Why do houses go to auction and can you take advantage?

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MFS are a bridging loan and buy-to-let mortgage provider, not financial advisors. Therefore, Investors are encouraged to seek professional advice.

Why do houses go to auction

We know auction houses have grown traction in recent years. But why do houses go to auction in the first place? Why do buyers and sellers alike turn to auctions, and how can they take advantage of the properties there?

Auction houses have witnessed an increase in demand, particularly online, since the 2020 pandemic. Wider economics continue to play a key role in their success, reinforced by the cost-of-living crisis, high inflation figures and rising interest rates.

Combined, these factors have forced many to panic. Homeowners, specifically landlords, are rushing to exit the market swiftly. Earlier this year, My Auction found that some landlords were willing to sell up to 30% under value than what they might have sold for last year, creating a unique opportunity for new landlords and property investors across the UK.

In this blog, we’ll explore how you may be able to take advantage of these potential property prospects that are falling through auction house’s doors and uncover how specialist finance can help.

Source: Landlord Today, Property Industry Eye

Why do houses go to auction?

There are many reasons why houses go to auction, but there are a few key elements that underpin the demand. In the current market, auction houses can provide a speedy solution for worried homeowners as property can generally be sold quickly.

On average, auction houses will require the sale of a property to complete within 28 days of the winning bid; although this may vary depending on the auction house you attend. This provides a quick turnaround for both seller and buyer. For comparison, Hamptons, the estate agents, recently found that houses are taking twice as long to sell now than they did a year ago. It took sellers 49 days on average to find a buyer in May 2023. That’s an 88.46% increase from the 26 days in 2022, marking the longest wait in any May since 2013.

Auctions also provide an element of certainty. Bidders are usually keen buyers. By putting their properties up for auction, sellers can avoid potential hesitancy in the market. Once a final bid is locked in, it’s legally binding and after the gavel has fallen, buyers cannot drop out. Not without facing huge financial consequences.

This could prove especially useful for owners with less-than-perfect properties to sell. Properties that are neglected or in a debilitated state often struggle to sell on the open market. As such, they tend to turn up at auction where bidders may look for a project with potential.

The auction itself also offers transparency. Bids are made publicly, and there’s little to no risk of gazumping, gazundering, or the other countless buying problems found in the wider market. Furthermore, while there is no guarantee that their property will sell at auction, sellers can set a minimum price they’re willing to accept.

Source: Ideal Home, Property Solvers, Leaders

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How can you take advantage of all this?

There are advantages here for property investors looking to resolve the question of why do houses go to auction.

For buyers, you may be able to invest in a property at a discount. Especially in the current environment. Properties, on average, sell for between 10-15% less than their market value at auction, according to Home Selling Expert. In fact, the guide prices you find at auction houses are often set lower than the actual property’s value to encourage bidding.

For sellers, auctions offer a fast-paced sale. This could be for several reasons including:

  • To sell an inherited property
  • The seller needing to move house quickly, for a new job for example
  • Raise funds for a new project or business venture

It’s important to remember that not every house being sold at auction is damaged or needs renovation works. Landlords, for instance, have been willing to let their properties go to auction at 30% discount due to rising costs and rates as well as those looking to retire and exit the market.

For example, a Victorian townhouse in Hampstead recently went up for auction at a guide price three time below the value of its neighbours. But, while it may have gone under the hammer with a price tag ranging between £850k – £1m, the property could have easily been valued at £3m following a renovation.

Diamonds in the rough can also be discovered at property auctions. A run-down shack could end up being a pristine, sought after home following a refurb. But the rising popularity of auctions has created a challenge for bidders. Last year, many auction houses reported record numbers of sales. As more buyers turn to auction houses in search of these hidden opportunity, competition rises.

Source: Home Selling Expert, SDL Property Auctions, Property 118, Yahoo Finance

How can specialist finance help?

Auctions can present you with many opportunities. Residential, commercial, and mixed-use properties can be found at auction, often at very tempting prices.

When it comes to auctions, speed is the name of the game, for both the bidding and what comes after. Purchases need to be wrapped up in mere weeks and those with finance at the ready will be able to pull ahead of their rivals. This is where specialist finance may be able to provide you with an advantage.

Our auction bridging loans can be issued in as little as 3 days from an enquiry. This will not only provide with peace of mind, knowing you’ll be able to meet the auction house’s deadline, but it may also provide you with confidence when bidding.

Knowing how much capital you’ll have access to will allow you to bid comfortably. Whereas some of your rivals may be worried about bidding beyond their means.

We also have several options available for what comes afterwards, should your bid be successful. From arranging bespoke auction loans to meet your completion deadline, to renovating less-than-perfect assets using our permitted & light development bridging loans. Meanwhile, our BTL mortgages can allow you to rent properties that you may have purchased.

No matter what your property investment plans may entail, we may be able to match you up with an appropriate financial solution.

Source: Property Reporter, Estate Agent Today

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