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I am often asked about the state of the residential auction market and how it’s likely to behave in the near future. Well, the first bit’s easy; given the current state of uncertainty, the second is a lot harder.

There’s no doubt that sales volumes are down across the country. According to Essential Information Group, the number of residential lots offered and sold across the sector fell by 7.3% and 4.8% respectively in July. Receipts totalled £107.1m, down 4%. In Q2, residential auction sales decreased by 1.9% to 4590 lots. The stats show that activity is down, but does that translate to values?

Accurate analysis of trends in auction prices is almost impossible in the absence of perfect sample sets – by nature every auction catalogue, indeed every auction lot, is different from the last. So, my answer to these questions is largely based upon our experiences in the room and feedback from our clients and bidders.

Since the start of the year, Allsop has raised £220m (76% success rate) from the sale of residential property at auction. This is in contrast to the first half results of 2018 of £256m raised, with a success rate of 79%. However, looking back over the three sales held so far this year, some common trends have been identified.

The market is active. Despite political chaos, economic uncertainty and the threat of a no deal Brexit, bidders are still keen to do business. Our rooms are still full and the level of registrations for remote bidding is up 79% on last year (H1 2018 – 626, H1 2019 – 1118).

There is price sensitivity on both sides of the transaction. Many of those owners who have the choice to wait until market and economic confidence is restored are postponing their decisions to sell. Supply is supported by those who need not wait. These are the vendors with a duty to sell at “best price” – whatever that might be on the day. They include mortgagees, housing associations, local authorities and government bodies.

Traders who are able to buy off market at forced sale values (where they can find opportunity) are able to turn a decent profit using the multi-channel competitive tension created by an in-room auction.

Realistic reserves enable attractive guide pricing and generate the highest receipts. That said, where figures are on the optimistic side, in room activity will swing from deals under the hammer to a race for available stock immediately after the auctioneer’s announcement that a lot is unsold. Paradoxically, prices achieved during this frenzy will often be over reserve.

Lot size has not been limited by the prevailing market uncertainty. Allsop’s highest value sale under the hammer this year was an unbroken freehold building in Eton Avenue, Hampstead, London. Offered to the market for the first time in 20 years, it was arranged as seven self-contained and six non self-contained flats. Mainly let and producing £181,000 pa, it sold for £4.66m.

My gut feel is that auction values are pretty stable. This is based largely on the level of competitive bidding over reserve for lots sold under the hammer – and the stand off between buyer and seller on unsold lots which, following a dance between the two, seldom culminates in a deal below reserve.

Now for the harder bit. Writing market forecasts as an auctioneer is tricky. Not least because, at this point in time, nobody knows with any clarity whether we’ll survive a no deal hard Brexit, whether we’ll face a hard left labour government, whether there’ll be a “Boris bounce” and so on. But also, because I’ve always been aware of trying to balance realistic commentary with the interests of our clients and the sentiment of our bidders (auctioneers do have a tendency to talk up their respective games, it has to be said). So, without wishing to spook anyone, here goes:

  • There will no doubt be buying opportunities over the second half of this year. Until certainty – and therefore confidence – is restored, prices will, at best, remain static.
  • Volumes at auction are likely to continue on their present trajectory as less desperate sellers hold firm and postpone sales.
  • Success rates will dip for those auction houses who are willing to compromise on aspirational reserve prices in order to sustain lot numbers.
  • The delivery and proof of “best price” will become paramount for fiduciary sellers opting for auction as a route to market.

The new build market will be one to watch. Prices are inflated artificially as a result of increased demand generated by the Government’s Help to Buy scheme. New build flats are a little like new cars. On resale they will be second hand (and not eligible for Help to Buy) and worth less than the fresh stock against which they are competing in the market. Unless house price inflation comes to the rescue, which doesn’t seem likely, a new sector of negative equity could emerge from Help to Buy.

What’s clear in all of this, is that the auction room will remain the most reliable test of market value and buyer sentiment. There’s no better barometer. Sustained activity over recent turbulence is a reassuring indicator of what lies ahead. It’s ultimately down to the ability of the auction houses to appraise correctly and price realistically. That will maintain bidding momentum and confidence in our market place.


Notes to editor

Gary joined Allsop in 1987 and was invited to join the Partnership in 1991. Since then, he has been head of the Residential Auction Department with Chris Berriman. The department is now the largest residential auction house in the UK and sells up to 2000 lots each year to a value of around £400 million.

Gary is vice chair of the RICS Auctioneering Group, a member of the RICS Auction Legal Review Group and a former member of the RICS Estate Agency Group. He is past chair of the RICS Agency Skills Panel and past chair of the ISVA Auctioneering committee.

Gary is the author of many articles in regular trade press, a frequent speaker at professional conferences and a regular charity auctioneer.

Contact

If you would like to get in touch with Gary, please contact him:

gary.murphy@allsop.co.uk or +44 (0)20 7344 2619