What is modern method of auction?

Modern method of auction is an online property sale process that combines elements of a traditional property auction with an estate agency sale.

How does modern method of auction work?

Properties will be marketed by an estate agency. They will usually be advertised online on property portals such as Rightmove and Zoopla, as well as on the estate agency’s website.

The estate agency will conduct any property viewings and liaise with potential buyers regarding any questions about the home.

If buyers are interested in making an offer on the property, they will be directed to the online modern method of auction website to place their bid.

The winning bidder will be required to pay a non-refundable reservation fee to secure exclusivity during the conveyancing process. This fee is payable on top of the agreed purchase price.

The successful bidder will usually have 28 days to exchange contracts and a further 28 days to complete the sale.

How does modern method of auction differ from a normal open market sale?

There are several differences between a modern auction sale and a normal open market sale via an estate agent.

The buyer pays the fees

In a normal property sale, the homeowner will pay the estate agent a percentage of the final property sale price (usually 1-2%).

With a modern auction, the homeowner may be required to pay an auction listing fee of up to £1,000, but the biggest financial burden will fall to the buyer.

The cost of modern method of auction

The buyer will be required to pay a non-refundable reservation fee. This is usually around 4% of the purchase price (many companies have a minimum fee of £6,000). This is much higher than the fees usually associated with selling a property. It is also non-refundable if you’re unable to complete the sale in the 56 days outlines in the auction agreement.

When to get a property survey when using modern auction

The bid you make is binding and cannot be renegotiated if a property survey highlights areas of concern. To address this, most companies will advise interested buyers to have a property survey carried out before bidding. However, this is a significant financial outlay for the prospective buyer when they don’t know whether their bid will be successful.

In a normal property sale via an estate agent, a property survey will be carried out after your offer has been accepted. It’s commonly understood in a traditional property sale that your offer is subject to survey, and it’s not unusual for buyers to renegotiate the purchase price if the survey brings up anything unexpected.

Modern method of auction vs traditional property auction – what’s the difference?

Modern auctions and traditional property auctions are quite different.

With a traditional property auction, the seller will pay to list the property. At the drop of the hammer, the winning bid becomes legally binding, and a 10% deposit is payable immediately. The sale must complete within 28 days and the balance is payable upon completion.

With modern auction, the successful bidder is required to pay a large non-refundable reservation fee. The sale is not legally binding at this point. The modern auction guidelines suggest exchange of contracts should take place within 28 days, with legal completion 28 days later. The sale becomes legally binding at the point of exchange of contracts.

Traditional auctions usually attract cash buyers due to their tight timescales. Modern auction companies suggest their 56-day timeline makes them suitable for buyers that require a mortgage, although they do suggest that the mortgage would need to be arranged before the auction ends in order to meet the deadlines.

What is a modern method of auction guide price?

If your property is listed via modern method of auction, it will be listed with a guide price. This price is to give interested buyers an idea of how much you and the auction company are expecting the property to sell for. It will be set at an attractive level to entice buyers to bid.

What is a reserve price – modern method of auction?

A reserve price is the price you are not willing to sell below. If any bids are received above the reserve price, a sale will progress.

If you do not receive any offers above the reserve price, you will usually have the option to extend the auction. Alternatively, you can contact any parties that bid below the reserve to try to agree a sale with them.

How much are modern method of auction fees?

Most modern method of auction companies charge the seller some sort of listing or administration fee. This can be anything from £200 to £1,000.

How much are modern method of auction reservation fees?

The largest fee in a modern method of auction is the non-refundable reservation fee paid by the successful bidder. This is usually around 4% of the agreed purchase price and should be paid as soon as the auction ends. This non-refundable fee is payable on top of the agreed purchase price. It will also be included in your stamp duty liability. In addition to the reservation fee, you will be required to pay a 10% deposit on exchange of contracts.

Modern method of auction pros and cons

Modern method of auction has become more common in the last few years, but it has received significant criticism.

Benefits of modern auction

1. Potential for a quicker sale

In theory, a modern auction sale should complete 56 days after the auction ends. We have heard mixed feedback about how often it actually completes this quickly, but there is certainly the potential for a fast sale if all goes smoothly.

2. Buyer has made a financial commitment so less likely to fall through

Modern auction companies suggest they have better success rates than open market sales in terms of the number of sales that fall through before completion. Buyers are required to pay a significant, non-refundable reservation fee after a successful bid. This financial commitment means they have more to lose if they pull out of the sale.

Criticisms of modern auction

Critics have identified a number of modern method of auction problems.

1. Unfair financial burden on buyers reduces demand

Modern auction companies suggest that buyers will be fighting it out to bid on your property, yet critics point out that the high non-refundable reservation fees put a lot of potential buyers off. This reduces the homeowner’s target market. The consequence of having a smaller target market is likely to be fewer bids (some properties receive no bids at all) and therefore a lower sale price.

It’s also important to remember that the reservation fee is taken into account when assessing the stamp duty due. This means you’re required to pay tax on the reservation fee as well as the agreed purchase price.

2. Limited success

We couldn’t find any official figures but looking at feedback from property owners who have been through the modern method of auction process it would seem there is limited success. Although there are success stories, there also seems to be a lot of owners who report that they received few or no bids. Having had their properties advertised with an enticing guide price, they then struggled to secure market value when subsequently trying to sell their property on the open market.

3. Uncertain timescales

Modern auction sales are advertised as completing within 56 days of the end of the auction. Critics point out this isn’t always the case.

Looking at modern method of auction reviews, we found several that said the sale took more than 6 months to complete. That’s longer than it usually takes on the open market!

4. Buyers getting burnt

With modern method of auction, it seems the onus is very much on the buyer. It is the buyer that is required to pay a large, up-front reservation fee.

We’ve seen feedback from several buyers that have reported losing their non-refundable reservation fees when something unexpected has come up. One buyer said they lost their fee when they found subsidence in the property and couldn’t continue with the purchase. Another said they lost their reservation fee when it transpired the owner didn’t have the necessary paperwork.

There may also be an issue with mortgages. Modern method of auction companies suggest the timescales allow for those buyers who require a mortgage. 28 days is a very short timescale to get a mortgage in place, however. If you need a mortgage, you would need to line up your mortgage finance before bidding on the property. This will incur costs in mortgage arrangement and valuation fees. You’ll be required to pay these costs with no guarantee that your bid will be successful.

Is modern method of auction good for buyers?

Modern auction does seem to be weighted in favour of the seller. Buyers are required to pay a very high reservation fee which is non-refundable if the sale does not go through.

It’s also worth noting that the seller is allowed to bid against you to try to increase the purchase price.

IAmSold is one of the biggest modern auction companies. In their terms and conditions they state:

“Where there is a reserve price the seller may bid (or ask us or another agent to bid on the seller’s behalf) up to the reserve price but may not make a bid equal to or exceeding the reserve price. You accept that it is possible that all bids up to the reserve price are bids made by or on behalf of the seller.”

This feels a little underhanded and disingenuous. It could give the impression that there is significantly more interest in the property than there really is, and result in you making a higher bid than you would otherwise.

Is modern method of auction good for sellers?

Modern auction is promoted as being good for sellers because it eliminates estate agency fees. The auction companies also suggest that lots of buyers will battle it out to bid for your property, pushing the sale price up to impressive levels. Unfortunately, homeowner feedback on the process doesn’t seem to support that claim.

Buyers are wise to the high reservation fees, and it seems this either puts them off bidding completely, or they consider the fees and the risk element of a large financial commitment and you end up achieving significantly less than market value.

Modern method of auction moneysavingexpert

Modern auction has featured in a number of posts on Martin Lewis’ moneysavingexpert website. Few of the posts have anything positive to say about the process.

What are the alternatives to modern auction?

If you’re looking for a fast sale, a genuine cash homebuying company will be quicker and more secure than a modern auction sale. You’re also likely to achieve a similar level of price (around 85% of market value). A genuine cash homebuying company will be able to provide you with a guaranteed property sale on a date of your choice. They can also buy in as little as a week if required. With a modern auction, there is no guarantee that you will receive any bids, or that any bids you do receive will meet your reserve price.

If you’re unable to accept an offer of 85% of market value, modern auction, traditional property auction and homebuying companies are all likely to be unsuitable options for you. In this instance, your best option is likely to be to stick to a traditional open market sale with a high street estate agent.

If you would like a free, no-obligation cash offer for a quick and guaranteed sale, call our team on 0800 068 3366.

What is modern method of auction?