The modern method of auction is an online process that has simplified property auctions. The system makes auctions more accessible to a wider range of buyers, while delivering a reassuring level of certainty for the seller.
1. Why sell your property at auction?
Selling your home via an estate agent can be a long and drawn-out process. It also involves a great deal of uncertainty. Even after agreeing a sale, buyers are able to change their mind or drop their offer at any time. If you want to avoid this, then using an auction can be a quick and convenient way to sell your home.
Selling at auction will not work as fast as selling to a home buying service, and may not achieve as high a price as you may get selling through an estate agent. However, it will usually achieve a good balance between the two, delivering a reasonably quick sale closer to the market value of your home. Properties sold at auction usually achieve around 90% of their market value.
2. What is the Modern Method of Auction?
The modern method of auction is an online version of the traditional property auction. It has longer timescales, allowing for mortgage buyers as well as cash buyers.
Properties are actively marketed ahead of, and during, the auction. Buyers can bid online any time, just like eBay, with the highest bid at the end of the auction winning.
With the modern method, the auction takes place online over a period of 30 days or longer. Properties are listed on the leading portals, such as Zoopla and Rightmove. They’re also sometimes actively marketed by estate agents too.
In these online auctions, bids can be placed without any of the stress of attending a live auction. Prospective buyers have much longer to make a considered decision and place their bid too. Just like eBay, you can bid incrementally, or place a maximum bid and allow the system to bid on your behalf up to this figure. The longer auction time usually increases the sale price.
Modern auctions are more accessible to the general public that traditional auctions. Instead of facing an intimidating auction alone, prospective buyers will have support and advice. This will usually be from their estate agency, or from the auction representative they’re dealing with over the phone.
They can bid online anytime at their convenience too. For buyers, this lifts much of the stigma attached to traditional property auctions. In turn, this helps attract higher quality properties.
Most importantly, buyers at a modern auction can opt to have twice as long to complete their purchase. Having 56 days to complete instead of only 28 days allows them to time to arrange a mortgage if necessary. This opens the bidding up to non-cash buyers, significantly increasing the number of bidders.
3. How does the modern method of auction work?
With the modern method of auction, winning bidders pay a reservation fee of around 5% at the end of the auction. They then have 28 days to exchange contracts on the property, and a further 28 days to complete. The 5% reservation fee is on top of the purchase price, and is liable to Stamp Duty.
If the sale does not complete due to a fault or a change of heart from the vendor, then the reservation fee is refunded to the purchaser.
However, the purchaser will lose their reservation if they’re the one who decides to pull out of the purchase.
This modern auction process is different from a traditional auction. In the traditional auction, winning bidders must exchange contracts on the day and pay a 10% deposit. They then have 28 days in which to complete.
Key points:
- Prospective buyers take part in a competitive bidding process, and can bid online or over the phone
- The highest bid before the auction deadline wins
- Buyer is committed to purchase the property
- A non-refundable reservation fee (around 5%) is paid
- Exchange of contracts within 28 days and 10% deposit paid
- If you do not exchange contracts, the reservation fee is lost
- Completion must take place within a further 28 days
- If no completion, buyer loses reservation fee and deposit