The mass appeal of auctions, popularised by BBC shows ?such as Homes under the Hammer, Bargain Hunt and Flog It, and the doubling in the number of lots sold in the past 10 years have caused one of the most contentious episodes in the modern auction era.
The so-called “new model” of franchising auction services to estate agents has spread to property auction rooms throughout the country and allowed unprecedented access by the public.
But will this “new model army”, parliamentarian in its zeal to extend universal access to auctions, create a glorious revolution in the sector or ultimately be the demise of a traditional and beloved order?
UK auctions data provider Essential Information Group records that the value of all lots sold at Auction House-branded franchises, for example, rose from £37.4m in September 2007 to £255.5m earlier this month.
It has to be remembered that in 2007 Auction House had only two franchisees. Now it has 33, so the increased turnover is one that may have been achieved anyway, either through private treaty sales or existing, pre-franchise auction houses.
What is uncontentious is that nowhere near this volume would have been achieved through auction alone. By comparison, the value of all lots sold nationally fell from £6.29bn to £3.64bn over the same period (see table below).
Auction House’s joint founding director, Roger Lake, is adamant that 90% of property lots achieve a better price sold locally, particularly unmortgageable, refurb opportunities or tenanted residential investment.
Luke says: “Eventually we will cover the whole of the country, with somewhere between 40 and 50 licences trading under the Auction House brand and becoming regional auction experts in their area.”
Luke estimates that 2,500 lots will be sold through Auction House franchises this year. “It is turning into a very buoyant year for us,” he adds.
Franchising involves a company, usually an estate agent or regional auctioneer, buying a licence from a franchisor company, paying a monthly charge and a fee per lot for centralised marketing support.
In return, the franchisor allows the franchisee to trade under a nationally recognised brand, runs the auctions and provides training, such as valuation, administration or even auctioneer training. It also places nationally generated leads into local auctions. Added to this are the intangible benefits of collective experience, shared best practice and cross-fertilisation of ideas.
John Waterhouse, an auctioneer and a principal director at Leeds-based Hunters Property Group, says: “Auction franchises have come about mainly because of the recession. It has become another tool for the estate agent. The franchise model helps people with no experience to do it.”
Hunters bought 90 Bairstow Eves franchises from Countrywide in 2011 ?and offers an auction service to clients that generally want quick or probate sales. However, Waterhouse notes ?that it is now more difficult to get repossession residential lots to ?auction – vendors usually prefer to ?sell by private treaty. Instead, he notes that it tends to be poorer-quality stock going to auction.
“Will it continue when the market strengthens and auction values get closer to open-market prices?” he asks. “That will be interesting to see.”
Rivals of the new model claim that franchising creates a non-specialist tier within the auction industry. Clearly, at the top of the tree there are experienced auctioneers but beneath extends a network of inexperienced practitioners.
“The principle is that you can buy into the auction business by franchise and have no experience. Estate agents are sometimes asked to include properties that are difficult to sell and not especially auction material,” says Graham Penny, director of Graham Penny Auctions, the Midlands’ largest auctioneer by sales. The suggestion is that an experienced auctioneer would know the difference between what is sellable and what is a waste of time. He bemoans the erosion of tried and trusted methods developed over 200 years when he says: “If it isn’t broken, don’t fix it.”
The main dispute between established players and the new franchise model centres on whether better prices can be achieved locally.
Allsop partner and auctioneer Gary Murphy says: “The franchise model, by definition, relies on the promotion of local auctions. This is not always in the seller’s best interests. Auction House claims in its marketing that ‘selling locally achieves higher prices’, a sweeping statement that dismisses the national option.”
This is an old debate. But the answer is simple, he says.
“If buyers from outside the area are unlikely to bid, it’s appropriate to go to a local firm of auctioneers. But if there’s the possibility of raising the price through competition from a national audience a London sale wins hands down,” says Murphy.
Family-run property speculator and asset manager Prideview Properties has been acquiring and disposing of properties through auctions for 30 years. The Harrow-based company tends to use the same auctioneers as it has since the early 1980s. However, it has bid a few times at Auction House’s London room.
Vishal Patel, Prideview’s director of sales and agency, says: “There were a lot fewer properties [at the Auction House event] but I was surprised that some went for a lot more than I thought they would.
“If the stock is right, there is always going to be competition.”
Patel believes the image of franchises has a long way to go before they are included in the grand pantheon, but concedes it is habit – and a broadly positive experience – that prompts his company to remain with the same established auction houses.
His greatest concern is the idea of conditional sales. Some franchises, such as iam-sold and Pattinsons, have instituted cooling-off periods. Under these, the purchaser pays a deposit, usually around £5,000 rather than the traditional 10%, which is forfeited if the sale fails to complete. The logic is to remove the fear of being caught in the moment and landing a property they cannot afford.
Patel says: “It would be a breakdown ?of the whole auction model if you could not walk away with a purchase when ?the hammer comes down. If you have 20 days on a conditional purchase, it makes a mockery of the whole process.”
Anecdotally, David Sandeman, managing director of Essential Information Group, is aware of swings and roundabouts in values achieved in London or the regions. Neither necessarily outperforms the other. ?“It does depend on who is in the room on the day,” he says.
Since most estate agents do not promote auctions as a sales tool to local vendors, these sales represent only 4-5% of annual house transactions in the UK. Sandeman says: “I do not think the established auction houses are in competition with franchises, so much as with estate agents, who are selling lots suitable for auction.”
He gives the example of the marketing guru who asked Coca-Cola to think in terms of increasing the proportion of Coke as human fluid intake, rather than its market share against Pepsi. Dental and obesity issues aside, the logic is that, if the slice of the pie gets bigger, everyone wins.
Residential and commercial: the twain shall meet in the auction room
Traditionally, auctioneers tend to have either a residential or commercial slant. However, in the past few years more commercial houses have been seeking residential stock.
Jonathan Ross, managing director of north London-based auctioneer/surveyor Barnett Ross, says: “We are traditionally a niche commercial auction house, specialising in the secondary retail market but we are looking into growing the residential side. Most auction houses will follow where the majority of lots are coming from.”
Bank repossession stock initially drove an increase of residential stock in catalogues, but now – in London at least – it is being driven by the housing boom. “Banks are again happy to give 95% loans for buy-to-let in London, but the yields achieved are generally very poor. Residential investors are again relying on capital growth,” says Ross.
The rise in demand for residential is playing out in auction rooms, and auctioneers want a piece of the action.
David Sandeman, managing director of Essential Information Group, says that the profile of the typical commercial auction buyer is “speculative investor looking for an angle”, and investors are scouring auction rooms for conversion stock.
He says: “It might not be your typical ‘repo’ flat but it might be a development opportunity.”
