10 minute read
Online auctions attract new bidders
Hush descends as the audience waits expectantly while the auction gets under way, bids spiralling higher and higher before the gavel finally descends… Most of us will have seen TV’s Homes Under the Hammer, and there’s no doubting the tension and excitement of a big ‘ballroom’ auction. Of course, physical auctions have been outlawed during the lockdown and the situation may not return to normal for months to come. As Covid-19 wreaks havoc on the economy, one bright spot has been the emergence of online auctions as an outlet for pent-up property sales
With property viewings by the public limited, up until recently, and conventional sales grinding to a halt, could online auctions offer a way forward for the hard-pressed market? And is bridging finance for these deals still readily available?
Some auctioneers, such as Birmingham’s Bond Wolfe and the West Country’s Greenslade Taylor Hunt (GTH), have closed their doors for the duration.
Bond Wolfe CEO Gurpreet Bassi said in a statement that it would be “completely unreasonable for us to expect potential purchasers to buy property without the possibility of carrying out their full due diligence to include internal viewings and surveys”.
Before the property sector reopened, he added that putting properties on the market “would encourage people to flout the lockdown/social distancing rules, even if only to go and inspect a property externally”.
NON-ESSENTIAL TRAVEL
Meanwhile, Justin Lowe, a partner at GTH, agrees that social distancing measures and restrictions on non-essential travel made auctions of any kind unviable.
The firm made the decision despite having successfully launched online auctions last year using the Bamboo platform.
“We do not consider video tours provided by the vendor or selling agents [to be] satisfactory to use for sale purposes and could lead to claims by purchasers at a later date when a property feature or issue is not highlighted,” he says.
However, the agents which are staging online auctions are reaping the rewards from vendors anxious to sell.
Traditional auction house Strettons, with offices in London, Essex and Hertfordshire, was one that opted to hold ‘virtual’ auctions.
Working closely with finance broker Life Bridging and Commercial Solutions, Strettons has been staging sales using Zoom, with just auctioneer Andrew Brown and a technician in the room, with bids being placed online or by phone.
It’s a formula that has worked well. “From our perspective, the residential side is in just as much rude health as it ever was,” says Andrew. “If I’ve got the right stock, I will sell it.”
The firm’s April auction was the first under the lockdown rules and was a huge success—at one point there were roughly 1,400 people watching it online compared with perhaps 500 at a large ballroom auction.
The sale saw one of Strettons’ regular clients raise an additional £2m just before the auction to buy more property. With the market stalled, there are certainly some bargains to be had. Renovation projects often attract public interest and can lead to bidding wars.
MORE WOMEN ARE BUYING
As Andrew points out, auctions have become more mainstream over the past 10 years or so, thanks to those TV shows and the seemingly limitless appetite among the British public for buying, renovating and developing property.
The April auction saw more new than established buyers and Andrew thinks the move online may be bringing out those uncomfortable with a traditional ballroom auction setting—including, based on anecdotal evidence, more women.
“Perhaps some people feel the auction room too intimidating for them,” he explains. “We’ve probably got a window of opportunity we wouldn’t ever get under normal circumstances to trial how this works and to finesse the process throughout lockdown and for as long as social distancing is in place.”
In fact, Andrew thinks it may be a long time before the traditional live ballroom auction returns, and that online bidding is likely to play an increasingly bigger part in the process as buyers become more familiar with the format—and perhaps more willing to look at bridging as an option.
“Even when lockdown is released and restrictions are lifted, how much are people going to want to congregate in an auction room with 500 [others]? There’s going to be that hesitancy,” he says.
Richard Webb, national sales manager for Northumberland-based Pattinson Auction, which normally operates traditional auctions alongside an eBaystyle website, has also seen rising interest in the digital side since the lockdown.
“We have witnessed much more engagement with the bidding on the online platform,” he says. “We have had numerous incidents this month where many properties have been going down to the wire, getting to the last [hour or two] and the bids are going absolutely bonkers, [due to] lots of different parties throwing their hats into the ring.”
To avoid what is known on eBay as ‘sniping’—making a winning bid with literally seconds to go—a late bid made within the last 15 minutes of the sale
automatically extends the auction for a further quarter of an hour.
REMOVING THE PANIC
“Our model tries to take the fear out of auctions,” Richard explains. “The issue with ballroom auctions is a lot of the Mr and Mrs Smiths of this world will not want to stand in a ballroom and bid on a property. They are out of their depth.
Our goal is to try to make auction a viable alternative to private treaty . . . If everyone sold by [our] process it would be much easier, much swifter, much more transparent for everybody.”
James Ashworth, director of web-only specialist Landwood Property Auctions, agrees. “The current situation has forced those traditional auction firms to go online because it’s the only safe way to hold a sale at the moment. It’s going to be very interesting to see how many of those auctioneers will go back to the way they used to do it—and I think that they probably won’t,” he predicts.
“Lots of people are a bit nervous about an auction; they’ve seen it on TV [and] they perceive they are walking into the lions’ den—a big room full of hundreds of people bidding, full of sharks who know what they are doing—whereas online the average number of people definitely goes up.”
Justin says that when lockdown ends, and the company has established social distancing best practice for viewing properties, he expects auctions will initially take place behind closed doors with a combination of proxy, telephone and internet bids. “Once we are allowed to resume our auction room sales, we will do so,” he adds.
Like Andrew at Strettons, James has seen an uptick in the number of potential buyers.
“The positives are that the cash buyers and people who’ve got finance lined up are still ready to buy. The only negative is there are clearly some lenders out there who have decided to put a hold on any work they are doing, so anyone who needs to get an element of finance or a mortgage might have an issue.”
SHOCK WAVES
Obtaining finance has certainly been tricky amid Covid-19, and a number of both conventional and bridging finance providers simply put up the shutters when the lockdown was announced.
“Some bridging lenders have been quite poor, [saying] ‘It’s not for us, we can’t take these risks, we’re just going to shut shop and we are just not going to lend’,” says Daniel Sovitch, co-founder of Life. “It sent shock waves through the market and a lot of people who are familiar with Together said, ‘If Together isn’t lending, who’s going to lend?’”
However, Daniel says lenders are now returning to the table as they become more comfortable with the evolving situation around Covid-19.
“You’ll see a lot of lenders coming out of this with a positive reputation and a lot of lenders coming out of this with their names tarnished,” he observes. “There are a lot of bridging lenders that I’ve been quite disappointed with who haven’t communicated as well as I would have hoped and some that have done very well.”
But he adds: “It’s getting easier . . . because I think they now know where they stand and they’ve got all the right systems in place to try to carry on lending.”
GOOD FOR BUYERS
Daniel believes now is actually the perfect moment for buyers with an eye for a bargain. “I’m speaking to many people who have had that conversation with me and have said [that] now is an opportunity.
“In a weird way, you may find that the more people that have that perception, [and] the more ‘bums on seats’ virtually, the better the bidding war that you have—you might see some of the lots going for more than they would in a normal market. And that’s good for us on the lending side, obviously.”
Adam Brand, Life’s group sales and operations director, believes getting the right financial advice is more important now than ever.
“While we will always try to offer clients bridging finance, and a regular mortgage where possible, timescales are always really tight on a mortgage,” he says.
“Now, more than ever, you have to get the exact right solution from the exact right lender. You’ve got to be very precise with who is lending and who is not, and at what levels.”
Bridging has always been a key part of the auction process, accounting for 80% of purchases at some sales, according to Andrew.
ADVICE IS CRITICAL
Daniel underlines the importance of getting the right advice and not just trying to go it alone.
“There are a lot of buyers out there who have been fairly savvy and think, ‘I don’t need to go to a broker, I don’t need to pay potentially higher fees—I can have a look online, I can go to United Trust Bank or Precise or Together,” he says.
“But that’s not the case any more; it’s so important to go to a broker. We need to be the ones making the right decision, first time—not just about the lender . . . but terms. I’ve had many scenarios where a client has said, ‘I just need a six-month bridge’—actually, no, you are going to [need] a 12- or 18-month bridge because you need plenty of time right now to ensure that, if Covid-19 lasts a lot longer, which it may well do, you [have] some breathing space to get out of this.
“And the question is ‘Can we get you out?’, which was always an important [one] before this crisis but is more important than ever now.”
Daniel believes some changes forced on brokers and lenders by Covid-19 could be here to stay.
He says a prime example is that historically, on every single bridging completion, the solicitor would legally have to have the borrower in their office signing in front of them, yet now borrowers can sign using FaceTime.
ADAPTING TO CHANGE
“There will be a lot of lenders post Covid-19 who will say, ‘We did it then, we can do it now’ and that will create a lot more efficiency when we are doing loans in future. People are using more technology than manpower because they have to. It will make our industry stronger because people will adapt to a lot more risks.”
Daniel notes that while bridging finance is currently less easy to obtain, lenders haven’t increased their margins in terms of interest rates. “They haven’t de-risked themselves by charging [more], they have de-risked in terms of property type and LTV, and I think that’s quite sensible because equity is key here,” he says.
With online auctions likely to play a large part in the property-buying process for many months to come, there could be rich pickings until the market recovers some buoyancy. “For any investor, I seriously think it’s a good opportunity now to buy something—and bridging is the next best thing to being a cash buyer,” he says.
