Uncertainty Has Potential to Fuel the Property Auctions Sector

September 28, 2022

Mark Hempshell - Property Auctions News

by Mark Hempshell

Property auctions have long been a popular way to buy and to sell property. But one thing points to the fact that they are likely to become even more popular over the coming months and years.

That factor is uncertainty. And uncertainty that comes in many different forms.

How uncertainty is affecting the property market

There is great economic uncertainty at the moment. To say nothing of volatility. No one knows how the economy will perform over the next year or two. Cost of living rises, energy prices and inflation may carry on apace, or they may moderate.

There is great political uncertainty. It is hard to forecast what the new Government might do to try to manage the economy. Over the last week alone there has been an interest rate increase, Stamp Duty changes and a number of tax cuts, with the likelihood of more fiscal intervention to come.

All these factors affect buyer and seller perceptions, and supply and demand in the property market. And they are likely to manifest themselves as property price uncertainty.

Given the above factors, most experts might have predicted prices would have taken a nose dive this year whereas they are still rising. The UK House Price Index reports that house prices have risen by 15.5% over the last year alone – the highest rate of increase for 19 years.

Even the experts are having difficulty in predicting the future direction of property prices. For example, Knight Frank forecasts that house prices will rise in 2023 (by 1%) while Savills forecasts they will fall in 2023 by the same amount.

It is fair to say that, bar the temporary panic that ensued when the pandemic hit, we are probably already in the most uncertain property market since the Great Financial Crash (GFC).

Why uncertainty could benefit the auctions sector

Let’s take a look at exactly why uncertainty in the property market could benefit the auctions sector.

Property auctions establish true market value. Over the last few years sellers have become accustomed to getting asking price and maybe even above for their property. And buyers have become accustomed to paying more.

But this is far from a normal situation. Auctioning a property will always establish its correct market value at any point in time.

Property auctions offer speed of sale. The average property sale by private treaty now takes 153 days or almost five months to complete according to research by Smoove.

Auctions are much quicker, however. The sale of a property sold at a traditional auction will complete in 28 days after the auction date. Properties offered by the modern method of auction can be listed within days, with completion within a couple of months after the fall of the hammer. Both of these forms of auctions offer certainty that a sale will go through too.

The important factor here is that in an uncertain market auctions allow prompt and guaranteed buying and selling at today’s market value. Not at some future point when the value may be different.

This certainty offers benefits for both buyers and sellers alike:

  • Sellers know that they can secure the prompt sale of their property at market value. If, in an uncertain market, prices fall before completion they cannot be gazundered. Nor can the sale fall through completely;
  • Buyers know that they can achieve a prompt purchase of a property, often at a discounted price. If, in an uncertain market, prices rise before completion then the seller cannot ask for more. Nor can they be gazumped by another buyer;
  • There are already rumours that the Stamp Duty cut is prompting some sellers to ask buyers for more money.

At the end of the day auction sales of property bring some certainty to the market in very uncertain times. So it doesn’t take much foresight to see that this method of selling are likely to become more popular in the near future.

One last reason might account for a surge in interest in auctions in an uncertain market too.

It is something that most in the property world would hope won’t happen, but it is a valid reason nonetheless: Should the worst come to the worst, should the economy tank and should the market crash there could be the opportunity to buy distressed properties at big discounts.

Property auctions are where these ‘fire sale’ bargains are most likely to appear.