Before discussing what the advantages and disadvantages of an auction are, we need to understand, ‘What is an Auction?’
An Auction is a public sale in which goods or property are sold to the highest bidder. But we can go further than that and say that generally an auction of property has a set period attached to it, as the auction is advertised to take place on a certain day at a specified time.
It is a misconception to think that all properties involved in public auctions are either problematic, repossessed or properties that have been on the market for an extremely long time and this is a last resort. Some properties are auctioned due to the Vendor needing a quick sale or there is an extremely high interest in the property.
Advertising a property auction well in advance allows potential interested parties the chance to inspect the property, arrange any finance and make legal enquiries, so that they are able to exchange contracts immediately, if they are the successful bidder. Once the hammer drops the successful bidder is legally obligated to purchase the property.
Advantages of an auction include:
There is no minimum or maximum price tag provided to interested parties, although it is advised that the vendor offer a guide price or reserve price.
The bidding is upwards only.
As soon as the hammer falls the contract is binding and contracts are signed at the sale.
It can be the best option if multiple interested parties show an initial interest.
It can be the best option if the Vendor needs to sell by a certain date.
Disadvantages of an auction include:
Auction costs can prove to be a little higher than the traditional method of selling a property.
As Auction dates are set well in advance, listed properties are susceptible to changes in market conditions.
A non-sale at auction could have a damaging effect on the eventual sale price.
The Vendor has no choice in who the property is sold to.
Auctions are generally limited to those buyers who can proceed immediately.
Having said all of this, auctions are a lively place and can be a little stressful if you are the Vendor. It’s a choice that can be on the table, but it’s down to personal circumstances.
If you’re a buyer, an auction is an exciting prospect, but always make sure that you do your homework and never go in blind. Above all, keep to your budget, it’s so very easy to get carried away in a bidding battle!