Regular readers of the EG auction section and those in the industry will know that the property auction market has been particularly challenging over the past 18 months. This is perhaps unsurprising given the hesitant market conditions resulting from concerns over Brexit and the squeeze on residential buy-to-let landlords since the introduction of the 3% stamp duty penalty on second homes.
Many of us will know that when clients begin to ‘wait and see’ given concerns over the broader economy it results in tougher market conditions. It is now not unusual to see auctioneers posting lower than usual success rates, especially auction houses with a strong focus on London and the South East where hesitancy seems to have the tightest grip.
Eye for the future
However, while interest rates remain low, investors continue to put their money into property. Recent sales indicate that shrewd investors have an eye to the future and are more cautious about investments, with a shift towards ‘buy-to-let’ commercial lots, development opportunities and other investments.
Like many auctioneers, we are also seeing a steady interest in properties ‘post event’, with many deals being done in the immediate hours and days after the auction. Buyers are still there but are being increasingly ‘canny’ about how they purchase at auction. The immediate auction results may not, therefore, give the full picture of market confidence.
For example, our October sale showed a 62% success rate immediately after the sale ended but, by the end of the week, this had risen by nearly another 10%, with most of the lots selling at or above reserve. This suggests that some investors aren’t overly concerned as to what they buy as long as it is on terms that are acceptable to them and delivers an acceptable potential return on investment.
After the event
The reasons for the rise in ‘post-event’ sales ultimately come down to market confidence and, to some extent, psychology.
When perception amongst investors is that the market is ‘good’ they are less likely to hesitate when bidding on a potential property, knowing competition is fierce and the property is likely to be sold in the auction room. However, when the perception is that the market is ‘flat’, investors have the confidence to wait and see how the property performs in the sale, knowing they may face less competition, and then potentially secure the property once the auction has ended.
The fact that the property has been openly offered but didn’t reach reserve and a sale is agreed shortly after, can give the vendor comfort that the best price has been achieved”
Over the past year or so we have also seen a decline in investor appetite for risk which is to be expected given the current political and economic situation. As investment rates reflect risk, we are currently seeing that seasoned investors are happy to wait it out to secure a property on terms that deliver a return or risk factor they are happy with.
At our auctions, a good proportion of post-event sales occur before we’ve packed up and gone home, when the potential buyers are still in the room and are looking for what is perceived to be a “bargain.” The auctioneer is usually also at liberty to disclose the reserve which allows for a more open dialogue about the price.
From the auctioneer’s perspective, he has the authority to sell at or above the reserve and can use this to negotiate a sale not less than the reserve. When there is more than one potential buyer “in the wings,” a mini-auction can take place.
The right price
It is not uncommon for us to agree a post auction sale, therefore, above reserve. If the prospective buyer wants to drive a hard bargain he may have to risk waiting for a few days until we have been able to speak with the client who may be prepared to sell for below his reserve price.
An auctioneer must prove to the vendor that the best price has been achieved and selling ‘post auction’ still gives the vendor that assurance. In some ways, the fact that the property has been openly offered but didn’t reach reserve and a sale is agreed shortly after, can give them comfort that the best price has been achieved.
But not all sellers are willing or able to sell post auction at below reserve. This especially may apply to a charity, for example, that may only have authority to sell at or above reserve. In such instances they may have to undertake a fresh valuation in light of the auction with a view to offering it again at a later date with a lower reserve price. This is often just down to the type of client and what authority the auctioneer has.
Post-event sales are, therefore, influential in boosting the sale results of auctioneers and showing actual market sentiment. Until we have certainty in the present and future economy, and hesitancy loosens its grip on the market, we will continue to see plenty of activity ‘post sale’.
Philip Waterfield is director, auctions, at Strettons
