COMMENT In this year’s disrupted property market, auctions have come to the fore as a means of transacting asset sales with certainty and – thanks to the time frame of an auction sales contract – speed.
Investors looking to switch out of other investment media or who need to realise the capital currently invested in property have used auctions as an efficient route to market for buying and selling. And because sales have migrated online it has been relatively straightforward for existing property consultancies to venture into auctions. As a consequence, there has been a proliferation of new auction platforms.
However, in a situation where you have virtual novice buyers and new auction services, it becomes increasingly important that there is transparency and regulation.
As chairman of the RICS Auctions Group, I would, of course, naturally recommend that both buyers and sellers look for property auction houses which are RICS-regulated. As a globally recognised professional body, everything the RICS does is aimed at maintaining and enhancing professional standards throughout the built environment sector. It also provides recourse for people who feel they have not received good advice or if some aspect of the service they have experienced was less than transparent.
Set an appropriate guide price
For the auction sector, the RICS specifies a raft of best practice but the two areas I would pick out are the role of guide prices and the attendant costs of buying at auction. These are key matters because they can be the most contentious for buyers at auction.
It’s worth restating briefly what a guide price is for. Given that it has a substantial impact on a potential buyer’s propensity to bid, the auctioneer needs to make prominent their definition of a guide price. This can be the seller’s minimum acceptable price, which also represents the reserve if this has been agreed. The reserve price is the price below which the auctioneer cannot sell at auction.
What a guide price cannot be is to be set deliberately low with the intention of drawing in bidders with an expectation of a purchase price that will never be acceptable to the seller. Yes, selling at auction is not a science and sometimes the process will surprise you when a lot eventually reaches a much higher price than expected. But these are usually special situations where the price achieved has been driven by more than pure property investment considerations. It can’t be because the guide price was unrealistically low at the outset.
Setting genuine guide prices can be particularly challenging in the sort of market we’ve had in the year to date where the perception of value and price has been severely distorted but this is no excuse for setting deliberately ‘come hither’ guide prices.
Clarify additional costs
Similarly, there must be transparency around the additional costs that buyers have to pay in addition to their winning bid. Buyers immediately have to pay a deposit (usually 10% of the purchase price) but also should be aware – before they bid – of other costs that can be entailed. The standard additional cost is a buyer’s premium and/or administration which is charged by the auctioneer.
Other costs can include a seller’s buyer’s premium; a contribution to the seller’s agents or solicitor’s fees and costs. These costs are fixed by the auctioneer’s client and not the auctioneer.
As additional charges can be several and varied, the guiding principle is that it’s important that everything is included in the special conditions of sale from the outset of marketing so that the buyer has time to calculate the full cost of purchase.
Although the level of these costs and how and when they are published are decided by the client, this doesn’t mean that an auctioneer has to accept instructions from a seller who is requiring an auctioneer to breach ethical standards. Offering guidance to a seller on the auctioneer’s ethical and professional standards goes hand-in-hand with being an RICS member.
For many auction veterans, this restating of the mechanics and costs of auctions may be old news, but for auctioneers it is vital that we ensure our standards are high and our process is transparent.
Falling below these standards and procedural structure runs the risk of impacting on the popularity of the sector and that would endanger the important role that auctions have played this year and can continue to play in keeping the property market moving.
Richard Auterac is chairman of the RICS Auctions Group and chairman and auctioneer at Acuitus
