After years of unprecedented growth, experts agree that the UK housing market has slowed down in recent months. On the back of this, a number of win a house competitions have emerged online, with some notable successes in terms of selling tickets to the public.

If organised carefully, running a prize competition to give away a property can provide an innovative alternative to selling it in the traditional way. While demand for buying property outright has dropped in many countries due to falling valuations, lower mortgage approval rates and general concerns over the state of the economy, prize competitions are not necessarily affected by these factors in the same way.

As recent examples have shown, in this environment they can appeal to property sellers and players alike. It is interesting to consider why we have seen the emergence of these types of competitions, raffles and sweepstakes, and how much it costs to successfully run one versus selling a property in the conventional way.

The traditional way: Selling your home

Most people will already be familiar with the process and costs involved in selling a UK property. Although most of these costs can vary depending on the service provider and the value of the property, we have made certain reasonable assumptions.

Estate agency fees:
These typically range between 1% and 4% of the value of the sale, plus VAT. We have assumed a standard fee of 2% plus VAT, or £11,500 in total.

Conveyancing fees:
Some lawyers charge a fixed fee for the work involved, whereas others determine their fee based on the value of the property. We have assumed a fee of £600 plus VAT.

Home Information Pack (HIP):
Sellers in the UK are now required to produce a HIP for their property. Costs may vary depending on who produces it for the seller. We have provisioned £300 plus VAT.

Other costs:
Inevitably, a number of additional costs can present themselves to the seller, such as promoting the sale online, or preparing the property for sale. We have set aside £150 plus VAT to cover miscellaneous expenses.

Profit earned:
Assuming VAT at 15%, these costs add up to just under £12,708 in total. Assuming the sale goes through successfully with an agreed price of £500,000 within the expected timeframe, this would lead the seller to make a profit of just under £487,293.

Organising a win a property prize competition

For our hypothetical competition, we have fixed the price of each ticket at £20. In order to cover the costs below, we have set the number of tickets for sale at 28,750, generating a turnover of £575,000. This corresponds to selling 15% more tickets than would be required to raise £500,000 exactly to pay for the home (excluding any expenses).

This is similar to the ratio of tickets sold by Brian and Wendy Wilshaw versus the value of their property, Oldborough Retreat. Each ticket for their competition cost £25, for a chance of winning a property worth £1 million. A total of 46,000 tickets were sold, which represents 15% more tickets than would have been needed to raise £1 million exactly (i.e. 40,000 tickets).

In order to set up your own win a house competition, a number of extra costs need to be factored in by the promoter. While estate agency fees can be avoided altogether, it is still necessary to cover conveyancing fees and produce the HIP. We will look at the expenses that are directly related to setting up, running and promoting the competition itself.

Conveyancing fees:
We have assumed the same fee as above, i.e. £600 plus VAT.

House Information Pack (HIP):
We provision once again £300 plus VAT.

Other costs:
We have set aside £150 plus VAT to cover miscellaneous expenses associated with setting up and managing the competition, including paying for independent third parties to help pick a winner.

Property survey:
As no mortgage is required for the competition winner, there appears to be no need to carry out any lender’s valuation. However, a homebuyer’s report, or more comprehensive building/structural survey, is usually required whenever buying a property. This should be paid for by the promoter of the competition to ensure the winner has full knowledge of the property they ultimately take possession of. We have assumed £1,000 plus VAT for a structural survey.

Buyer’s legal costs:
In addition to the survey, buyers usually have to consider their own legal fees, a searching fee and land registration. We set aside an amount of £730 plus VAT to cover these costs – once again on behalf of the winner of the property.

Stamp duty:
As part of the top prize, most competition promoters also offer to pay for stamp duty on behalf of the winner. Although this is not compulsory, it is reasonable to expect that few players would have the funds available to pay this amount should they win the competition. As such, there is a risk that some players might not enter if this has not been taken into account. As stamp duty is only required once the property is actually handed over the winner, it can be financed by the proceeds of the competition itself. Stamp duty in the UK is set at 4% for a £500,000 home, or £20,000.

Website:
The vast majority of win a house competitions are run online. This helps increase visibility, ensure players have an easy way of accessing the information and entering the competition, and generally communicate effectively how the competition is progressing. Depending on the functionality and design and the type of competition platform (quiz, crossword, Spot the Ball competition…), the cost of setting up and hosting a website for a few months can vary significantly. Apart from investing in marketing/PR, designing a website that is already optimised for search engines can help achieve good visibility online in a short amount of time. We have assumed that a relatively simple site with search engine marketing in mind would cost at least £3,000 plus VAT.

Marketing/PR:
This cost element can be harder to assess, as the budget required can vary a lot depending on the scale of the marketing campaign, the number of tickets for sale and the PR company used (if any). Given our prize competition will be run via a website, we have assumed a budget of £5,000 plus VAT. We expect this would probably buy 2-4 months of services from a medium-sized PR company, both online and offline.

Transaction processing fees:
Having a website also provides the benefit of handling all competition entries and payments automatically. To do so securely and reliably, it is often simpler to use the services of an established payment provider such as PayPal or Google Checkout. The costs involved typically vary depending on the payment provider, the duration of the competition, the amounts involved and the number of transactions. PayPal’s fees for the amounts we are considering are 1.4% plus 20p per transaction, which amounts to £13,800 in total. This assumes that each ticket is bought in a separate transaction, over a period of 5 months.

Charitable donations:
A number of property prize competitions have been set up in association with designated charities. This can help make the competition more appealing to players, in the knowledge that a portion of each ticket will go towards a charity, providing an additional incentive to play. From the charities’ perspective, in the current environment this can provide a welcome source of funding. We have assumed 2.5% of the value of each ticket for this competition, which represents £14,375 in total.

Value Added Tax (VAT):

Depending on who is running the competition and where tickets are sold, 15% VAT may be added to the price of each ticket. Some organisers have set up a company for the purpose of running the competition, which may provide benefits from an administrative and tax perspective, depending on the types of costs incurred. However, if a property competition is run purely for personal gain, it may be possible to avoid charging VAT, thus reducing the price of each ticket by 15%. As we are considering the property competition is run for personal profit (as opposed to a competition run by a company), we have not assumed any VAT in our calculations.

Profit earned:
In total, the costs listed above equate to £60,572, or over 4.7 times more than for selling the property in the traditional way. At the same time, with the exception of setting up the website, any legal work required to ensure everything is in place, and part of the marketing/PR; most of these costs are incurred during the course of the competition itself. Just like stamp duty, in theory this means that they could be financed by using a portion of the proceeds generated from the ticket sales during the competition. For this reason, one would need to look at the number and price of tickets carefully in order to make sure that the costs are met accordingly.

Based on 28,750 tickets sold at £20 each, the profit from this competition would be £514,428. This represents £27,135 more (+5.6%) than the profit generated from selling the same property in the conventional manner. This comparison is provided in the graph below, based on the costs outlined so far.

Taking a flexible approach

Overall, it does appear that running a prize competition as an alternative way to sell a property can be viable from a financial perspective – if organised correctly. Of course, this is only true if the promoter succeeds in selling all the tickets as intended and does not encounter any legal hurdles along the way, as was the case for the Oldborough competition.

As we have mentioned before, we made a number of assumptions when evaluating these costs. These can vary significantly depending on what the promoter is trying to achieve and the scale of the competition.

At their discretion, they could choose to invest more into a more optimised website, a more visible PR campaign, or donate more to charity. There are also some costs we have not factored in, as these remain optional. For example, some promoters have offered to pay for council tax on behalf of the winner for the first year of residency in the property. The same idea could be extended to paying for all utilities.

From a marketing perspective, the organiser of a house competition could also set aside a portion of profits to be allocated to handing out free tickets to players, helping drive more attention towards the campaign. On the flipside, a lower number of tickets or a reduced ticket price could also be envisaged (including a ‘sale’ during the competition itself), helping make the prize competition more attractive for players.

One important assumption we have made relates to the valuation of the property. One must also consider carefully how property prices might evolve between the start and the end of the competition. Should the market bounce back, the promoter could in theory make a smaller expected profit, or even a loss compared to an outright sale. Likewise, if one expects the market to keep falling, a prize competition becomes a more appealing proposition.

Finally, one important element we have not focused on (apart from the duration of the competition versus the time taken to sell the property in today’s market) is time spent in preparing, researching and setting up the property prize competition. Unlike selling a property in the conventional way, most people will not be familiar with the intricacies of online marketing and organising prize competitions. In addition, there is much less information available to the public on this topic, which means it can take considerable time to fine tune to ensure it is a success.

As we have seen from recent examples, spending insufficient time researching the legal framework can also lead to having to cancel or postpone the competition. As nobody wants to be in a position of having to carry out refunds to players if the UK’s Gambling Commission deems the competition is a form of illegal lottery, preparation and due diligence are key. Likewise, finding a reliable designer and PR company can take time, with no guarantees that the final product will be of the appropriate quality. We have not factored this into our assessment of relative costs; however this remains an important aspect of running a successful win a house competition.

Beyond the numbers

Although a financial comparison is useful, it only paints part of the picture. In current market conditions, there are a number of other reasons that could help explain why property competitions, sweepstakes and raffles have recently become more appealing.

The most compelling reason seems to be that unlike a conventional property sale, running a win a house prize competition can help the seller realise their expected price for the property in a more reliable way, by targeting a different audience than traditional property buyers. With the right marketing, there is also a possibility that running the prize competition could be a faster option than trying to sell it directly at a similar price.

Although players in prize competitions will look at every detail, they take a more global view on the ticket price, the quality of the prize and the odds of winning than simply focusing on the property valuation. In fact, by structuring a competition appropriately to cover the running costs, in theory it is possible to be somewhat protected from a continued fall in property prices during the competition period.

As promoters typically fix the price and number of tickets from the outset, assuming the competition closes successfully, the expected turnover is not impacted by any fall in property prices. In fact, as we mentioned before, a fall in the implied valuation of the property at the start of the competition would actually equate to a higher profit for the seller (versus a conventional sale).

Of course, as the opposite is true, there is potentially an opportunity cost to consider. While property developers with more than one property can potentially sell some properties in addition to running a prize competition if the market bounces back, individual homeowners do not necessarily have this option. Once a prize competition has been officially launched and tickets have been sold, there are potential reputational and legal issues to consider should a promoter decide to cancel the competition to sell the property at a higher price.

By organising a win a house competition, other risks traditionally associated with selling your property in the conventional way can also be avoided altogether. In particular, one can avoid any potential broken chain, where a buyer is forced to back out of a sale because their own sale has fallen through. Likewise, one can avoid the risk of a buyer changing their mind or attempting to renegotiate the price late in the sales process.

As we have tried to demonstrate, running a successful prize competition involves factoring in a number of additional elements correctly. At the same time, it offers the promoter the additional benefits of not having to deal with estate agents, limiting the number of viewings of the property, and not having to give out the keys to third parties in the normal way. This can ensure the transition process for the seller is more pleasant overall.

Finally, although many people already donate to charity on a regular basis, running a prize competition provides a great platform for contributing to charities close to your heart. The momentum and enthusiasm generated by offering a highly attractive prize to players presents an interesting way of raising funds, without necessarily meaning this is hampering the promoter’s own profits generated from giving away the property.

Have you run a win a property competition? How did it work out for you? Please feel free share your experiences in the comments.

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Comments & Opinions

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Re: Costs of running a win a house competition vs. selling your property

Estate agency fees have definitely fallen over recent months. I saw one agency doing a half-price sale in January. Still, if you can attract enough attention to your competition, you might be able pull it off - as long as it's legal

Dave , 10 Feb 2009

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Re: Costs of running a win a house competition vs. selling your property

It's interesting, most players didn't mind having a go when the Devon property was launched. Now that they've faced legal issues, I've seen lots of people complaining about the 'admin costs' some of these competition organisers are charging (e.g. 35% for the Devon fishing comp).

Seems to me, if you think they're selling too many tickets, then you don't need to enter. There's enough choice out there for you to find another competition where you think the odds are fairer. Am I missing something?

chocolate sunday , 10 Feb 2009

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Re: Costs of running a win a house competition vs. selling your property

@ chocolate sunday, I kind of agree with you. It's true that some people have been saying some pretty nasty stuff on some forums. I don't think it's always called for. At the same time, it's up to the organisers to make sure their comp doesn't come across as a scheme designed to make them lots of money at the players' expense. As long as it's reasonable, people shoudn't mind and after all, the wilshaws sold 46K tickets so those people didn't mind did they?

alan sugar , 10 Feb 2009

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Re: Costs of running a win a house competition vs. selling your property

@ alan sugar

People often underestimate the costs involved in running a successful house competition, particularly when it comes to legal and marketing fees. The relationship between the costs incurred and tickets sold doesn't always follow, in that a bulk of expenses are generated upon setting up the competition.

Although some people have noted in forums that even if tickets don't sell out completely, T&Cs often indicate that a portion of proceeds will be used to cover administrative costs; this is not entirely surprising given the nature of some of these expenses.

As long as players understand the context of these costs, there is a better chance they will acknowledge that they are essential to the running of the competition itself.

Team Win House , 12 Feb 2009

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Re: Costs of running a win a house competition vs. selling your property

Hi there Win a House. I believe you need to include 15% VAT on top of the sales on tickets, even if it is for the sale of a house as it is calculated as the sale of a ticket. I don't see a VAT number published anywhere on your site.

Please clarify your status on VAT for the sale of tickets.

Stephan , 19 Feb 2009 | url

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Re: Costs of running a win a house competition vs. selling your property

@ Stephan

Hi Stephan, I should mention that while Win a House is an information resource on property competitions, we don't actually run any house prize competitions ourselves. I hope this explains why we don't currently publish any VAT number on this site.

We understand that the treatment of VAT may differ depending on whether you are running a competition as a company or for private gain. You're certainly right in highlighting this as an important issue to keep in mind if you want to run your own property competition.

As a point of reference, you may find the following link useful:
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&id=HMCE_CL_000278&propertyType=document#P78_6890
It points towards the Betting and Gaming section on the HMRC website.

Beyond this, I'm afraid we are not in a position to offer advice on VAT. However, we would welcome any further thoughts from people on this topic.

Team Win House , 19 Feb 2009

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Re: Costs of running a win a house competition vs. selling your property

Dear Win-House, my research shows that the difference is whether it is a game of skill or or chance is the distinguishing factor.

It appears that games of chance are the ones that the Gaming Comission takes issue with, and have stopped the various sites from running those competitions that did not meet the standards for a game of skill.

Hence sudoku, lots of questions of a hard nature, or spot the ball (when decided by a panel of judges, not when identifying where the ball was) are some of the ways used to be a game of skill.

Once that is established VAT is definitely payable. I had this confirmed by the VAT office. So any competitions not charging VAT will risk falling foul of the Inland Revenue - something to be very careful of....

This text was taken from the HMRC web site too:-

2.8 to the decision of a panel of judges is a game of skill. The supply of the right to play games of skill is standard-rated.

Simon , 19 Feb 2009

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Re: Costs of running a win a house competition vs. selling your property

@ Simon

Hi Simon, many thanks for these points. This is very helpful to clarify the VAT treatment for prize competitions, especially since you were able to address them directly with the VAT office.

Although I would reiterate that we don't feel qualified to offer any advice on VAT, we did pick up on a couple of other factors to consider when looking at VAT in the context of running a house competition.

Rather than attempting to provide a definitive answer on this question, we offer up these points as part of the general discussion. As a word of caution, this is purely based on a summary glance at the HMRC guidelines, without checking these points with the VAT office ourselves.

It seems to us that in some cases, people may not be required to register for VAT at all.

On the one hand, it may not be necessary to register for VAT if the value of the tickets you are selling is below the VAT registration threshold (currently set at £67,000). Admittedly, we expect this threshold to be breached in most cases given the valuation of the properties involved.

In addition, we understand it may not be compulsory to register for VAT if one is not considered to be "in business". It seems to that what defines being "in business" can depend on whether a house competition is run by a company, versus being run purely for private gain.

According to this section taken from the HMRC website; if the activity is not seen as a continuing activity; is viewed as a hobby; or carried out in a purely private capacity (such as selling personal belongings), this may not be considered as being "in business".

Should someone run a house competition to give away their own home (valued at more than £67,000) - with no intention of running any future competitions; are they still required to register for VAT? We're not sure, but we would welcome your thoughts on this question.

2.10 Applying for voluntary registration if you make taxable supplies

You may only register when you are in business. Generally business is seen as a continuing activity carried on with the intention of making supplies for a consideration. Non-business activities can include those carried on as a hobby or supplies made in a purely private capacity (for example the sale of personal belongings). The terms business and non-business are explained in greater detail in Notice 700 The VAT Guide.

Team Win House , 19 Feb 2009

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Re: Costs of running a win a house competition vs. selling your property

A good point about the value of the sales, but my opinion (and I did not qualify this point with the VAT office) would be that what you supply is an entry to a competition. I don't think that can be considered personal goods, regardless of the intention. The buyer has paid for an entry as per the terms and conditions, and you are running a competition, hence the supply is of a taxable nature. The only way to be 100% sure sure will be to check it with the VAT office.

Simon , 20 Feb 2009

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shopper

All of this talk about VAT can I take it that people are looking to claim back VAT on tickets bought

Eamon , 15 Apr 2009

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Re: shopper

@ Eamon,

Thanks for your comment. As a competition organiser, this is an important consideration to set the price of tickets and the number of tickets to be sold.

In order to achieve enough sales to afford to give away their property as intended and avoid any surprises along the way, competition organisers need to budget for all possible costs ahead of time.

In turn, this has a direct impact on the attractiveness of the competition in the eyes of potential players.

Team Win House , 15 Apr 2009

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number of tickets sold

I have a question and couldn´t find the answer here: what does a house owner do, if he can not sell enough tickets to cover the value of the house?. Let´s assume he needs to sell 25K tickets and sells only 10K - then what??

Martina Rathgens , 10 Jun 2009

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RE: number of tickets sold

@ riviera

I think it all depends what you have provided for in your terms and conditions, which constitute your contract with the player. From what we have seen in the UK, competition organisers will generally include a provision under which, part of the collected funds are paid out to the competition winner, with another part covering some of the expenses involved in running the competition.

Team Win House , 11 Jun 2009

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number of tickets sold

Thanks for your answer. I understand that from the sale of the tickets most of the costs for the competion are covered. So if I understood you right, if only a few tickest are sold and not the total amount, the wiinner does not win the house but get part of the collected funds from the ticket sale ?And that needs to be written in the rules ?

Martina Rathgens , 11 Jun 2009

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RE: number of tickets sold

@ riviera

The majority of win a house competitions are structured in this way in the UK. Should the number of tickets sold fall below the targeted amount by the end of the competition, a winner is still designated in the same way and handed a cash prize instead.

While players will understand that a portion of the prize fund needs to be allocated to cover administrative expenses, it is essential to clarify exactly what the winner will receive in this scenario in the terms and conditions.

While this helps protect the competition organiser in not having to potentially give away the property prize at a loss, it also ensures that players know exactly what to expect. You will find that many players will look for this information in the T&Cs before deciding whether to enter a house competition or not.

Team Win House , 11 Jun 2009

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thanks !

Thanks for explaning!

Martina Rathgens , 11 Jun 2009

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