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Speakers' Corner May: Andrew Binstock on American-style property auctions in the UK
The property auction industry is going through something of an unexpected revolution. Having accepted for centuries the tried and tested method of charging the vendor of a property between one and two per cent commission on a successful auction sale, all of a sudden an American outfit flies over the pond, sets up their own gig (or five to be exact) and completely rewrites the rule book by giving the vendor “free entry” and charging them “zero commission”. Which is all very saintly of them until you realise that instead of taking fees from the vendor, they charge a buyer’s fee of ten per cent. Yes, that’s right – a staggering ten per cent.
We are not used to paying fees of more than two or maybe three per cent at an absolute push – but ten per cent, well that’s a whole new ball game. And while most of us auctioneers are looking on and expecting a huge outcry from vendors and purchasers alike, you can be sure that if there is no more than a few small tuts of disapproval, very soon we’ll all be doing it.
What baffles me is how they managed to convince their clients that this was a good deal for them in the first place. The very notion of mortgage companies disposing of repossessed properties via auction works on the simple premise that they need to be seen to obtain the highest price possible hence auctioning them to the highest bidder. But how can this argument stand up if the buyer has to factor in an extra ten per cent on top? Any sane bidder will simply stop short in order to accommodate the huge, additional costs of purchase. So is the vendor really auctioning their portfolio of repossessed properties free of charge? Of course not. Quite the opposite – they are paying fees of ten per cent on every single sale – only the buyer is writing the cheque rather than the vendor.
What does this mean for vendors in the future? Having spoken to auctioneers from several big auction houses, do not bet against others following suit. Already a firm in the North has thrown their hat in the ring with a replica “free for vendors” auction. Instead of ten per cent, they have opted to charge a “meagre” five per cent buyer’s fee. Which will still translate into a lovely big payday if they can persuade enough vendors and purchasers to buy into this concept. Of course, they still need to sell the properties and the reserve prices will be ever more crucial but this opens up the potential for a huge transformation in the way property auctions function in this country. Technically there is no reason why this format would not be adopted by the private treaty market too.
Another interesting reaction to the economic climate in the UK property auction scene is the emergence of several copycat online auction websites. eBay for property. We created our version, auctionyourproperty.com; the first of its kind in 2005. But over the past twelve months there has been a splurge of competitors appearing. Admittedly they are all fairly poor attempts to re-create what we built but it is interesting that others see this as a route to securing more transactions.
Funnily enough, having run auctions online a lot longer than most, I do not foresee this as something that will have a big effect on the property auction market for a while yet. We are simply not as advanced in the online world as other countries and the notion of buying and selling property online in the UK is still too much for most people to cope with. But I predict that one day it will take off, albeit probably not until my children are wheeling and dealing in bricks and mortar. They are two and zero years old – so I am not expecting to retire off the back of our online auction site proceeds any time soon.
The UK auction industry currently accounts for 2.5 per cent of all property transactions – a terribly low amount when you consider that putting a property into auction is far more effective than any other method of selling property. Immediate sales, no gazumping and an unlimited potential price for your property are the obvious benefits. It amazes me that whilst we live in an environment obsessed with eBaying every ornament we find in our loft, we are still hesitant to use the same basic model to sell our homes. Why sell via private treaty when you may get more money and far less aggravation from buyers by selling at auction? To me auctioning is the only economic model that makes sense. I just need to convince the other 97.5 per cent of you!