Auctions - When sales are going, going gone

Auctions are by no means a fail-safe choice for increasing income but if you put the right precautions in place they can prove a lucrative option

Many readers will already be busy generating additional revenue from auctions to survive the market downturn, which is unsurprising.

There were 15,000 residential properties offered in 1999, generating £2.25bn.

It compares to 25,000 in 2007, which generated £2.25bn.

Repossessions account for 23% of all property on offer, with London auction houses offering 90% of these.

There are three essential differences between auction property and the mainstream property you usually deal with. Firstly, that your stock is generally in good order whereas the majority of auction properties are dated.

Secondly, your vendors are private individuals who actually live in the property whereas in auction the vast majority of vendors are property companies, local authorities, banks and, in most cases, have never lived in the property.

Perhaps the biggest difference is that auctioneers can offer properties that are many miles from their actual office while you tend to offer properties within a small radius of your location.

You can enter the auction market by setting up an auction department. Alternatively, you can become actively involved in the industry as a joint auctioneer. If you opt for the former, you can charge an entry fee to prospective vendors of around £250. Commission will be payable on the sale of a property, which is typically up to 2.5%. Purchasers’ administrations fees, range from £150 to £400.

Benefits of the auction market include the public relations opportunities, including an increased level of interest in your activities by the local press, which will increase your profile within the developer community.

To be successful in the auction market, you need to have the right stock to sell and price correctly. Ensure that someone in your team has auction experience.

You will also need wide exposure to potential vendors and buyers. A few adverts in the local paper will not generate sufficient interest in the vendor community and the buyer.

Your success will also depend on how motivated your vendors are - the more interested they are in selling the property on auction day rather than achieving the best possible price over a long period of time, the better.

Generally, the property should not be owner-occupied.

Trying to sell houses at auctions that have failed to sell in the estate agency side of the business will not work.

Guide prices and reserve prices need to be around 30% of the asking price.

For those of you not wishing to launch your own auction department, a halfway house used by an increasing number of agents is the joint auctioneer route. This involves an agent selecting one or two major auctioneers to usher through properties they source suitable lots for, prepare property details and handle viewings.

Benefits of this include a share of the commission on the sale of the property and an improved chance of selling the property using an established auction house.

Moreover, minimal experience and investment is required; advertising, marketing and catalogue printing is handled by the auction house.

If you find this route works, consider it a good stepping stone to setting up your own auction department.

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