How Does the Modern Method of Auction Work?
Estate agents are appointed by the vendor to arrange viewings in order to generate interest in the property and to encourage potential buyers to put down an offer. All interested buyers have to submit their offer online in the form of a ‘bid’. With the help of the auctioneer, the seller can set rules for the auction – this includes setting a reserve price, start date and duration of the auction. This is typically 30 days or more, but can be shorter if the vendor requires a quick sale.
When a successful bid is made, the buyer is required to pay a non-refundable ‘reservation fee’ on the day of the auction in order to secure the property – this can be up to 5% of the purchase price. This fee covers the auctioneer’s costs and it is not deducted from the overall purchase price of the property, it is added on top. This fee will also be included in the calculation of the stamp duty payable, so you will be paying stamp duty on a purchase price 5% higher than it actually is.
What are the advantages to the Modern Method of Auction?
- More time: With the modern method of auction, buyers have 56 days, rather than 28 given by a traditional auction, to complete the purchase.
- More flexible: As modern auctions are carried out online, they are far more flexible in terms of bidders not having to be in a specific place at a specific time to bid for the property.
Issues to consider before proceeding
- Reservation Fee: When you purchase a property through the modern method of auction, you are required to pay a reservation fee in order to secure the property – this could be up to 5% of the purchase price. This fee is not deducted from the purchase price and is non-refundable, even if you change your mind and pull out of the purchase before exchanging contracts. It will only be refundable if the sale cannot be completed due to a fault of the vendor’s.
On top of this already-hefty fee, it will also be included in the calculation of stamp duty payable which means that will increase too.
- The Buyer could still pull out: As a negative for sellers, due to buyers having 28 days to exchange contracts and only paying a fee on the day of the auction, buyers could still pull out of the purchase after the auction. Even though they will have a financial interest, they are under no legal obligations to complete the purchase.
