Why Selling your House by Raffle Could be a Bad Idea
There are currently a number of home sellers who are attempting to offload their property by offering it as a raffle prize. It may seem like a strange alternative to selling your house via the usual route but whats really going on? Can you actually win a house for what seems like a relatively cheap entry cost?
A lot of answers can be found in the small print. In order to win the house enough tickets need to be sold that equate to the value of the home. This will often mean that hundreds of thousands of raffle tickets will need to be sold before the house can actually be won. More often than not the amount of ticket sales received doesn’t meet the market value of the home plus administration and advertising costs and the prize will convert to an alternative prize of a lump cash sum that’s worth far less than the value of the original house being offered. The actual cash sum seems to be the total amount of funds raised minus costs. The gambling commission make sure that the home owner can’t profit from this so many sellers have found that it’s a lot of hassle for no gain and are still being left in a position where they are back to square one ans still have to sell their property.
It Could Be a Lot of Work for the Home Seller
It seems like this method of sale could be a lot of work with realistically little chance of success. The homeowner will have to take on a lot of responsibility and do a lot of leg work, almost like a full time job just to sell your house via this method, responsibilities will include:
- Paying upfront Solicitors costs
- Setting up an Escrow account to hold funds
- Manage and organise a Social Media campaign
- Respond to complaints and queries
The Property will need to be Removed from the Open Market
Stating the obvious the home owner will have to remove their property from being advertised on the open market in order to legitimately offer their house as the actual competition prize. This will mean that the seller could miss out on the opportunity to sell their house through a far easier traditional sale.
Would the Winner have to Pay Stamp Duty?
It seems that the competitions have been structured in a way so that the cost of Stamp Duty is factored into the overall prize. i.e win a house and have the Stamp Duty paid. This of course helps to make the prize even more desirable and also seems sensible as it will prevent the problem of the winner having to find tens if not thousands of pounds to actually receive the keys to the house. Regardless, in the current climate there is no need to pay stamp duty on property’s up to £500,000 in London and £300,000 for the rest of the country due to the recent rule change.
Selling your House this Way isn’t Necessarily a Quick Process
The competition will need to run for a certain period of time so that an adequate amount of raffle tickets can be sold to at least achieve the market value of the home. Typically a competition like this is structured to run for 6 months and they all seem to have an option to extend this time period often by a further 6 months. Obviously this isn’t a great method for home sellers with time constraints and other options should be considered if you need to achieve a quick sale.
There is a Risk that the Seller Could Lose Money
There is a risk that the seller will lose money that they have initially invested in advertising, promotion and legal costs if not enough raffle tickets are sold. It seems that these costs are factored into the overall amount of ticket sales that need to be sold in order to trigger the house as being the actually prize that competition participants will receive. For example a property called Dancers Hill House that is currently being offered is worth around £5 million but the overall amount that needs to be raised is over £8m and this is probably because the owners have factored in £3m for marketing and administration costs! The problem that could arise for anyone wishing to sell their property in this way is you can invest lots of money in advertising but may not achieve enough ticket sales to cover your advertising and administration costs, the seller would also need to pay all these costs upfront, there is a risk that the money pot could run out at a time before enough money is raised.
Take for example Donna Pirie she had the ambitious plan to sell her £1.7m mansion, unfortunately she only managed to raise £250,000 and the competition rules defaulted to the winner receiving a cash price. Ultimately she didn’t manage to sell her house through this method and ended up incurring costs of £31,500.
At least with the other routes such as selling via an estate agent or through an Online House Buyer these costs are covered by the third party without the home seller having to find and risk their own funds.
How is this Method of Selling your House Actually Legal?
It appears that that home owners who are offering their house as a competition prize need to jump through a few hoops in order to stay on the right side of the law. Interestingly all competitions seem to also require the entry participant to also answer a question as well as providing their entry fee. This is so that competition demonstrates an element of skill and therefore doesn’t fall into the category of Gambling. Sellers are also required to offer a free method of entry via post or online. Obviously as a someone who simply wishes to sell their house you would be taking on a real responsibility to not be breaking the law and it’s reported that the Gambling Commission have previously shut down over 100 competitions who have operated in a dishonest way. In particular you are not allowed to make further profit above the market value of your home. Advice upon this specific matter on how to legally operate your own house sale raffle can be found at the Gambling Commission’s page that discusses this here.
ASA Step In on Recent Competition that was Unfair
The Advertising Standards Authority have stepped in on a recent competition which offered a 2.5m Castle but instead the winner received a prize of a comparatively small £65,000. As usual the rules state that if there are not enough tickets sold a cash prize of 75% of ticket sales will be offered as the final prize. The story reported by The Daily Mail says that the organisers running the competition haven’t made the total amount raised public. ASA has said that the prize won was not fair in comparison to the prize offered and the Gambling Commission is stepping in to investigate.
Does Selling your House by Raffle Actually Work?
The chances are slim, out of hundreds of house raffles that have been established it appears that only a couple of these schemes have successfully worked. The success story of Dunstan Low seems to the most reported. He managed to sell £500,000 tickets at £2 each and managed to achieve the market value for his home and therefore successfully managed to offload his property. At the same time he says that it was a lot of work, stress and responsibility and if he had the chance to do it again he wouldn’t choose this method of sale.
Get your Quote Today?