If you’re anything like me, you’ll have been keeping a keen eye on the auction houses (both regional and local) who have been very successfully involved in selling off investments worth hundreds of millions of pounds. In all honesty, it’s quite easy to lose a fair chunk of my time to browsing the auction catalogues, scoping out the latest deals going under the hammer.
It’s not just me who holds this fascination either: auction houses have been receiving more publicity than ever of late, thanks to their ability to market investments across the globe, attracting interest far and wide. At a time when technology is removing the geographical barriers of the past, this sort of coverage is particularly attractive, and can make it a lot easier to acquire the desired sale price.
But what happens when your investment does not reach the auction house’s reserve, or can’t even make it into the guide’s price range? What do you do if it doesn’t sell?
To the punters who have been watching the auction houses, an unsold property is like an old fish lying at the fishmonger’s – if it can’t sell, it starts to smell, and buyers can’t help but be suspicious about why it hasn’t already been snapped up yet. Questions start arising, such as are there underlying issues, or is something wrong with the investment?
As a result of this suspicion, it can end up taking months – sometimes even years – to recover the investment’s real value, despite its only sin being that it was placed in auction and not sold.
In my own experience of seeing this happen, it’s become clear that not every investment is suitable for auction, and private treaty sales are guaranteed to secure a much more agreeable result.
For example, a client of ours had placed one of his properties in a February auction, in order to raise some capital and reinvest. The property was a very attractive parade of shops, occupied by multiple national retailers with an average lease length of 10 years. At a guide price of £1.75-1.8million, it would seem like a steal right? Factor in the pre-auction requests for legal packs, and it looked like a promising sale.
Unfortunately, the investment did not reach the reserve and became the “unsold Lot” available at the original price guide price. Within a couple of weeks, the client received offers well under the guide price, around £1.2-£1.3 million. They weren’t accepted, and five months down the line, a new offer came in at £1.5 million. This creates quite the conundrum – does one accept the offer, knowing they’re not getting their investment’s real worth?
Eight months down the line in September 2016 we secured a deal for our client and agreed a sale price of £1.75 million. That’s right: being an unsold lot in the auction caused a delay of eight months. It went from being the prize trout waiting to be caught, to the three-day old tuna, rotting on the fishmonger’s counter.
Thankfully, whilst fish cannot recover from their state of decay, with good advice, patience and expert knowledge, investments will, in the long-term, climb back to their original worth. After a delay of 12 months from the original auction date until the completion, our clients received the sale proceeds.
The lesson to learn here is that auction house – though fascinating to watch, and exciting to sell through when the going is good – are not suitable for every investment. If you’re willing to gamble with a sense of uncertainty in exchange for big returns, then you might consider the auction. To save face, however, I urge you to consider whether or not it’s the right place to sell your property.
If you’re facing this dilemma yourself, please get in touch. Carltlon Park Management can take a close look at your property and advise on how to sell and how much for.
Image: Nigel Tadyaneh via StockSnap.io