Why auctions are an excellent way to sell tenanted properties

Since posting this article, I thought it would be useful to share direct feedback and some of the questions arising from fellow Property118 users. I have received 6 contacts (of course for client confidentiality I will mention no names), all 6 are seeking to divest for a number of reasons ranging from asset management of their portfolios to retirement or simply seeking to sell on tenanted units that lay outside of a reasonable distance to travel to manage.

Two questions that have been asked by several of the responders:

1. “I have a portfolio of tenanted properties; can I sell them as a portfolio or as individual properties?” – My view is that there is no one sales strategy as it is entirely possible to sell as a group or break into lots (single or multiple). An approach we can however recommend if to offer as individual lots with a special condition in granting options to purchase on following lots, this strategy we have found to work very well.

2. “When working out value of a tenanted property what does the auctioneer take into consideration?” – As well as comparable property evidence, rent yield, last rent review, market comparison of rent (to gage if any headway to increase), length of time current tenant in situ, length and type of tenancy. These factors influence ROI and in-turn reserve price.

Hi Martin

Thank you for the update. If you can add any further information in the form of case studies to the people who have contacted you with a view to selling tenanted properties as a result of this article that would make for interesting reading.

It's only since we met a couple of months ago that I begun to think of auctions as anything other than a place to buy property from. I had never considered auctions as a place to sell but for the reasons outlined is your article it does now make a lot of sense.

As a matter of interest, what percentage of properties are sold at auction because they must be due to times pressures, e.g. probate sales and repossessions vs sold at auction by choice?

As an add on to that question, do you think more landlords will now use auctions as a means of disposal of tenanted properties and if so why?

There is always a risk of unwanted rental voids when selling a property and wanting to retain the tenants for as long as possible. This is because the mere hint of a sale can spook tenants into thinking they need to start looking for another place to live. However, the prospect of selling to another landlord MIGHT give tenants more comfort, albeit not much as there is nothing to stop the next landlord giving them notice as soon as they take ownership on the day of completion. This has got me thinking though because at some point (not now) I will be looking to downsize my portfolio. What would the position be if the vendor was to give the tenant a Deed of Assurance? As I see it, there would be nothing to stop the new purchaser serving notice in exactly the same way but the tenant MIGHT be more inclined to stay. Obviously the vendor would have to pay compensation to the tenant if the new buyer did serve notice within the assured period but the vendor could factor this into his figures. A rental void pre-sale can easily run into six months. By setting the compensation level in the Deed of Assurance at say 3 months rent and the compensation period at say two months the vendor is far more likely to retain the tenant with no rental void as his potential losses as a result of the possibility of the purchaser serving notice would be quantifiable. Just a thought.

@Anon - I like your thinking. The following is a link to explain "What is a Deed of Assurance" as I suspect Martin will not know what this is >>> http://www.property118.com/deed-of-assurance-1/32440/

As the Deed of Assurance is only available to sponsors on The GOOD Landlords Campaign you are now at risk of divulging your identity LOL

I have checked and we have no members by the name of Anon so I can now only assume that this is short for anonymous?

Excellent post by the way! Very creative in a very positive way - well done 🙂 I had not considered using a deed of assurance for that purpose but your idea makes a lot of sense.

Thanks Mark and you are right, I do not wish to reveal my identity when commenting for personal reasons.

Hello Mark, thank you for your comments about selling tenanted property at auction; I am pleased these have struck accord of interest.

In answer to your question about percentages of properties are sold at auction because they must be due to times pressures, e.g. probate sales and repossessions vs. sold at auction by choice? To be honest without undertaking extensive analysis across the 30 Auction House UK auction rooms I would only be guessing….however what I can say with confidence is that the auction room has seen a seismic shift in the demographic of property type entered and sold under the hammer. No longer is the auction room resigned to selling unmortgageable property and repossessions for today we see a wide range of properties including as I have flagged a rapidly growing recognition that the auction room is becoming the sales strategy of choice for selling tenanted property. I would add that Auction House UK auction rooms are achieving a combined average of over 80% sales success, so divesting landlords can proceed with a high degree of sales certainty.

The answer to your second question is, yes, the expansion of the UK’s private rented sector will drive the requirement for investors seeking to divest to exit and enter the BTL market cost effectively and the selling and buying at auction provides the right environment in which to trade tenanted property.

Thanks Anon/Mark…..you learn something new every day :-). Like the sound of Deed of Assurance, interesting and useful.

Thanks Martin, I have another question if you don't mind.

If a property is listed in an auction and it doesn't sell due to bids not meeting the reserve what are the costs?

Also, is there an additional cost to re-list the property in a subsequent auction?

@Martin Cunningham - as so few auctioneers will have considered the deed of assurance, maybe it's worth teaching your franchisees about this? It may be a useful tool in your armoury when persuading landlords to list their tenanted properties through Auction House. I love discussion like this, sharing best practice is exactly why Property118 exists and this is a classic example of it working at it's best. I would never have considered using the Deed of Assurance in that way. Thanks Anon, in a round about way you might have helped us to recruit more landlords and letting agents into sponsoring The GOOD Landlords Campaign if only to gain access to the Deed of assurance template.

Sure, happy to answer. The beauty of auction is that the auctioneer can balance fee structure across, lot entry, vendor and buyer. Typically fee structure in UK auction rooms would have been based on catalogue entry fee and success fee (commission) paid by the vendor. In more recent year the UK has adopted fee strategies of overseas auction rooms by adopting ‘Buyer Premium’, indeed some UK auction houses have tried to adopt a 100% Buyer Premium commission charge, however the issue with this is that whilst it may in the first instance seem appealing to the vendor as there is no direct cost to entering property to auction, the flipside is that buyers price in their Buyer Premium within their bids…..in other words there’s a high probability the vendor takes less in indirectly paying all the auction fee. At Auction House UK we balance fees between entry, vendor commission and buyer premium, the catalogue entry fee element costing circa £300 - £450.

In answer to your second question about additional costs to re-list following a failed auction the answer is it depends on what property auction room the seller uses, at Auction House UK property auction rooms we re-enter failed lot sales into the next auction without additional charge.