Fri 4 Jul 2008
Under the hammer
As the property market feels the pain of recession, more housing stock traditionally ends up at auction. George Sell looks at whether this is the case today.One of the most obvious side effects of the credit crunch and its knock-on effects on the property market is the increase in the number of properties up for auction.
Auction house Sutton Kersh Binstock (SKB) reports that the number of properties referred to them for appraisal by vendors has tripled since January. Andrew Binstock, director and auctioneer at SKB, says: "There has been a huge surge in the number of valuation requests for properties in 2008. Normally we would expect to receive around 50 for any given auction. We are our now receiving between 150 and 200 per auction."
Binstock believes one of the main reasons more people are putting properties up for auction is they are getting increasingly desperate due to the current state of the housing market."There has been a huge increase in the number of deals falling through in the open market. Thousands of people feel really let down and are choosing to opt for auctions because they are fed up of being gazundered."
According to SKB the "fall-through rate" of sales in spring 2006 was about 15 per cent. It now stands at 45 per cent. Among the reasons sited for the increase include loss of confidence in the housing market, difficulty obtaining mortgages and problems with properties being overvalued. Binstock says: "Part of the problem is that many estate agents are over-valuing properties because vendors are often unwilling to accept that the property has fallen in price. This has resulted in deals falling through all the time - leading to piles and piles of properties on our desks."
On the surface, this looks like good news for auction houses, but the levels of buyer confidence is so low at present that auction stock is not selling like it once was.
According to auctioneers Allsop, in areas of Manchester, Leeds and even parts of London, thousands of new-build flats are being sold at auction for 30 per cent less than they cost to buy, but many more properties fail to make the reserve price.
The Times reported recently: "Almost half of all properties going to auction are failing to sell on the day, as sanguine buyers wait until the bidding has ended before making rock-bottom offers on unsold lots. Behind the scenes, struggling auctioneers are urging sellers to drop their reserve prices and some investors are quietly snapping up deals for up to 40 per cent below market value.
"Although auctions are still well attended, falling house prices and the worsening credit crunch mean that buyers are interested in buying only what they perceive as a bargain. Gone are the first-time buyers and novice buy-to-let investors. Auction crowds today are made up of experienced homeowners and seasoned investors with large cash deposits, who will on no account pay over the odds for a house."
Figures from the Essential Information Group (EIG), the online auctions monitor which offers a complete listing service for UK property auctions, show that only 57 per cent of listed residential properties sold at auction in April. This represents the lowest percentage since 1991. According to EIG, about ten per cent of auctioneers' sales are being made after the auction has ended, compared with about five per cent five years ago.
Tony Webber, of auctioneer Eddisons, says that at the auction it held on May 15, just 14 of the 46 residential lots offered (30 per cent) sold successfully. "There was very little appetite in the residential section of the sale, which has declined significantly over recent months. It is obvious that buyers now realise the financial gains they have enjoyed in previous years are currently unachievable," he says.
Auction houses have traditionally been used by housebuilders as an outlet for selling particularly stubborn part-exchange properties, and the prospect of these being difficult to shift, even at significantly below market prices, is not one to warm the cockles.
Andrew Binstock doesn't paint quite such a negative picture of the typical attendees at an auction, but does sound a note of caution. "You get everyone in auctions these days. First-time buyers who have their finances ready to go and investors looking for bargains. However, attendances are down on last year - simply because there are less buyers in the market place at the moment. Money is less readily available and cash rich buyers are sitting on their hands and keeping their powder dry. In the current market about 50 per cent of properties are hitting the reserve price, of which many will be exceeded."
In his company's most recent auction there were five part-exchange properties, but "interest was low on all of them, possibly indicating that our guide prices are too high". Binstock adds that, at present, he hasn't seen housebuilders auctioning new stock in any significant numbers. "Probably around two per cent of auction stock is new-build. Most auction houses try to steer clear of new-build stock as they are very hard to sell unless they are being sold way under market value."
One company which has launched a new twist on the property auction is Lot37. Director Dean Dunham says its online auction service came about as a result of consulting housebuilders, developers and mortgage companies and asking them how they were marketing and selling their part-exchange and repossession properties.
"The feedback we got was that most people were using local agents, and in the overwhelming majority of cases, they didn't get a great service. The feeling was that because agents were earning less commission on p/x and repo stock, it was being pushed to the back of the shop."
Dunham says that more agents were starting to use auctions, largely due to the promptings of mortgage companies who had an increasing number of repossessed properties to shift, so after an extensive consultation and development process, Lot37 was launched in June 2008. "It's a live online property auction, very much like ebay," says Dunham, "and it works in parallel with conventional marketing. We're looking to sign up three agents in each town in the UK. They will then market the properties in the normal way, as well as having a listing on our site. Our target is to have 5,000 offices signed up by September 2009."
The company says that estate agencies signed up to Lot37 remain in complete control of the bidding process, as each time a bid is placed they are notified instantly by text and e-mail. The 'personal agent' section of the site allows agents to sign in and check the bidder's details so when a serious bid is placed, the agent can qualify the bidder financially and obtain a financial services lead.
Lot37 agents will also benefit from referral commissions of up to £300 for conveyancing, and £50 for HIPs, as well as receiving referrals from Lot37 for repossessions from mortgage companies and housebuilder part-exchanges, which will have a significant impact on agents' profit margins, according to the company.
Dunham says the site, which will be supported by a national television advertising campaign at the end of September, is proving a hit with mortgage providers and housebuilders too.
"We are starting with seven housebuilders on board, of varying sizes, so we can get used to the way they work, and we expect to have all the major builders signed up in due course. One housebuilder has offered us the part-exchange on 16 sites in the East Midlands as a trial run, and we are also selling new-build properties at one site in Bletchley."
The current difficult market situation means that the likelihood of new-build properties appearing on auctions sites is increasingly likely, especially on tricky sites where one or two units are sticking, and just won't sell. Dunham anticipates that five per cent of the total stock on Lot37 will be new-build properties, while around 20 per cent will be housebuilder part-exchanges.
The last word goes to Andrew Binstock of SKB, and it's a familiar, if depressing conclusion. He says: "The auction market always acts as a good barometer for the whole property industry. The conclusions are simple. It's a buyer's market at present. There are fewer buyers and more vendors. Reserve prices have to be spot on to ensure a sale. The days of frantic bidding and sale prices soaring high above the reserve price are, in general, on hold for the time being."
Posted by George Sell
in Andrew Binstock, Dean Dunham, Eddisons, Features, Lot37, Sutton Kersh Binstock, Tony Webber on Fri 4 Jul 2008