Under the hammer

Television programmes, such as Homes Under the Hammer, regularly show nationwide auctions of multiple properties. Allsop Auctions sell approximately 2,000 lots each year across the largest property auction departments in Europe.

So why not in Guernsey? Principally because the size and accessibility of our housing markets chiefly suit the more conventional method of setting an asking price in search of present and imminent buyers within that price range.

Another reason is funding a house purchase. Auctions rely on bidders with ready access to a 10% deposit on the day and the remainder of the money available within a matter of weeks, when the conveyance is completed. Guernsey has more than a fair share of independently wealthy buyers but most house hunters need first to sell their current property to fund the next, and they are unlikely to do that in the hope of being the successful bidder at an auction.

Bridging loans are a thing of the past and mortgage applications prior to an auction incur the cost of an independent survey and legal searches, without the certainty of ultimately purchasing the property. A mortgage application post auction is uncertain of approval, to say the least, and risks the possible loss of the would-be buyer’s deposit.

This is the crux of an auction and the auctioneer will always stress that the fall of the gavel strikes a binding agreement with no subsequent negotiation, further conditions or amendment to the contract terms. Whereas buying a house by private treaty, as named in legal terms, can involve protracted negotiations until conditions of sale are finally agreed.

The term Dutch auction, incidentally, comes from the manner cut flowers are sold at vast markets in Holland. Prices start high and are sequentially dropped until someone bids the price offered, at which point the auction ends. The practice is widely used elsewhere and with other merchandise although it contradicts the origin of the word auction, which derives from the Latin noun ‘auctus’, meaning ‘increase’. Early chronicles of the ancient custom date back to the Greek Homeric period, pre 1,000BC.

There was a boom in the London auction market during the late 18th century, when impoverished French aristocrats were forced to sell treasured possessions following their country’s revolutionary wars. This led to a regulated Auction Mart being established among the city’s fashionable coffee-house venues.

All public auctions locally are governed by a 1914 Guernsey law, under which auctioneers have to be licensed, except when conducting sales for charity or religious purposes. There are further exceptions, specifically for selling fresh fish and other perishables, and for the sale of horses at race venues.

Individual property auctions in Guernsey are typically held at the premises, not least to focus the minds of bidders if a highly desirable house or location is on offer.

Selling at auction is an option all homeowners can consider, even if the idea is dismissed ultimately. On no account should it be seen as a last resort. Apart from the potential of achieving a premium price, it also provides an efficient method of securing a sale within a specific timeframe, especially as it cannot involve a property chain. To some vendors, time can be as crucial as price.

Auctions are also a preferred route when several parties are involved, such as inheritance. This was the case with a Cooper Brouard auction of a west-coast cottage, in 2014, which had been inherited by 38 cousins and remoter descendants from near and far.

Corporate owned and commercial properties may also be auctioned, especially at times of liquidation, court actions or repossessions when transparency is key. Although primarily a residential estate agency, Cooper Brouard holds the record price achieved at auction for a commercial property and also held the highest price on the open market, until the States sold Belvedere House at Fort George by auction, also holding the local market record on three occasions, most recently in 2012 at £1.25m.

Not that all auctions are successful. The owners almost certainly set a reserve price beforehand, known only to the auctioneer, and sometimes bidding fails to reach that figure. The property is then withdrawn and, in most cases, subsequently put back on the market with a specified asking price, although the auctioneer is occasionally approached later to see if a deal might still be done.

Experienced bidders look for signs for when the reserve price has been reached. Auctioneers will often say, ‘I’m going to sell this property today,’ or raise the gavel in extravagant fashion to entice those last few bids.

Those who can bid at an auction is no different to those who qualify to buy any Guernsey property, albeit occupancy laws for residential units still apply. What the 1914 auction law prohibits is a bidding ring, where three or more people prevent a legitimate outcome by agreeing not to bid against one another. Two individuals, however, may legally agree not to bid against each other.

Attendance at the auction is not essential as telephone and internet bids can be taken, provided the bidders register in advance and supply necessary sureties. This is particularly convenient for non-resident buyers who already have links to or knowledge of the island. Those who do not are strongly advised to take personal tax and legal advice beforehand.

Auctions of any kind generate a lot of interest and the public is always welcome to share the experience first-hand, without fear of inadvertently buying a house with a friendly wave or wink of the eye. What they will see, when a property has a real wow factor, are impassioned bidders and no limit to what they might be prepared to pay.