Could auctions transparency offer a filip for the private treaty world?

Talk to any investment agent in the market about how things are going at the moment, and they will all give you the same response. They’ll sigh, heavily, and tell you that it has never been more difficult getting deals over the line. There is interest out there. There is money out there. But getting the signature on that line is tough.

Talk to an auctioneer and while they will have a similar view of the economy right now, you’ll be hard pushed to find one that says they can’t seal a deal on a lot they are selling. Success rates might not be perfect but there is at least success at every single sale.

To understand more about this difference in attitude between two real estate professionals that essentially do the same job, EG gathered a group of experts to ask whether the transparency offered through auctions gave the sector an advantage and whether all transactions should be as clearer.

For George Walker, partner and auctioneer at Allsop, auctions offer clarity across a number of factors. The live nature of the deals enables valuers to see the true worth of an asset, while the digitisation of the process, accelerated since the onset of the Covid-19 pandemic, not only gives the potential buyer full access to a lot, but creates transparency for the auctioneer on interest levels for that asset, who the buyer is, and so on.

“Many clients don’t have access to the private treaty market purely because they don’t have those relationships and they don’t know the process,” says Harold Benjamin managing partner Vijay Parikh . “And even when they are bidding and they provide proof of funds that goes into the first round of offers and then best and final offer, and so on. And then all of a sudden they get an email saying sorry you weren’t successful. And that’s just the way it is. Whereas auctions provides that certainty, it provides access to market and your bid price is the price.”

Vital information

In auctions, there is less smoke and mirrors. Especially in the new digital world. Whereas in the more traditional ballroom auction there could be a few undisclosed bids created to drive the theatre needed in the room to get the action started, today bids are clear, true and well researched.

The transparency that auctions offer is largely delivered because so much of the due diligence around an asset is done before it is brought to market. A legal pack is prepared and the lot is ready to be bought – rather than just ready to be put up for sale. And it is this preparedness that differentiates the auction market from the private treaty market.

“When the economy is tricky and you don’t really know where pricing is, then I think there is more of an effort to make sure that people have got information ahead of time,” says Jo Seth-Smith, investment manager at OLIM Property. “So, if you’re able to sit there and say, this person who’s made the offer has seen the lease, they’ve inspected the property, whatever box it is they’ve ticked, then you’re going to take that bid more seriously.”

John Maddison, head of asset management at Quadrant, agrees. He says: “As a seller if you don’t want to be chipped or you don’t want people to find angles. You give them as much information and clarity as you can.”

It makes sense. Having a buyer who knows what they are buying, who has had the chance to figure out the price they want to pay, surely makes it more likely they will complete on that deal. So why isn’t it standard practice in the private treaty world? The answer is that real estate isn’t as simple as it looks.

When it comes to trading buildings, its not always about getting a deal done. Sometimes it is about finding the right buyer, sometimes it is about achieving the best price, and sometimes it is about just getting rid.

“The thing about auctions and private treaty, having sat in both camps,” says Seth-Smith, “is that while transparency is a key thing, actually you’re really thinking about who the buyer is for your particular asset. “With private treaty versus auction you are able to use a potentially more targeted approach. Sometimes auctions is the way to go because if a private investor is going to be your buyer that gives you the best market reach.”

She adds: “Transparency is neither here nor there at that point and there is something to be said for utilising relationships to achieve what we need to achieve. Sometimes, in a particularly tricky market, it’s not even best price – it’s a sale and you just need to get it done and it needs to happen quickly.”

Hybrid approach

For all four experts, the key to delivering for clients was utilising the best of both worlds. Auctions offer a route to sale and so does private treaty.

“As much as I love the transparency of an auction market,” says Seth-Smith, “I also enjoy the murkiness of a private treaty market. I think both offer different things which can be utilised by both buyers and sellers to their advantage.”

For Allsop’s Walker, the preparedness that comes with auction sales and its ability to get a deal done, should be the perfect tonic for the slower private treaty market – and help him achieve his dream of pushing up the average lot size at auction.

“I think the sky is pretty much the limit for auctions,” he says. “There is so much potential. I sit in so many of our markets meetings where the West End guys are saying they can’t get a £55m deal over the line and they wish they had an auctions contract. Okay, we’re not going to sell a £55m West End building at auction but let’s get further towards that, because do you want to have it on the market for 12 months or do you want to get it transacted?”

The answer, it seems is not whether all deals should be as transparent as auctions, but that all vendors should be as transparent as possible about what they want from an asset sale and ensure that they pick the best method – auctions, private treaty, or perhaps even hybrid.