The Yanks are coming!

The Yanks are coming!: One story that intrigued me last week was the news that US repossession giant REDC (or Auction Today over here) is set to take over the UK auction market by bringing in a new model whereby their premium is drawn from the buyer, not the vendor.

This, as many bloggers have noted, brings up a number of points.

Firstly, the impact on the wider market - increasing the numbers of repossessions sold at auction could drive values down further. Secondly, pressure will be on UK auction houses, who generally draw their fee from the vendor. Thirdly, questions have been raised about lenders’ TCF (treating customers fairly) obligations.

On their website, the REDC give the following explanation of where they draw their ‘10% buyer’s premium’:

“Let's assume you are the winning bidder on a property at £100,000. The buyer's premium would be £10,000 plus VAT (£1500) making the final purchase price £111,500.”

From this answer it would seem the buyer’s final purchase price includes the auctioneer’s commission. So if the purchaser is seeking finance, at what price does the lender base the valuation for loan purposes? It must/should be on the accepted bid, exclusive of the buyer’s premium.  Is this something the potential purchaser will be aware of/understand? Is there potential for fraud, calculated or otherwise, by the purchaser?

Now personally, I’m on the side of independent local estate agents. Auctions have their place but should only really be used as a last resort. I’ve heard many reports from estate agents who have had a buyer lined up for a repossessed property, only to have the rug pulled from under them at the last minute by a big auction house who have hijacked the sale with a much smaller offer.

On the other hand, maybe a new entrant to the residential market is exactly the kind of shake up that our industry needs? The razzmatazz of the American-style auctions, with their blaring rock music and tuxedoed ‘ring men’ roaming the crowd, whipping up excitement is reported to create a real buzz around the auction, with few properties remaining unsold at the end of proceedings.

Time will tell how this turns out. Maybe the sensibilities of British property buyers won’t react well with the circus atmosphere that the Americans have promised. Conversely, maybe their new take on residential property will prove popular and be the catalyst for some much needed innovation in the UK residential property industry?

The first auctions are due at the end of this month and I should think that most of the first few dates will be taken up by as many curious UK auctioneers, lenders and asset managers as prospective buyers.