From their pole position at the rostrum, auctioneers are the first to notice when something shifts in the auction world – especially when it’s as significant as an influx of new bidders and buyers.
Patrick Kerr, the head of commercial auctions at Allsop, says he and his team have been seeing an uplift in the numbers of fresh faces in the auction room for months now. And the newbies aren’t just there to watch.
On the contrary, Kerr says. He has been slowly building up his understanding of these newcomers who have become a regular feature at the post-sale contracts table.
He was intrigued by the phenomenon, so invited all buyers at his May and July auction to take part in a survey.
“Forty-one per cent of all the buyers had never bought at auction before, while 36% had bought in the past 12 months,” Kerr says. “Fourteen per cent said they had bought a property at auction in the past five years while 9% said they had bought a property at auction over five years ago.”
While Kerr is the first to admit that his exit poll – a small sample size taken at two auctions – isn’t definitive, the results are a useful snapshot of the market and they support what many auctioneers have noticed for some time: a shift in the auction room.
Cash is king
“I think the reason simply is because of returns on cash,” Kerr says. “They’re so low that people are just looking for higher yields. Equity markets are volatile and have been for some time and people like the idea of property – you can feel it, you can touch it, and that particularly applies to the safer, more secure lots.”
But at auction, it’s often a case of matching the property to the buyer, which means that not every lot type is forcing new hands into the air when the bidding opens.
Multilets and properties that require asset management – recognised by auctioneers as the more challenging lots – are still generally the domain of the more experienced buyers, often larger regional investors. These people, Kerr says, “have knowledge of lets that have been achieved locally and can take a view on how long it’s going to take to relet any vacant space”.
He expects to see new faces in the auction room in the future too, but it will depend on the right type of lots. “I think the quality of stock will partly determine that,” he says. “If you’re offering good-quality stock at the right price then I think the trend for new people coming in will continue. But with some of the more challenging lots – those that require a bit more management – I suspect they won’t attract so many new buyers.”
Overseas investors
The UK property auction market does not exist in a bubble, so it is no surprise that economic instability elsewhere is opening the auction room door, especially in London, to buyers from abroad who recognise the security of property ownership here.
Richard Auterac of Acuitus, the London-based specialist auctioneer, has noticed recently more buyers from Greece, Cyprus, Italy and Russia, as well as an influx of buyers from China, Hong Kong and Singapore.
He says: “A lot of the new overseas buyers coming into the market are driven by the problems the euro has had and by the instability in other markets.”
Also driving change are improvements in auctioneers’ websites, which not only promote properties to anyone who has the internet, but also allow access to legal documents so that even those living abroad can do their due diligence ahead of an auction.
And there is a generational shift taking place too. Auterac and his colleagues at Acuitus are seeing a demographic change, partly fuelled by the UK’s inheritance tax laws, which encourage those with assets to pass them on to their heirs during their lifetimes in order to avoid paying the costly tax.
Auterac says: “A whole generation of new buyers are coming into the auction room, and they’re the offspring of more established buyers.”
In some cases, they will be asked to come to auction “to prove themselves” and learn the ropes before the wealth is actually passed down. “They [existing auction buyers] have to convince their children that their succession is not a given.”
Bank of mum and dad
Residential auctioneers, especially those based outside London, are accustomed to seeing owner-occupiers in their auction rooms, and many say there are more now than ever before.
Mark Tanton, auctioneer at Countrywide Property Auctions, says: “There has been an increase in the number of owner-occupiers attending auctions and parents buying property for their children, whether to help them get on the housing ladder or to purchase a property for them to live in while at university.”
Owner-occupiers also help to push up prices, according to Rory Daly, of CP Bigwood. “Owner-occupiers will buy a property for more money than anybody else because they’re not looking for a return – they’re looking to live in it.”
Philip Waterfield, of Strettons, comes face-to-face with new buyers at his Behind the Scenes seminar – an introduction to the world of auctions – which Strettons runs before each sale.
He says: “We get lawyers and bank staff and people from other businesses related to the auction world, as well as a number of owner-occupiers who want to find out how an auction works.”
While he admits not everyone will bid at an auction, Waterfield is in no doubt that there is a renewed interest in the auction as a mode of buying or selling.
Terms and conditions
Conditional auctions might just be the Marmite of the property auction world – people tend to either love them or hate them.
And yet this type of sale – where buyers are given 28 days from the fall of the gavel to exchange contracts – has been growing at a rapid rate in an industry renowned for its conservatism.
According to research by Essential Information Group, in the year to June 2011, 4.7% of all lots sold at auction were conditional, a figure that had soared to 9.1% just 12 months later.
Justin Anim, of Pattinson Property Auctions, the firm that introduced the conditional auction model two decades ago, says this mode of sale attracts new buyers to the auction room. “Conditional lots have made auctions more accessible to the layman rather than property professionals [and is bringing in] both buyers and sellers,” he says. “The idea was to provide a rapid platform for domestic buyers and sellers who wanted the certainty of a move within a fixed time scale, with a degree of financial commitment from the buyer that was substantial enough that they would be unlikely to abort the deal.”
Alongside conditional sales, Anim’s firm also uses a buyers’ premium model, which invites vendors to sell their homes for free, or at least leaves the bill to be picked up by the buyer – another mode of sale that appeals to a new auction audience, he says.
“It works fantastically well for the end of the market that would otherwise be phoning up the ‘buy your house for cash’ people and effectively surrendering quite a large chunk of their equity for the certainty of a rapid sale.”
Meet the buyers
Surinder Rihal bought his first property at auction in London last month. The Hounslow-based retiree says he went along to the Allsop Residential auction with money in his pocket when a planned investment failed to come off.
He says: “I had borrowed some money that I intended to invest in India, but that fell through so I was looking for an opportunity to put the money away.”
Rihal‘s purchase – a two-storey pub in the Suffolk market town of Sudbury – has planning consent for two flats and two office units. He paid £92,500 from a guide of £50,000 to £75,000.
He turned to the auction, he says, because it was a timely way of lining up an investment property quickly. “It is a simple, straightforward and clean way of purchasing,” he adds.
“The bidding was exciting, but I kept to my expectation, which was about £100,000, and we stopped a bit short of that so I stayed in my comfort zone.”
This is not only Rihal’s first auction purchase, it is also his first investment property. And although he did not have much time to prepare for the auction, he was comfortable parting with his money on the day.
“I went to look at it on the Tuesday before the auction. I had a quick look from the outside and chatted to the neighbour, but couldn’t view the inside.
“I don’t know exactly how it will go. I’m giving myself a year [for it to be ready] but I’m hoping it will be six months.”
In the meantime, Rihal says he would not rule out buying at auction again.
