Problem Properties and Auction Sales

Houses and properties with so-called 'problems' may be hard to sell via traditional methods.

Generally, most consumers using estate agents want a home that they can either move into immediately or one with relatively minor, cosmetic issues that they can fix themselves quickly and without too much outlay or expertise.

But there are plenty of buyers out there who aren't put off by properties which need work or have some issues and, typically, auctions are their go-to property selling platform for a number of reasons.

If you are thinking about how to auction a house with problems, this article is for you.

What is a 'problem property'?

The quick answer is any property that will need time, money and/or expertise in order to make it either:

• an attractive prospect to live in without risk, or

• ready to sell on the open property market via traditional methods.

Another way of looking at this question concerns mortgage lenders; if there is a reason why a mortgage lender would be unlikely to lend against the property, this is likely to be a problem for traditional buyers.

Most common problems

There are so many things that can be considered a 'problem' when buying real estate that they are almost too many to list, but the following are the main issues that may prevent a property from being sold easily on the open market.

• Construction and building fabric issues

  • Subsidence

  • Roof problems

  • Water damage (damp and mould)

  • Dry rot/wood rot

  • Dereliction

  • Non-standard construction (including non-approved building works)

• Outdated wiring/heating systems

• Presence of Japanese knotweed

• Short lease

• Problem tenants

Some problems such as old fashioned kitchens and bathrooms are no longer seen as major problems for buyers who know that they can easily get new fixtures and fittings installed for a fairly modest budget and many will factor this into their private treaty offers when viewing a house through an estate agent.

However, fundamentally dangerous problems, such as old wiring and heating systems, may be out of reach for DIYers and those looking for a basic fixer-upper.

Why should you sell a problem property at auction?

The answer to this question will depend on your circumstances because there's no rule that says you must use an auction to sell a house or flat with issues. However, an auction may offer the best prospects if:

• You need a quick sale,

• You want the best possible price

• If rectification of the problems is going to need technical expertise, considerable cash or legal knowledge.

Auctions are often where investment buyers go for project properties. For instance, if your property has significant cracks in its walls potentially caused by subsidence or large areas of water damage and mould, this will be really off-putting to traditional buyers.

An investment buyer is likely to have experience of what these problems with the fabric of a building may mean and be in a position to rectify issues of subsidence and water ingress during a period of property renovation. They will be able to estimate how much the worst case scenario will cost to rectify and what the property will be worth once the work is done.

For other 'problems' such as a short lease or problem tenants, many investment buyers have experience of these situations and not fazed by the legal procedures (and associated costs) that may need to take place either to extend a lease or evict problem tenants. Again, they will be able to estimate the value of the property without the problems and will factor in the possible cost of rectification as part of their buying process.

Cash buyers, investors, experienced bidders

As we mentioned, mortgage lenders may be unwilling to lend against a property with issues such as those mentioned above, and this rules out a large percentage of property consumers who will need to borrow money to buy a home.

Auction house sales generally require a quick turnaround for contract completion, so having funds in place is often necessary, especially if getting a mortgage is going to be impossible.

Many investors and property developers will have cash available as part of their business model and, generally, for this type of buyer, an auction is the best place to look for their next investment project.

Attracting cash buyers and experienced auction bidders also means that when selling a house with problems, you are more certain of the outcome and timeframe rather than waiting for many months for the right buyer with the right level of funds to turn up at the estate agents and take an interest in your property.

The legal side of selling a property with problems

When you auction a house or flat, you will be required to provide a full legal pack prior to the auction. This is essentially the same work that would be carried out after an offer is accepted in a traditional house sale. The legal pack is compiled by your conveyancer and your auctioneer.

For all Higgins Drysdale property auctions lots, potential bidders must register online and provide a security deposit. Once registered, they are encouraged to read the legal pack and take a surveyor with them to view the property. If they have viewed the property and seen any potential problems, this will then influence their bidding strategy.

If they have not visited the property or read the legal pack and they are the winning bidder, the sale will still be binding and completion mandatory.

Marketing that's right for your property

When you've got a problem property to sell, it's important that the marketing, in its fullest sense, is right.

As an experienced auctioneer, here at Higgins Drysdale we know our buyers and we are able to market niche properties to specific groups of potential bidders that will include experienced investors and developers. So, the possible presence of subsidence or water damage, won't be a deal breaker – they'll have the experience to estimate the costs against the A1 condition value and factor this into their bidding strategy on the day of the auction.

The bottom line for all auction properties is that the auctioneer can choose the most appropriate place for their marketing and this can be as wide as any other property being sold.

Getting a great price

Problem properties are marketed at guide prices that will encourage potential buyers to register and then bid on the day. Your auctioneer will guide you during the property sale appraisal process.

You can stipulate a reserve price to ensure your property doesn't sell at a price you are not happy with, but in many cases, auction properties with problems will sell at above their open market value. For properties with great potential, an auction can create a competitive arena that means the selling price exceeds your expectations.

Always look on the bright side of problem property sales

Finally, never forget that for every problem with your property, there could be a number of plus points that mean its potential makes it really attractive.

The three Ls (location, location, location) can make even the most complex of problems not the deal breaker you might think. A savvy auction buyer will see far beyond the problem, whereas a more typical buyer may only see the problem.

Tell us your problems

…your property problems that is. To sell a property at auction, you can book a property sale appraisal with Higgins Drysdale by using our online booking form. In most cases the property appraisal can be carried out over the phone and you will receive the full appraisal results within 24 hours.

We are committed to providing best advice for your individual circumstances and we have the experience to make sure that selling problem property is not a problem.