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Caution in the auction room could be costing investors

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Investors that wait to pick off unsold lots after auctions could often get a better deal in the ballroom.

 

Recently, the two questions that I have been asked by buying and selling clients more than any others are "how do you see the market right now?" and "what do you think will happen next year?"

 

As any auctioneer or agent worth his salt would do, I always try to give an upbeat and positive answer to the former and make some banal witticism about crystal balls to the latter. For me, it underlines the general level of uncertainty about the property market from both sides of the transaction. There is a lot of caution about either a rise or fall in demand.

 

However, in the past few months, I have been noticing an interesting phenomenon that might give pause for thought. As I write this, I have just exchanged contracts on one unsold lot from my October auction, the third post-auction exchange I've done since our sale on 28th October.

 

Nothing unusual about that, you may say, but what is interesting is that all three have sold for more than the reserves that they had set on the auction day, the most recent one going for substantially more than it might have been bought for if the buyer had put their hand up in the room.

 

Sitting on one's hands in the auction room and then cherry-picking unsold lots with the expectation of a discount from the reserve has long been a tactic of many an investor and a successful one, too. But as investors are seeing their margins squeezed and buying well is more important than ever, post-auction competition for unsold lots is becoming as fierce as the bidding for those selling under the hammer.

 

Past-auction competition

This has become something of a trend since the summer, with colleagues and other auctioneers telling me similar tales of 'vest and final' offers having to be sought from three or more interested parties in the days after the sale.

 

Of course, unsold lots are available to be bought at the reserve price immediately after the hammer has not gone down, but the hesitation of investors in the room, or their desire to negotiate to purchase at below reserve, is allowing others (often those who were unable to make it to the room or had not seen them until late in the day) to steal a march on them.

 

This, I think, illustrates three salient points. First, while the value is everyone's watchword, the market perhaps in rather more robust health than the cautious questions of my clients would suggest. Second, bidding on and buying a lot under the hammer may be the best deal that one can get. And finally, caution may actually be costing investors’ money.

 

That said, from a seller's perspective, other results do demonstrate the perennial importance of setting the guide price and therefore the reserve of a lot at a level that is sufficiently attractive to buyers. In that same October auction, my Lot 1, a former Royal British Legion Building in Battersea, sold for £1.15m off a guide price of £800,000. I think I can say without fear of contradiction that had I set the guide price at say £1.1m-plus, the lot would have been roundly ignored in the run-up to the sale. 

 

As has long and often been said by every auctioneer I know, setting a guide price and a reserve as low as possible is the most fool proof way of ensuring the maximum number of bidders for a lot in the auction room and therefore the fullest price for a seller. This has never been a truer sentiment than now.

 

Finally, on the subject of the prospects of the market in 2020, I think everyone would welcome the stability and degree of certainty that a government with a working majority would bring. I would expect that a new year bounce in prices would be an outcome of a definitive election result. Either way, things should hopefully become a lot clearer after 12 December, which is coincidentally (and perhaps prophetically) also the date of our final sale of 2019.

 

Could it be that the December auctions represent a limited window of opportunity to invest before prices begin to rise sharply? Perhaps, but to give you a definite answer, I'm going to have reach for my crystal ball...

 

For more information contact: Andrew Brown on: 020 8509 4470 • andrew.brown@strettons.co.uk.