2) This must read report will teach you everything you need to know about selling your property portfolio via an "Auction House" - - - - -
Auctioning a House portfolio
Auctioning a house is a selling route that thousands of property owners take each year. So you may be wondering if it’s also possible to sell your ENTIRE property portfolio via an auction?
We'll examine this question in depth in the detailed report below - where you'll also learn:
5 minute read
Selling a property portfolio at auction
If you take a look through the auction catalogues and websites of property auction houses - you'll see property portfolios for sale alongside individual properties. So selling via an auction can definitely work for you.
Auctioning a house has become very popular these days - largely due to TV programs such as “Homes Under The Hammer” where the auctioning process seems so simple - maybe too simple?
Please do bear in mind that "Homes Under The Hammer" is TV entertainment for the masses. And it's primarily looking at auctions from the "buyers" point of view as opposed to you the "seller".
Auctions can however definitely achieve the sale of your portfolio. But they're by no means an easy route to selling an entire portfolio. And there's lots of things you'll need to understand long before you set foot in an auction room.
So let's get going now and take a look at all of the things you'll need to consider.
Which properties sell at auctions?
A property auction is a place for buying and selling many different types of property. For example:
- Auctioning Houses and Flats - the places we all like to call home.
- Commercial Premises - such as shops, pubs and clubs, hotels, warehouses etc.
- Commercial Property Businesses - such as PROPERTY PORTFOLIOS, Houses of multiple occupation, serviced accommodation etc.
- Land for Development.
Your PROPERTY PORTFOLIO falls firmly into "3. Commercial Property Businesses" category. That's because a property portfolio is an income generating machine in its own right - just like any other business.
So think of your property portfolio as a "Commercial Property Business" and not as a collection of houses to be sold separately for multiple owners-occupiers to purchase.
How do property auctions work UK?
At all auctions there's a person in charge on the day who's called the auctioneer. And it's the job of the auctioneer to start the bidding process off by suggesting an initial low price for each property lot - to generate interest and get the bidding process started.
He'll say something like "who'll start the bidding at £100,000".
Bids can be made:
- By the people attending the auction.
- By telephone from any location.
- Over the internet from anywhere in the world.
Once someone has accepted the initial suggested bid - this starts the bidding process - where each subsequent bid has to be higher than the previous bid.
And so the price keeps increasing until bidding stops and the person who's made the highest and final bid wins the auction (though this bid must also reach the reserve price to achieve a sale).
The sale is concluded and final once the auctioneer brings down the gavel (auctioneers hammer). At this point the property is sold and exchange of contracts has taken place.
It's in the interest of the auctioneer to get the final price for your portfolio as high as possible (which is good for you). That's because the auction house makes it's commission as a percentage of the final sale price.
The price can quickly rise (seemingly out of control) due to bidders who've set their heart on a property not wanting to "miss out".
So bidders can end up paying more than they set out to do prior to the auction (which again is a good thing from your perspective).
Auction reserve price and guide price
The reserve price
The reserve price is a pre-agreed minimum price that the seller will allow their portfolio to be sold for. It is only known by the auctioneer and the seller - not by the bidders.
As soon as the bidding price meets or exceeds the reserve price - this means that the portfolio will definitely be sold and the winning bid will be binding.
However if the maximum bid falls below the reserve price then the portfolio will remain unsold (though it can be sold after the auction if the seller agrees to drop the price a little in order to sell to a bidder who's bid close).
>> Setting the reserve price
Set the reserve price low, but realistic and this will mean you'll drum up a lot of interest and have multiple buyers all bidding against each other and driving the price of your portfolio increasingly higher.
The guide price
The guide price is the price the auction house expects the property to eventually sell for. This price isn't secret and is freely available prior to the auction.
Often the guide price is set low to attract a lot of interest from buyers. Some might say artificially low.
>> Setting the guide price
The guide price is something that your auction house can advise you on and set for you. As already mentioned it's key that the guide price is set at a level to drum up a lot of interest and get the bidding process going quickly.
Auctioning a house process
The entire auctioning process for a house, flat, PROPERTY PORTFOLIO, shop etc can be as quick as 6-10 weeks. This time period includes a month prior to the auction and a month afterwards.
One of the key advantages of selling your portfolio at auction is that as soon as the gavel drops, this signifies the sale of your portfolio and there's no going back for the buyer (or you the seller). So you the seller then have certainty of sale.
At this point the buyer has to put down a 10% deposit immediately. And they then have to complete the purchase (by paying the remaining 90%) within a month from the date of the auction.
If the buyer isn't able to pay this 10% deposit immediately or the 90% balance within a month - then they can be sued by the you the seller. And the seller usually wins so this generally shouldn't concern you.
All of this brings a level of comfort and certainty for you that isn't the case when - for example - selling your portfolio via an estate agent - where the sale can fall through at any time.
Which auction house to use when auctioning a house portfolio?
You need to ensure that your auction house specialises in auctioning commercial property. And more specifically that they are proficient at selling property portfolios
You'll find many auction houses to choose from and your decision which to use may depend on where you live. And also which auction house is local to you.
Alternatively your portfolio may be located in a different part of the country to where you live. In which case it could make more sense to choose an auction house closer to your portfolio.
Many estate agent chains will have an auction department so you should take a look at these. Because they'll have a thorough understanding of auctioning a house portfolio and commercial properties already.
How to choose your auction house
- Do some initial internet research and select between 3 - 6 different auction houses that appear well versed at selling property portfolios (based on current and recent sales).
- Ring each one up to discuss your portfolio and get an initial feeling on who seems the most proficient (and interested) in selling your portfolio.
- Form a list of favourites and then go and talk to each of them to see how they differ from each other.
- Once you have a better feel - revisit their websites again thoroughly. These days auctions are as much about the size and quality of websites as they are about the actual physical auction itself.
- Fees are obviously important so ensure you get a thorough understanding of the fees.
- Go along and attend some property auctions for a dummy run - to get a feel for how they work.
- You can attend most auctions online as well.
- You want an auction house that attracts lots of bidders. So the better known an auction house is - the more potential buyers will be attracted to your portfolio.
Fees when Selling a portfolio at auction
The selling fees will vary depending on the auction house you choose. And because you're selling a portfolio of properties, you'll need to understand how this will impact the costs you'll pay.
You can take the following costs as being representative of the fees you'll pay when auctioning a house.
Your fees for selling an entire portfolio will be similar, but you should also be able to negotiate some sort of a discount depending on the number of properties.
- Selling Fees: The fees to sell will be around 2.5% of the sale price. And the bad news here is that even if the property doesn't sell (due to the reserve price not being reached), you'll still be liable to pay fees - OUCH
- Legal Pack: In order to sell a property at auction, you'll need your solicitor to draw up a legal pack. This legal pack will be available to all potential buyers prior to the sale. For example the legal pack will contain information on the property title, any lease information and anything else that any potential buyer will need to know prior to buying. Cost £350 - £550.
- Conveyancing Fees: Once the property portfolio has been sold you'll need to pay your solicitor additional fees to perform conveyancing on the properties. Fees will vary throughout the country, but you should expect to pay between £450 - £750 + VAT (depending on the amount of work required and the final sale price).
- So to recap that's 2.5% of final sale price + up to £1300 in legal fees per property - NOT CHEAP.
- You should hopefully be able to negotiate a discount on the above depending on the number of properties in your portfolio.
Should you accept auction offers in advance?
Your portfolio will be marketed in advance of the actual auction day via website marketing and also via multiple viewing days. Then later on the auction catalogue will be produced.
So it isn't unusual to receive offers prior to the day of the auction. In which case the question rises whether to accept any offers made or not?
The balance to be made here is certainty of sale to the person making the pre-auction offer VERSUS continuing to auction and potentially getting a better price VERSUS continuing to auction and your portfolio remaining unsold.
Whether to accept a pre-auction offer or not can depend on your situation and your need to sell very quickly or not. So there isn't any advice that fits all situations.
However let's say that you're already committed to all of the auction costs previously listed (auction and solicitor fees). Then you may feel that you may as well continue to auction and see what happens.
This pre-auction buyer should still be interested on the actual auction day - and may end up bidding against other interested buyers.
Which will of course drive up the final sale price.
However do what feels right for you.
Marketing your portfolio
Your auction house should be doing their best to market your property via their website and auction catalogue etc. But never trust your auction house to do all the work required.
If the right kind of buyers aren’t in the room on the day you could lose out.
Nobody is more interested in the sale of your portfolio than you are. So make sure you present it in the best possible light by doing any obvious work required and by enhancing curb appeal.
It won't cost much to do a bit of weeding and put a few hanging baskets up which all helps with the presentation. And which will in turn will increase the number of interested parties.
You should also publicise the sale of your portfolio via social media to as many potential buyers as possible.
The auction day itself
On the actual auction day there's no need to attend. In fact most sellers are a bag of nerves with so much riding on the sale.
And of course you may not be able to attend if you have work or personal commitments to deal with.
Most auctions are online these days so you can always watch from the comfort of your own home or from your office (or even from the beach) on your smartphone.
Selling after the auction
There's one important reason why attending your auction could be a good idea - and that's if your portfolio fails to reach the reserve price by a small amount.
In this situation you could consider talking to the person who made the final bid (that almost reached your reserve price) and seeing if you can strike up a deal to sell (called selling after the auction).
And of course you can only do this if you're actually at the auction.
Auctioning a house portfolio pros and cons
Advantages of selling via an auction
- Multiple bidders for your property can drive up the price.
- You may get a buyer prior to the auction - at the auction - after the auction.
- No upper limit on selling price.
- No broken chains to worry about.
- Agreed reserve price.
- The buyers in the room already have their finances in place.
- When the hammer falls exchange of contracts has taken place.
- You get 10% immediately and the remaining 90% within a month of the auction.
- Sale in 6-10 weeks.
- SOLD means SOLD.
Disadvantages of selling via an auction
- No guarantee of sale if reserve price isn't achieved.
- If it doesn't sell you need to pay again to re-advertise.
- High selling costs. 2.5% of selling price + up to £1,300 in legal fees per property.
- If it sells prior to the auction you still pay all your fees.
- You have to wait a month for your money.
- Buying a house at auction is stressful.
- People buying at auction want a bargain.
- Limited range of buyers as not everyone wants to buy via auction.
- Your privacy is invaded as lots of people come to view. Your tenants will also be very aware of what's happening.
Conclusion - auctioning a house portfolio
You should definitely look at Auction Houses when you decide to sell your property portfolio. Auction houses should already be experienced at selling property portfolios – so can handle the entire process for you.
However do your due diligence and talk to many auction houses and don’t just go with the first one you talk to.
They'll all tell you how wonderful they are! So ask them to prove this by showing you evidence of past sales.
Selling via an auction house WON'T BE CHEAP. Their service will come at 2.5% of sale price + up to £1,300 in legal fees per property. Though you may be able to negotiate a discount depending on the size of your portfolio. Please do your own research.
Phil Calladine - portfolio consultant