Property auctions: online

18 January 2017

Gary Murphy discusses the increasing popularity of online auctions

In 1999, Allsop was the first property auction house to introduce simultaneous online bidding for traditional ballroom auctions – that is, auctions held in conference facilities, ballrooms or other large meeting places. Today, most auctions are multi-channel and buyers can bid in the room, by proxy, over the phone or online. However, although the online option is easy and accessible, residential and commercial buyers alike still prefer to be there on the day to gauge market sentiment and feed off the buzz in the room.

The concept

Demand for ballroom auctions is still strong, but I firmly believed that there was a significant opportunity for auctions held exclusively online. It was when I was talking to a client that it occurred to me that the real potential for online auctions lay in the new-build residential sector, as this could be a global market.

Developers have traditionally used international roadshows to market off-plan property to overseas investors, but online auctions offer an alternative way to harness competition nationally and globally. Why not invite investors to register for an online auction specifically designed for new homes?

The model works very well for the new-build market; it offers fairness and transparency by providing a level playing field for domestic and international buyers. With this in mind, we presented the idea to some leading developers, who immediately supported the concept.

The law

One of the most powerful advantages of an auction is that the fall of the hammer represents a legally binding contract, so an important objective in setting up a digital sales platform was to establish that the online legal framework replicated the one in the auction room. According to the Law of Property (Miscellaneous Provisions) Act 1989, a contract for the sale of an interest in land can only be made in writing with the exception of 'a contract made in the course of a public auction'.

Allsop took advice from legal counsel: an online auction that is open to bids from anyone anywhere in the world, as opposed to bids by invitation only, is considered a public auction. There is also no requirement in law for an auction to involve the physical fall of a hammer, only that the conclusion of the bidding is clearly signified, as is done after the prescribed time limit for bidding online expires. During registration, the bidder authorises Allsop to sign a written contract for the purchaser as soon as the bidding is concluded. As with traditional auctions, the auctioneer also has authority to sign for the seller.

The process

Before holding an online auction, we ensured that all legal and administrative bases were covered to be certain that the process was as smooth and efficient as possible. Bidders still have to complete a comprehensive registration process before bidding. Full details of each potential purchaser and their solicitors are required, as well as uploaded identification documents.

A letter from the purchaser’s solicitor, who has to be UK-based, is also required to verify that identity checks have been completed. Finally, a bidder security of £5,000 has to be paid to Allsop to show intent, confirming that anyone who makes it into the virtual auction room is likely to be a serious buyer.

In June 2015, Allsop held its first online auction of new-build homes, comprising 36 apartments in a residential development on the Crossrail route at West Drayton. In the 4-week marketing period before the auction, we received more than 28,000 visitors to the auction and developer websites, of whom 15% came from outside the UK. All the properties were sold; and, notably, the prices achieved were 10% higher than those for the units in the first phase of the scheme, which had been sold off plan by private treaty a few months earlier.

The Irish experience

In conducting these sales, we were building on our experience of running online-only auctions in Ireland in 2014. We have held 5 online auctions there, selling a total of €38m worth of property, including portfolios and commercial lots. The average success rate has been 86%, which is comparable with that for ballroom auctions.

Introducing online auctions in Ireland has given us useful insights into the practicalities and potential of the method. The market there has experience in searching for property online, so taking auctions in this direction was a natural progression. Online auctions as a method of sale are now part of the Irish property market, and many private buyers are taking this route.

Online auctions increase access to potential buyers and, as awareness of the benefits of this option increases, there will also undoubtedly be more. Since our first Irish digital auction in March 2015, we have found that the online bidder count has risen from 4.1 to 6.1 per property. This increase is hardly surprising; the internet is usually the first place where buyers seek property for sale or simply look for market information.

The scale of the potential audience is demonstrated by the traffic to allsopireland.ie during 2015. This increased by 18% to 1.4m, with unique visitors increasing by 20% to 654,000. Although the majority of visitors to the site are from Ireland, people from 197 countries have also visited. At the online auction held in March 2016, 8% of bidders were from overseas.

Furthermore, although 48% of bids came through from desktops, 32% were made on smartphones and 20% on tablets, indicating that people are happy to make bids on the move, as well as from their home or office (see Figure 1).

Breakdown of devices used to bid in Allsop Ireland online auction (March 2016)

Figure 1

The future

The pendulum is swinging from ownership towards rent, which is creating opportunities for buy-to-let investors. The lot sizes at auction are also appealing to investors. Historically, they have had the choice of buying resale property at auction or new-build homes by private treaty. Auctions are a clear barometer of the market and confidence on the day; online auctions will give buyers from around the world access to a fair and transparent marketplace.

Digital communications also make auctions more efficient and effective, widening the exposure of the lots for sale and making information more accessible for buyers. We email catalogues to more than 220,000 subscribers, but still post hard copies to those who prefer these.

As with any good auction house, much of the hard work is done before the sale, including extensive marketing and personal engagement with potential bidders. The same principles apply to online auctions, as the software is simply the means for bidding on the day. In order to achieve the best possible results, vendors should always consult legal and property experts, though: there is nothing more expensive than cheap advice.

Digital communications also make auctions more efficient and effective, widening the exposure of the lots for sale and making information more accessible for buyers. We email catalogues to more than 220,000 subscribers, but still post hard copies to those who prefer these.

As with any good auction house, much of the hard work is done before the sale, including extensive marketing and personal engagement with potential bidders. The same principles apply to online auctions, as the software is simply the means for bidding on the day. In order to achieve the best possible results, vendors should always consult legal and property experts, though: there is nothing more expensive than cheap advice.

If the auction house does not generate enough interest or loses bidders, this can seriously affect the final price. To sell successfully at auction, market knowledge is vital – particularly when it comes to setting the reserve. The data collected through our website is hugely beneficial to the auction process in enabling us to match demand to price.

Since we began developing online auctions, the dynamics of the market have changed considerably. But I think this shift has made the prospect all the more exciting. Brexit has created uncertainty – yet where there is uncertainty there is also opportunity.

Exchange rates are making investment in UK property a more attractive proposition for buyers abroad. Today’s overseas investors are altogether more informed and selective. Demand is still there, but there will continue to be a fight for quality: what is on offer has to be the right product and the right price.

Online auctions let developers sell quickly and efficiently and at the best price on the day. For buyers, there is easy, transparent access to the new-build market. Our team is in talks with major developers about this approach, as we are confident that online auctions can offer certainty and encourage renewed confidence in this uncertain market.

Online sales will never replace ballroom auctions, but will be used to complement traditional sales and marketing methods.

In the new homes markets, however, they will seriously challenge traditional sales methods and provide a practical alternative with all the benefits of ballroom auctions.

Gary Murphy FRICS is Head of Residential Auctions and Partner at Allsop

Further information

• See also RICS best practice guidance, Auctioneers Selling Real Estate, 6th edition
• Related competencies include Auctioneering
• This feature is taken from the RICS Property journal (November 2016)