Last month we sold a property for a client who was over the moon with the result. However, this article is about the common misconceptions that people have when considering an auction sale and common pitfalls of going with a single potential buyer.

The property in question was an income generating HMO in Barnsley producing just over £51,000pa in gross income. The client converted this property, which was commercial at the time, in 2017 into 2x HMOs: a 6x bed and a 4-bed by utilising permitted development. Converting this into a 10-bed would require many more consents and require more time.

What’s interesting is how this client approached the idea of selling this asset at auction. The property was cash flowing great until the Valuation Office Agency decided to impose individual room banding on many HMOs around the country including Barnsley. The council tax increased from approx.. £2,200pa to about £12,000pa! After a single occupancy discount on each room of 25% this would come down to c. £9,000pa, but that’s still a huge increase.

The recent news about an introduction of a bill scrapping individual room banding has brought some hope that this practice will end and that the net income on this property will increase significantly.

But that’s a side matter. The client decided to sell the property for personal reasons and he already had an offer from an investor introduced by his local managing agent at £240,000. The client was tempted but he came to us as we knew each other from about 6 years ago. He wanted to check if offering the property in the auction would make much sense.