Selling your charity’s property by auction
Many charities are currently reviewing their assets to maximise their value. This process usually involves identifying both their core property assets and those which are not essential to operations. But after identifying which category each asset fits into, certain steps need to be considered. Here are some of the options.
Strategic reviews
At some stage a charity should conduct a strategic review of its property assets – at the very least to ensure it is making the most out of them, but also as part of charity best practice and compliance. It can also help to ensure the charity is adequately planning for any property related legislative or regulatory changes, such as the planned changes to EPC energy efficiency targets for rented properties by 2030.
Core property assets which need to be retained can often be reviewed to identify cost savings or income-making opportunities. This could be in the form of improving the energy efficiency of a property or adding green energy solutions such as solar panels. Both of these examples can involve a significant capital outlay and a long pay-back period, but looking to the long term can cut costs while positively impacting the environment.
A strategic review could also involve identifying ways to better utilise property assets to generate income, such as through rental opportunities when a building is not being used in its entirety. A strategic review would look at all of the options and identify the most suitable solutions.
Similarly, for non-core assets, strategic reviews can involve looking at whether a property can be utilised in other ways. For instance, a disused piece of land which a charity would like to keep hold of could be utilised for environmental schemes or have minerals underground which could be used to generate income.
In addition, a commercial or residential property may benefit from alterations or a change of use which may require certain permissions.
A strategic review can also identify when a non-core property asset should be disposed of. For example, older assets which require costly work to bring them up to standard or those which have no use and are proving a headache to retain. Selling these could then open up opportunities for charities to reinvest in more modern stock, future-proofing their investments.
Disposal of assets
When looking at the disposal of property assets, various options are available depending on the motivations and the timescales involved. The focus should be on the best outcome for the charity within a timeframe that meets its needs.
The most common method of sale is by private treaty which involves instructing a property professional to list a property on the market to secure a sale. This involves listing a property on the agency’s website as well as platforms such as Rightmove. While this is an incredibly popular way to sell a property and certainly has its merits, even when a buyer is secured, there is still a level of uncertainty, and getting sales over the line can often take a considerable amount of time, with the added risk that these could fall through.
One of the newest methods of disposing of a property asset is via online auction. Unlike traditional, in-person auctions, this modern method benefits from an incredible amount of flexibility, and its success is not impacted by external factors such as the time of day it is being held, the weather or location which could hinder attendance. While properties are listed at a competitive price to attract bidders, properties can achieve extremely strong results, selling for 20% or 30% above the guide price.
How online auctions work
With online auctions the auction provider may be a specialist auction-only company operating internet bidding, or property consultants/estate agents offering their own online auction services. Ahead of the auction, the property is prepared for marketing. This includes sourcing photography and preparing the legal pack containing information such as local authority searches. The auction provider would also work with the vendor to decide on a guide and reserve price.
Each property is an individual sale, and the auction can begin as soon as the property is ready for marketing and the client is happy to begin. The property is listed online and includes the property details, legal pack, guide price and the auction end time – with the reserve being kept confidential and not disclosed to the public.
Potential purchasers would register to place bids, and the IT behind the system should mean that the auction provider can see exactly who is registered and their level of engagement which gives the provider, particularly in the case of a property consultant/estate agent provider, some really strong statistics to discuss with the vendor.
It enables the more flexible and nuanced auction provider to identify when properties are doing well and have strong interest, or conversely, it can identify properties which aren’t doing quite as well. This enables such a provider to work with the vendor and plan the next steps well in advance of the end of the auction, such as adjusting the price and extending the end date to allow more time to attract new buyers.
The advantage of this kind of arrangement is that whilst there is an end time, once the reserve is met, any bids that are submitted in the last five minutes reset the timer for an additional five minutes. That means that if you have a number of people bidding, this can continue beyond the end time to ensure the vendor has got the best price. It provides a way of demonstrating the auction has achieved the best price and ensures potential purchasers aren’t able to jump in at the last second to secure a cheaper price.
If a property doesn’t quite achieve the reserve price, depending on the auction provider, the provider can go back to the charity and discuss if it would be willing to sell for less. If the charity is willing, the provider can then go back to the highest bidder and still sell the property under the auction conditions within the same day if instructed to do so.
Once the auction has ended, it's a legally binding exchange of contracts, giving certainty of sale.
The timescales involved
It typically takes around four to six weeks to prepare a property for marketing. When the property is ready, the auction itself could last for 28 days. Once the auction is completed it is, as just mentioned, a legally binding contract which means that if everything goes smoothly, the vendor could have the money in the bank within three to three and a half months of starting the process, which is very appealing. There are specialist auction-only providers which could provide a faster process but these, arguably, lack the more in-depth service of a professional property consultant auction provider
Timescales are the obvious benefit, and this method is perfect for those charities looking for certainty of sale or which have a specific accounting or funding deadline and need to get some capital receipts in by a certain date. Where there is such a facility for the vendor, you can also extend the auction as many times as required to increase the amount of time people have to place their bids.
Online auctions are also a brilliant way of being completely transparent, something that can be particularly appealing for charities reporting to a board of trustees. It enables the charity vendor to report that the property has been fully exposed to the market, it’s been marketed for a specific time period and the resulting competitive bidding is a true test of market price.
Finally, online auctions suit modern lifestyles, enabling buyers to bid online wherever they are. In the past when a property failed at an in-person auction, it would get flipped back into the private treaty market, putting vendors back to square one. Marketing properties by online auction can expose them to a pool of proceedable cash buyers, provide valuable statistics in relation to the level of interest in a property, and once the auction has ended, contracts are exchanged which gives certainty to the charity vendor.
