Property Sellers Grow Increasingly Desperate

Some homeowners are now going to extreme lengths in order to sell their properties.

Desperate property sellers suffered a blow this week after The Gambling Commission warned that offering up a property as a prize in a competition could be deemed illegal.

Already, the sellers of a £1m fantasy home in Devon have had to delay the draw of the winning ticket they had planned for this month.

The Commission claims there has recently been an increase in the popularity of such schemes, which enable homeowners to realise the value of their home through ticket sales, and then give the property away as a prize.

Last month, in Get A £1m Home For £25, I identified one such competition, WinTheCheltenhamHouse.com, which offers you the chance to win an ultra-modern, eco-friendly Cheltenham property featured in Channel Four show, 'Grand Designs'. All you need to do to enter is answer a question about who won the Cheltenham Gold Cup and then shell out for a £25 ticket.

I checked, and guess what? Google will give you the answer to that question in, oh, about 0.2 seconds.

The competition states that 46,000 tickets must be sold before the prize is awarded - so this gives you a 1 in 46,000 chance that you will win the property. If 46,000 tickets aren't sold, the money taken in tickets is awarded to the winner instead - minus up to 35% for the costs incurred by the property sellers by third parties. (This includes a 10% contribution to charity.) 

So, better odds than the National Lottery, but still not great, let's face it. In fact, according to Fool reader Dinocras, they are the same odds as throwing six sixes in a row with six six-sided dice. A bit of a gamble, in other words.

Only you can decide whether you fancy your chances.

But it's not the odds that have got the Gambling Commission up in arms. The problem lies in the distinction between a lottery and a competition. The Commission states that lotteries are the preserve of good causes (and so cannot be operated for private gain), and a competition must show an element of skill, judgment or knowledge for it to be a competition.

Is a question that can be answered with a quick copy and paste into Google a good test of skill? The lawyers of the Devon competition argue it is, claiming that carrying out basic research over the internet to answer the question is in line with current legislation. At the time of writing, there was no firm ruling by the Commission and both competitions appear to be still going ahead.

So is it risky to enter? Both the owners of the Cheltenham house and the Devon mansion (whose competition is now closed) have said they will refund all tickets in full if the draw does not go ahead. The competition rules may have to change to suit the Gambling Commission, however.

What if you're s a seller? Should you consider going down the competition route? Only if you've got the time, money and energy to run a nationwide PR campaign, as the Cheltenham house owners are doing - and you have a fantasy £1m home to boot. Otherwise, how will you attract thousands of people to buy a ticket?

Auction it off

Another innovative method of selling property that has sprung up recently involves using a special type of online auction to sell the property.

Humraz.com is a classic example of this. There's no risk involved for the seller because, like the competition, a set number of tickets to take part in the auction have to be sold at a set price (say £100) before the auction can begin. So the seller of a £100,000 property receives the asking price by selling 1,000 tickets. Then, however low the successful bid is, it doesn't matter to the seller.

There's an extra twist too, just to make it interesting. The bidders vie to make the lowest unique bid. So, for example, I could bid a penny. If this is the lowest bid, but someone else has bid this much, then I won't get the property. But if it's the lowest bid, and no one else has bid a penny, then I will be successful. You get several hundred chances to bid for the price of your ticket. You must pay the price you bid, on top of the ticket price.

There are three properties up for auction at the moment: a five-bed detached home in Essex apparently worth £515,000, a three-bed semi in Northern Ireland which claims to be worth £190,000, and a four-bed detached home in Leek priced at £300,000.

How much does it cost? Like an estate agent, Humraz will take a 1.5% to 1.7% cut of the sum total of tickets sold. If the auction fails to take place, no charge will be applied.

Like the competitions, the problem for sellers lies in selling the correct number of tickets. Buyers are likely to be more willing to take a £25 punt on a £1m fantasy home than a £73 punt on a £300,000 home, in my opinion. And again, unless you are prepared to run a massive PR campaign like the Cheltenham and Devon competitions in order get some publicity for the sale, attracting enough buyers to begin the auction is likely to be extremely difficult.

This may partly explain why no auctions have taken place as yet.

What about buyers? Again, it's a gamble at terrible odds (one in 7,500, for example). The good news is that you can reserve a ticket in the auction without paying, as payment will only be taken once the auction starts. Just be aware it may all come to nothing. The auction will only start when the correct number of tickets have been sold - and there is no way of finding out how many tickets have been sold so far.

So what's the answer?

In my opinion, sellers who go down these competition/auction routes are being unrealistic. I can't help but admire their innovative attempts to outwit the market and it doesn't surprise me to see such schemes are springing up - but at the end of the day, I think most sellers who resort to these extreme lengths will ultimately be unsuccessful.

While some, like the Cheltenham house, may succeed because they're the first to catch the attention of the media, most sellers simply need to face up to reality -- and drop the price.

More: Get A £1m Home For £25 | Desperate Sellers Take Desperate Measures