Property

Pub auctions: the pros and cons of going under the hammer

By Ben Winstanley contact

- Last updated on GMT

Pub auctions: the pros and cons of going under the hammer

Related tags: Property, Auction

Auctions are possibly the greatest litmus test of market conditions: when it's bad, you get poor results and undersell at auction, when the market is brilliant, it can be fabulous. Robin Mence, managing director of Sidney Phillips, gives Ben Winstanley the insider’s perspective.

Put simply, auctions have their positives and negatives. Owners have to decide if it is the ideal way for them to dispose of the property because, while an auction is an efficient and expedient way of selling property, it is not a way of maximizing its full value at present.

Then there’s the stress. Auctions are definitely romanticized by what we see on television, these Homes under the Hammer​ type things, but the pressures involved with selling your business are wholly different. This is people’s pension scheme, their key and pathway to the rest of their lives, so the circumstances aren't directly comparable to selling your residence.

Moving home is usually a case of relocating or up and downsizing, whereas a high proportion of pub sales are under an element of duress before you even consider how full-on it is living and working on-site. It means people can be a little bit more desperate to sell than they would otherwise.

You've got to be very pragmatic and accept that auctions are a very definitive disposal of your home, your business and your asset. My advice differs depending upon the circumstances and here’s why:

Considering going to auction?

1)      Auction costs

You need to be prepared to throw a chunk of money at the auction process up-front. The auctioneer’s costs are quite reasonable, about £500, but they will have to instruct their solicitor to pay a full contract pack prior to that auction. That means just preparing for the auction incurs a cost of about £1500-2000 with no guarantee of success.

2)      Publicity

Properties being sold as a going concern (open trading) aren’t advertised by name because they don't want their customers and staff necessarily to know their property is on the market. At auction, you have to be prepared for the inconvenience and disruption that a publicized marketing campaign brings. Yes, it is going to be a more dramatic process with regards to customers and staff.

3)      Price Expectations

People go to a car auction to buy an economy car, you don't generally go and buy your brand new Mercedes – it’s the same with property. If we could all get the same money at auction, we'd be selling everything that way.  Why go through the months of torment and stress otherwise? Property owners have to accept they probably won't achieve the same price at auction as remaining patient via a private treaty.

4)      Goodwill

Owners will almost definitely be selling their property with little regard to its goodwill. It's very much a buyers' market at the moment and auction purchasers are not looking to pay a premium for a seller's goodwill.

Is now the right time for me to sell at auction?

People often ask this question but the answer really depends on what you're going to do with that money.

The drop in commercial values at the start of the last economic cycle has meant people who've bought commercial property of any description have seen the capital they'd put in eroded. Now, as the market improves (we've seen a notable improvement this year), auctions for the private individual will become a more viable option.

Part of the reason the market is gathering momentum and the quantity of property changing hands is improving is because we're starting to sell for people who bought over the last eight years, rather than in the eight years prior to that.

People struggle to reconcile themselves to sell at a lower price but we've sold many properties over the last few years bought as repossessions and pubco disposals at a relatively competitive level. They're the ones that are now finding their asset has increased in value and making a profit.

If you bought a pub for £450k and the markets dropped in value, you're going to struggle to sell that pub at a figure that's acceptable to yourself. If you paid £200k for it and you've improved it, selling for £350k is not just desirable but palatable.

If private clients with a single property say they're thinking of going to auction, almost my first words are, “Are you sure? I don't think it's for you.” However, if someone from a brewery or pub company asks me the same question, I would be far more inclined to say it's a great idea.

Currently, auction is very much the domain of closed pubs, pubco disposals, brewery sales, repossessions and a few bereavement sales. This means if you are considering another business venture, there are some good opportunities out there.

A unique or beautiful property, one that hasn't been on the market for 20-30 years; one with some outbuildings with conversion potential; one with some land with it; in a buoyant market, you light the touch paper and see what happens but that’s rare currently.

Selling off assets now to buy something at a figure lower than it's going to be worth in a couple of years means individuals may achieve less for their current property but it could prove a sound investment.

Predictions

The fact remains it is impossible to predict exactly when the pendulum will swing but people who have the ability to hold out and keep their eye on the market that little bit longer should do exactly that. It's something that needs to be reviewed on a six monthly basis.

Related topics: Property law

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