When selling a property, you are left with lots of different options. From estate agents to cash buyers to auctions, it seems that the possibilities are endless. This is without getting into the sub-genres of house sale auctions, such as traditional methods and modern methods.
But what exactly is the modern method of auction? How does it compare to the traditional method of selling? What is the modern method of auction process? What are the modern method of auction pros and cons? In this article, we will be answering all these questions and more.
Looking for a quick answer? Check out the drop-down menu below!
- What Is The Traditional Method Of Auction?
- What Is The Modern Method Of Auction?
- The Modern Method Of Auction Pros And Cons
- What Does Selling At A Home Auction Cost?
- How Does The Modern Method Of Auction Compare To The Traditional?
- How Does The Modern Method Of Auction Compare To Selling With Estate Agents?
- Properties Suitable For Modern Auction
- Is The Modern Method Of Auction Right For Me?
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What Is The Traditional Method Of Auction?
To fully understand how a modern method of auction works and the modern method of auction pros and cons, we must first understand how a traditional auction works.
A traditional property auction works with prospective buyers bidding on a property at the auction, the highest bid of the day wins and the buyer is then legally committed to purchasing the property. To make sure the buyer keeps this commitment a 10% deposit is required on the day and the buyer and seller exchange contracts on the same day.
The buyer and seller are given 28 days to complete the purchase and if completion does not happen then the deposit is lost and penalty fees may be applied.
What Is The Modern Method Of Auction?
Now we understand how the traditional method of auction functions, we can look at what the modern method of auction is and what it entails.
The modern method of auction is also known as an online auction, and is very similar to an estate agency sale, but with the control and transparency of an auction sale.
The modern method of auction allows for mortgage buyers as well as cash buyers as compared to the traditional auction it has much longer timescales.
Unlike the traditional method of auction, which takes place in an auction room, an online auction allows potential buyers to bid from the comfort of their homes without any of the added stress from the atmosphere of the auction house.
Properties are actively marketed ahead of the auction by estate agents and are listed on property portals such as Zoopla and Rightmove. Prospective buyers can bid online or over the phone. Winning bidders pay a reservation fee of around 5% at the end of the auction. This reservation fee is on top of the purchase price and is liable to stamp duty. After the reservation fee is paid, they have 28 days to exchange contracts, then a further 28 days to complete.
Should the sale not be completed due to a fault or change of heart from the vendor then the 5% reservation fee is refunded. However, if the purchaser is the one who decides to pull out of the sale, then they will lose the reservation fee.
The Modern Method Of Auction Pros And Cons
As with any way of selling, the modern method of auction has both advantages and disadvantages. Below are some of the modern method of auction pros and cons:
- High Chance Of Sale – Selling through a modern property auction means you have a higher chance of a sale. The best modern property auctions have a success rate of 85% of the properties they take on.
- Time – One of the main advantages of buying using an online auction is that potential buyers have more time to make a considered decision than they would in a traditional auction. Rather than having to be in a specific place on a specific day, potential buyers can make a bid at any point over the 30 days.
- Speed – Another advantage to selling using the modern method is that it is a quick sale. On average it can take around 2 to 3 weeks to get onboarded into the auction, most sellers have sold their property by the time the auction concludes 3-4 weeks later. From there, completion usually happens 28 days or 58 days after, depending on how the auction has been structured.
- More Certainty – Once you have a winning bidder, you have a legally binding sale. Because of the 5% of reservation fee, very few sales fall through.
- Entry Fee – One of the biggest disadvantages of selling through the modern method of auction is the ‘auction entry fee’. This fee can be costly and can be as high as £1000. It can also eat away at your final profits from the house sale.
- Difference In Price – The biggest disadvantage to selling through a modern auction is the compromise in price. On average you can expect to sell for around 85-95% of the full value of your home.
What Does Selling At A Home Auction Cost?
One of the cons of the modern method of auction pros and cons is that selling your home at a modern auction is not without cost. Selling your house at an online auction costs around the same as selling your property with an estate agent.
It is worth remembering that conveyancers may charge more for auction work as they will have to deal with a number of inquiries from numerous interested potential buyers rather than just dealing with a single buyer.
You may have to deal with the following extra fees:
Auction House Fees
Every auction house has different fees, many will charge the full amount to the buyer, some will only charge fees to the seller and occasionally they will charge hybrid fees.
If the auction house charges hybrid fees, the cost is spread between the buyer and the seller. In this case, the seller of the property will sometimes pay a significant entry fee to get their property into the auction system, and if the property fails to sell, they are left out of pocket.
To help any potential buyers make an informed decision, sellers are required to compile a legal pack for the property. This legal pack is similar to information that is gathered by potential home buyers during an open market house sale.
However, the information is compiled by the seller at the start of the process and at the seller’s expense.
Any auction pack that is compiled should contain the following:
- Floor Plans And Pictures
- Property Valuation Report – You should also include a guide and start price
- HM Land Registry Documents – You should include a property title, boundaries, and extent of the land
- Lease Details – Including length left on the lease and any information involving ground rent
- Terms And Conditions – This should include the buyer’s obligations and timescales
- Fixtures And Contents – Details what is and is not included
- RICS Survey
- EPC Certificate
Estate Agent Fees
Selling in conjunction with a local estate agent can be useful as they are a local point of contact and they can help with property photos as well as with helping out with descriptions. This can give your auction listing a professional look that can potentially attract more bidders.
The estate agent fees that you pay will either be charged directly to you or will be in the form of a share of the auctioneer’s fee.
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How Does The Modern Method Of Auction Compare To The Traditional?
Whilst both ways of selling are conducted in an auction house, the two methods of auction selling have some key differences:
|Selling With A Traditional Auction
|Selling In A Modern Auction
|With selling through a traditional auction there is the stigma of houses that are undesirable and un-mortgageable
|The properties that are available in a modern auction are more open and they carry a far wider range
|Traditional auctions tend to have a longer waiting list and only happen on set dates
|Modern auctions on the other hand can start immediately and with no waiting for the next one
|At a traditional auction, no support is given to first-time bidders who can find the process intimidating
|Online auctions come with a feeling of familiarity and have the additional support of experienced estate agents and auctioneers
|Traditional auctions tend to have fewer flexible buyers and so the reserve prices are lower
|An online auction on the other hand attracts more buyers with more options, so the reserve prices can be higher
|Number Of Bidders
|Traditional auctions usually only attract a limited number of local buyers
|As a modern auction takes place online, it can attract more national and even international buyers.
|The window of opportunity to bid only lasts a few minutes and only allows for a few bidders because of the length
|Modern auctions last for 30 days or in some cases longer so allows for many more bidders
|Mortgages can be difficult where traditional auctions are concerned as contracts must be exchanged on the day
|An online auction is far more forgiving on mortgages as 28 days are allowed for the exchanging of contracts giving time for mortgages to be applied for
For a seller, the biggest downside to an online auction is that winning bidders are not legally committed to the purchase in the same way because an unconditional exchange of contracts does not always happen on the same day.
How Does The Modern Method Of Marketing Compare To Selling With Estate Agents?
Compared to selling through an estate agent, there are a number of advantages to selling through an online auction:
|Selling With Estate Agents
|Selling In A Modern Auction
|Estate agents where, when, and how your property is advertised on the open market
|With a modern auction, you are in control
|Some estate agents may favour certain clients or properties over yours for a better commission
|An auction creates a far more equal playing field
|Finding A Buyer
|It can often take six months or more to find a buyer
|Through an auction, you can find a buyer within 30 days
|Sales can drag on indefinitely when selling through an estate agent
|Sales have a fixed completion date
|The seller is responsible for all the costs when selling through an estate agent
|When selling through a modern auction, the buyer will often cover the fee for selling
|An estate agent will stop marketing your home when an offer you deem acceptable is received
|An auction will continue to take offers until the auction period comes to an end
|Buyers can change their minds or reduce their offer at any time allowing the sale to fall through
|Buyers at an auction are committed to buying or else they lose the reservation fee
The biggest disadvantage that selling through an online auction compared to through an estate agent is that you will normally receive roughly 10% less for your property.
Properties Suitable For Modern Auction
As with any method of sale, online auctions are better suited for certain types of properties more than they are suited for others. The following properties are better suited for an online auction than others:
- Properties with neighbourhood problems and difficulties
- A property with redevelopment potential
- Properties with short leases
- Investment properties
- Properties with tenants in-situ
- Homes that need refurbishment
- Properties where traditional methods of selling may not be appropriate, such as if they have an adverse history or legal issues
- A property that will be difficult for buyers to gain a mortgage for
Is The Modern Method Of Auction Right For Me?
The modern method of auction pros and cons means that whilst it may be the way forward for some sellers, selling at auction may not be for everyone. The best way to decide if the modern method of auction is the right one for you is if you want to sell your property fast and for a better price than if you went through a cash buyer.
If you are in the property chain, it may not be the right step for you as it can be difficult to plan your auction sale around the sales of other properties within the chain.
This covers just about everything you need to know about the modern method of auction pros and cons. If you have any questions, queries, or any insight you would like to share with us, please feel free to get in touch!