Buying at auction
December 6, 2008
By John Cagney
Auctioneering – the fast way to sell a property and achieve the highest price from competitive bidders. At the height of the Irish property boom, auctions sold sought-after properties around the country for inflated prices, but now with the market slump and no confidence among buyers the hammer is refusing to fall for Irish auctioneers. With auction sales plummeting to just 9% of the 2006 high, perhaps the auction needs to be reinvented. I spoke to Simon Ensor of Sherry Fitzgerald, a leading Irish estate agent, about how an auction works and what the future holds for the auction market.
“When the market was firing on all cylinders it was a fantastic way of creating competitive interest”, Ensor says. In an auction a seller can often achieve a “bonus price” when eager buyers go head to head in a tense situation.
If a property sells at auction the buyer must immediately sign an unconditional contract, and at the same time hand over 10% of the price as a deposit. “It’s a very quick and efficient way of selling when it works”.
When a buyer identifies a house he/she is willing to bid for, there are two vital steps to be taken before auction day. The first is an architectural survey, in order to evaluate the structure and identify any potential problems. Secondly the buyer must prepare the finances – if you make the winning bid on auction day you are legally required to pay the deposit, and are then given several weeks to organise the full payment. “Because you’re signing an unconditional contract you have to know that the money is there before the closing date, otherwise you forfeit your deposit”, warns Ensor.
Before an auction commences the auctioneer will give an AMV – Advised Minimum Value. This gives bidders an indication of the depth they’re swimming at. “For instance if the AMV is €1 million and you only have €800,000 to spend, there’s not much point going to the auction”, explains Ensor. The AMV is usually published in newspapers and is available from the estate agent.
With the current stagnation in the market, the auction room is expected to be a quiet place for some time. “I think it’s going to be one of the last things to come back” predicts Ensor. Auctioneers thrive on confidence in the market and competitive interest in houses. A double whammy of lack of finance and too many houses on the market means buyers are a) unable to secure the immediate finance necessary for an auction purchase and b) unwilling to bid high as property prices continue to drop.
The auction market in Ireland has been traditionally reserved for properties at the upper end of the market. “Unique properties often draw several people who want to buy”, Ensor explains. The competitive nature of an auction helps to achieve the best price for the seller in this situation
In the UK however, there is also an auction market at the other end of the scale. Repossessed houses and “problem properties” are often sold at auction, sometimes with no reserve price – so if you’re lucky enough to be the only person in the room to really want the house, you might pay very little for it. So, as many properties in Ireland refuse to sell and owners/developers run out of cash, are we likely to see the emergence of a low-end auction market?
“There’s no real reason it won’t happen”, admits Ensor, but he doesn’t seem to think it likely. “It has never happened before”, he points out, and as we know this isn’t the first time the Irish property market has slumped, although perhaps never so dramatically. Culturally, Irish people are unlikely to expect low-end bargains at a property auction and, according to Ensor; it would take a significant “re-education” for such auctions to begin.
For now, we can only wait and see what the future holds for the Irish market. If - as hoped - finance stabilises, and confident buyers slowly re-emerge, the auction rooms will eventually begin to heat up. However, they will probably never again reach the boiling temperature of mid 2000’s.
Related articles
