly from one to the other. Also there is no time limit on exchange or completion and no legal duty to proceed if something untoward comes up in a property survey. Depending on which stage of the process you are at the buyer may lose their paid deposit, usually set at 10% of the purchase price but they can walk away any time before completion with no legal ramifications unlike auctions where you are legally bound as soon as the hammer falls on the auction sale.
Type of properties
Any type of property could be sold by either method, though auctions tend to attract commercial and residential properties that require a quick and certain sale or the transparency of the auction process if being sold by a publicly accountable body.
Common types of property available at auction tend to need some level of modernisation, derelict sites, land development opportunities, more unusual properties such as forts, jetties, woodland, garages, pubs, churches as well as a large percentage of average flats and houses. The vast majority of estate agent stock is modernised and vacant whereas the vast majority of auctioneer stock is unmodernised with approximately 25% being tenanted.
With estate agents the standard process is for an offer on a property to be agreed before any surveys or legal checks are carried out. If a survey comes back with unexpected bad news about the state of repair of a building then this is usually a time when the buyer will try to negotiate on the previously agreed purchase price in light of this new information.
With Auctions it is important to arrange everything quickly to maximise the time you have to view and do your due diligence before auction day.
When buying at auction all the necessary property due diligence and legal pack investigations must be carried out prior to bidding on the property so that the bidder is fully aware of any potential future costs involved in the purchase as there is no backing out or any opportunity to renegotiate.
Timescale for exchange & completion
As previously mentioned, the benefit of using the auction method is the speed and certainty of sale. When the hammer goes down in an auction that is the point of exchange and you are legally bound to purchase the property. At this point you will pay the deposit and fees and the Auctioneer will have the contracts ready for you to sign straight away. From when the hammer falls to the date for completion is usually 28 days.
With estate agents the timescale for exchange and completion is more flexible. Once the survey and all the legal checks have been done and the solicitor is happy to proceed then an exchange date is set. If the property is in a chain of sales usually the exchange of contracts and payment of deposits is done on all the properties simultaneously as each sale is dependent on the success of the others. The completion period is variable but 2 weeks is average across the industry as it gives buyers and sellers enough time to arrange the details of their move. Though in total the timescale from offer accepted to completion can take on average up to 6 months.
This has been quite a detailed look into the differences between Property Auctioneers and Estate Agents. The Sale Price may either represent a bargain to the buyer or achieve greater than market value through competitive bidding or somewhere in between plus, the auction method gives both parties greater certainty of sale on the day if there is enough interest in the property. Also, with the growth in popularity, convenience and familiarity of online auctions this type of auction method is broadening its appeal to a new audience of buyers.
The modern method of auction
Estate agents are also embracing auctions as a growing sales tool with the development of the ‘modern method of auction’ where interested parties bid on an online auction platform instead of submitting best bids so it is clear to all parties where the bidding level is at throughout the auction until the highest bid wins. This type of auction is conditional so the buyer is not legally bound to complete but may lose their deposit if they choose not to proceed for whatever reason.
The final choice of method will usually come down to finding the right balance between pricing strategy, preferred timeline and your comfort level of risk versus opportunity.