After a shaky start at the beginning of the year, the auctions market is now much steadier, both in terms of levels of activity and levels of prices. The inertia created by the short-term view of early 1994 is unwinding and expectations are at last coming in-line with reality.
Since the mid-1980s, selling property by auction has become an increasingly popular method of sale, with many major vendors choosing to sell by auction rather than by private treaty. Attend any of the half dozen or so commercial or residential sales held in London every month and you will witness the interest from private and public property companies, the institutions, private investors and owner-occupiers.
Auctions act as a barometer of the market and some regular attendees are simply there to see which way it is going to swing.
At just one auction in 1988, this company raised £82 million. In the same year, surveyors Jones Lang Wootton sold a residential development at auction for £9.2 million. The market was riding high and these were astonishing figures achieved by harnessing the competition in the market. But the auction was not just a 'good times' phenomenon. As the recession hit other players in the property industry hard, auctioneers began to benefit from new sources of instructions.
Purchasers and vendors like the fact that auctions offer a high degree of certainty: when the hammer falls, you have an exchange of contracts and a 10 per cent deposit is paid on the day – no room for procrastination, late negotiation tactics or simply cold feet.
In addition, the vendor can be seen to be achieving the best possible price in open competition and a large number of properties can be sold on the same day – a highly efficient method.
Auctions are useful to vendors who are acting in a fiduciary capacity, executors, trustees, mortgagees in possession or receivers.
And it is not just unusual or difficult properties that appear in the auctioneers' catalogues. In practice, the lots vary widely but as a generalisation it would be fair to say that the major commercial auction houses are likely to be in the 'good secondary' category with a value of between £50,000 and £5 million or more.
Typical investment properties include high street shops, parades with flats above, small industrial estates, single or multi-let offices or warehouses and ground rents.
Everyone buys at auction, from major funds to the private individual.
However, the lifeblood of the property auction is the small property company and private investors or family trusts. These are the purchasers who typically seek to purchase the management-intensive and higher-yielding properties that the funds and large property companies are selling.
Duncan Moir is a partner at London-based auctioneers Allsop & Co.