Are Auction Houses Cross Faction?

Pink and Yellow Flowers in Blue Vase

Auction houses have long been a popular way to buy and sell property in the UK. For both sellers and buyers, auctions can provide certain advantages over private sales. One question that sometimes arises regarding auction houses is whether they are “cross faction” – that is, open to both professional property buyers as well as members of the public. When it comes to residential property at least, the answer is generally yes.

The Main Advantages of Auctions

For those looking to sell a home at auction, speed is one of the main benefits. The whole process is much faster than trying to sell through an estate agent or privately. Once you’ve set a guide price and reserve price with the auctioneer, it will usually only be a matter of weeks before your property goes under the hammer. If bidding reaches your reserve, you have exchanged contracts on the fall of the gavel. Completion then often takes place within as little as 28 days. This compares very favourably to the months it can sometimes take to sell through other means.

Another plus point for vendors is that there is no chain involved. Buyers have to put down a 10% deposit on the day of the auction, exchange contracts and commit to completion within the defined period. This avoids the uncertainty that comes with sales falling through if buyers cannot sell their properties first. For those looking for a quick, certain route to sell, this is attractive.

On the buying side of things, auctions give property hunters the chance to potentially grab a bargain. While some lots will sell for market value or a premium, others can go under the odds. For investors and developers in particular, auctions provide an opportunity to secure refurbishment projects and add value through upgrading and improving properties.

Are Auctions Cross-Faction?

When it comes to property auctions selling residential homes at least, both private buyers and professional buyers tend to participate. Major UK auction houses generally attract a good mix of both groups.

For private buyers looking for a home of their own, auctions can offer a chance to get on the ladder or move upmarket while potentially saving money compared to buying privately. The speed and certainty of the auction process appeal to some owner-occupiers, while others relish the excitement and competition of bidding against fellow home hunters. Private individuals sometimes get caught up in auction fever and pay over the odds. But there is equally the possibility of securing a discount.

Professional buyers also attend auctions in good numbers. Landlords view them as good places to snap up bargain buys to add to rental portfolios. Developers appreciate the potential to purchase run-down or unmodernised properties which can then be refurbished and sold for a tidy profit. Then there are agents themselves who purchase properties on behalf of clients.

In summary, residential property auctions very much tend to allow both private and trade buyer groups to operate on a reasonably level playing field. The openness and transparency of the bidding process encourage this cross-faction approach.

Are All Auctions Equally Cross-Faction?

While openness between private and professional buyers is common in residential property auctions, the picture changes slightly when it comes to some other auction formats.

Online or “remote” property auctions for example tend to attract a higher proportion of professionals than private bidders. Tradespeople like the convenience of being able to bid over the Internet at any location and time. Some private individuals can be deterred by the online format and lack of visible competitive bidding.

Commercial property auctions – selling retail, office and industrial units rather than homes – also tend to have some bias towards trade buyer attendance. The assets on offer are often of more interest to investors than individual owner-occupiers here. However, private bidders looking for lock-ups, small industrial workshops or other commercial premises to run their businesses from will also sometimes participate.

Pre-packaged auctions conducted by insolvency practitioners to offload companies’ surplus assets see a dominant attendance by professional dealers and traders. Very rarely will private individuals bid at these corporate events. The goods up for grabs – often job lots of warehouse stock or vehicles – are of little interest to everyday consumer buyers attending in person.

Why Allow Cross Faction Bidding?

For auction houses focusing on residential properties, opting to permit both members of the public and professional buyers to bid is driven by commercial considerations. The open approach helps maximise interest in listings and attendance on sale day. With large numbers bidding, higher prices are likely to be achieved.

Excluding either private buyers or trade customers could damage the overall competitive dynamic. Lower turnouts and reduced sales rates could result over time if a narrower customer base were catered for. Then there are reputation factors to consider too – the public might come to view closed auctions as biased if they were shut out from participating.

That said, auction houses do have a responsibility to ensure fairness in the bidding process. Sale contracts contain clauses prohibiting anti-competitive practices like collusion between bidders to suppress prices. The auctioneer will also adjudicate during the live event in line with codes of conduct if any bidding appears suspicious. But overall, little overt segregation or factions occur – it is in nobody’s interests if they do.

Is Cross-Faction Bidding Here to Stay?

All signs suggest open auctions attracting both public and trade customers are set to continue as the norm. The model has served the industry well for decades by maximising interest and prices achieved across the thousands of properties that go under the hammer in Britain each year.

There are no serious indications the current integrated approach will change substantially any time soon. Major auction houses generate healthy commissions from constantly attracting new waves of both private and professional buyers to their sale rooms each month. As the adage goes, “If it ain’t broke, don’t fix it” – for estate agents and auctioneers, open, cross-faction auctions represent a tried and tested recipe they will likely stick rigidly to for years to come.

Conclusion

Property auctions providing a platform for both members of the public and professional dealers and investors to bid against each other are well established in the UK. This cross-faction model has major advantages in terms of drawing maximum attention to listings and generating the highest possible sales prices through competitive bidding. Though some specialist auctions dealing in commercial assets or insolvency stock tend to see lower private buyer attendance, open residential property auctions will likely retain their integrated, inclusive approach as a structure that works well for all stakeholders. Auctioneers have every incentive to perpetuate a system that sees lively salesroom activity, strong completion rates and healthy commissions.

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