Ask people why they don’t want to sell their property at auction and they’ll usually reply: “I’ll get less money.”
In London, that may not be the case, but for the rest of the UK (that whole country outside of the capital) it is probably true. But let me tell you a surprising thing: those people who think they will get less money by selling at auction are most probably wrong.
Yes, despite the discount for selling at auction, I think you will find when you do all the maths that there is actually very little in it. Seriously, it shocked me.
“What? How can you sell for a higher price with an estate agent and not make more money?” I hear you cry. “The auction price was less, stop being a fool!”
I hear you, but here’s the nub: selling property, much like buying property, has huge costs involved.
Granted, unlike buying property, you don’t have to face the new stamp duty tax hikes (if you’re entrepreneurial enough to own more than one property), but you do still have other expenses: capital gains tax, estate agents’ fees and solicitors’ fees can effectively wipe out any hope you had for a profitable transaction.
In addition to this tasty trio, there are more hidden selling costs, which so few people factor in. These are the hidden expenses that I am going to call the “investor trap – because so few investors are aware of it and yet so many will fall prey.
These hidden costs are the ones that remain silent on the spreadsheet, invisible on the tax return. They are the “non-entries” which are the cost of selling properties when you are an investor.
“What?” I can hear you scoff. But let me tell you four words: loss of rental income.
Once you have vacated a property to sell through an estate agent (forget what they claim, the man on the street really does prefer to buy a vacant property) then the clock is ticking on your losses – and boy, when you have an empty property, do they multiply.
Not only will you have no rental income, you will still have a mortgage to pay, you will be liable for council tax, the utility bills, and then your insurance will decrease your cover but increase your premiums, because the property is vacant.
Empty properties are expensive properties and no more so than when they are in the window of an estate agent. I know this, I’ve been there and I am still praying for my exchange date on a private treaty sale some five months later. It has been tortuous.
The whole experience has sent me almost doolally and itching for a strong, spirit-based drink at most times of the day, especially when I have to talk with my solicitors. Which is a surprise to me, as -earlier this year, this firm appeared to be quite good.
Or maybe it was the process? You see, earlier this year I sold two properties at auction. Why? Well, the key things I wanted were speed and certainty of sale. But also – and perhaps more pertinently – they needed work and had tenants, which made them perfect auction fodder.
The local estate agent claimed he could do “just as good a job, if not better” and, after his appraisal, nodded enthusiastically while telling me a whole list of stuff the properties needed. I smiled at him cynically; he didn’t get the brief.
Fortunately, I knew an auctioneer who would, and upon seeing the potential, swiftly listed them for auction.
The transactions were so smooth. There was limited stress and very little time and effort required. If it wasn’t for signing a few legal documents, I don’t think I would have noticed I was selling a property.
But perhaps what surprised me most about this experience was the final number-crunching analysis. You see, I sold at auction and got less than the estate agent claimed he could get me.
But when I totted up all the incomings and outgoings, factored in the auctioneer fee (half the price of the estate agent), and added in the special condition contribution towards costs, I ended up making the same amount of money as the estate agent’s predicted amount.
My lesson from this? Don’t be too quick to discount selling a property at auction due to the discount; the time and hassle of private treaty sales cost far more than you realise.
Samantha Collett is a property entrepreneur and author www.whatsamsawtoday.com
