It's hammer time!
Pamela Gray and Harry Stott outline the benefits of selling at auction.
Above: Sovereign House, Irvine - sold at auction for £500,000 on a guide price of £350,000. Galbraith was a joint agent.
Putting up a property for auction used to be seen as a last resort and linked to distressed sales, but this is not necessarily the case.
Increasingly Galbraith is teaming up with auctioneer partners to give clients an alternative disposal route which suits a variety of property types and offers the potential benefit for the client of a quick sale - effectively concluded on the fall of the hammer when a deposit is paid - and completion within 28 days.
Before the recent changes in the rates regime many owners of industrial stock were content to retain their vacant buildings as the holding costs of maintenance and insurance were reasonably modest. However, with rates now payable on all vacant commercial property with the exception of listed buildings, but including industrial, void holding costs can be considerable. Vendors are increasingly motivated to sell and the auction route is seen as potentially quick and straightforward.
Selling at auction offers exposure to a different type of buyer, usually less risk averse and willing to "take a view".
The traditional sale route can be protracted, depending on the complexity of the sale, with title searches and numerous other diligence requirements. Offers can also be conditional on obtaining planning consent or funding, resulting in delays. When selling at auction a title pack is available at the start of the marketing and the property is then effectively "sold as seen".
It is much harder for buyers to determine true market value at auction because comparison with other properties is more difficult and they won't be aware of the vendor's sale price expectations. This can lead to some unexpectedly high outcomes - although the reverse can happen. The terms and conditions are set by the vendor, as is the reserve price, which is fixed after collaboration with the agent and the auction house.
If a property photographs well it can be incredibly persuasive in triggering interest and competition from bidders.
Even when a property doesn't sell, the vendor is commonly put in direct contact with the most likely buyer and they can still reach agreement outside the auction room. Parties coming together in this way is something that may not have occurred without the auction process.
There is also merit in placing a property on a joint auctioneer basis - when an auctioneer and an agent team up to jointly sell the property to widen the exposure to the market. In some cases the agent has already tested the property on the market and this in-depth knowledge is useful when carrying out viewings and can be invaluable to the sales process.
The marketing time at auction is relatively short and intense. There can be offers made to purchase ahead of the auction or alternatively the offer of an underwriting contract - where a purchaser enters into an agreement to underwrite the sale at a certain price. If that price is exceeded in the room, then the underwriter shares in the upside. Galbraith were joint agents on the auction sale of 1-9 King Street, Aberdeen, a 19,000 sq ft building let to the Scottish Police Authority. The guide price was £500,000 and we entered into a pre-auction underwriting contract at £600,000. The ultimate sale price achieved was £675,000. The underwriting contract forced the bidding pace, gave comfort to the client and ultimately resulted in further gains for both seller and underwriter.
The competitive nature of an auction can cause people to bid higher than they originally intended and we have seen situations where the same bidder ended up paying a six figure sum more than they offered the day before the sale.
Clients worry about the potential to blight the investment if the property fails to sell. There is also a perceived relinquishing of control, with the "auction machine" effectively taking over.
The period between the auction and ultimate completion of the sale can be an uncertain time. Will the purchaser come up with the money? Are they cash buyers or will bank funding be required and if so, will funds come through in time?
In one instance the seller waited a whole year before the sale completed. This is very unusual and we can only assume that the seller believed that it was still the best option for disposal.
To sum up, if you are keen to sell quickly, an auction offers the best chance of selling by a specific date, although, like all property dealings, there are no sure-fire guarantees of success.
Galbraith has acted jointly on a number of recent sales by auction and in all cases the sales have surpassed clients' expectations.
Pamela is the Partner in charge of Commercial Property Asset Management, based in our Edinburgh office and working for clients throughout the UK. She specialises in the full range of Asset Management and Consultancy services across all the commercial sectors.
Harry is involved in a wide range of commercial property including: commercial and development land agency; new build agency; valuations; professional and planning work throughout Scotland.