Modern Auctions

Buying a property at auction is no longer just for experienced investors looking for their next buy-to-let or renovation property. Auctions are becoming a much more common way of purchasing.

In recent years the modern form of auction is getting very popular with agents and auction houses.

So what is a modern auction compared to a traditional auction?

A modern auction is an auction that is conditional up until exchange of contracts and is different to the traditional method of auction where once the hammer falls, contracts are in effect exchanged and you are legally bound to complete.

Under the modern auction method at the end of the auction, the successful bidder must place a non-refundable reservation fee with the auction agents to reserve the property.

A modern auction creates an option to purchase rather than an outright purchase which secures the agent a much higher fee than the usual method. These fees will vary from agent to agent so it is always best to check with the specific agent as to what the fee will be. It is normally based on a percentage of the final sale price but subject to a minimum amount. This fee does not contribute towards the final sale price of the property and the usual 10% of the purchase price will still be required on exchange of contracts with the balance payable on completion.

Following the winning bid and payment of the reservation fee, the buyer is given a fixed number of days to exchange contracts (usually 28 days) then a further fixed amount of days to complete (again this can vary but is normally 28 days). Although there are still fixed timescales with modern auctions, this allows for longer periods of time to exchange and complete the transaction to accommodate the residential buyer and seller and in this sense, it is preferable to the traditional method of auction which typically allows for 20 working days to complete once the hammer falls. The modern method allows the buyer more time to arrange finances to complete the exchange and is important if the buyer requires a mortgage.

The reservation fee paid by the buyer is non-refundable and covers the agent’s fees. If the property falls through due to the seller, the reservation fee will be refunded to the buyer in full, however, if the sale falls through due to the buyer, this is non-refundable.

Modern auctions are becoming more popular because of the greater flexibility and the comfort of the seller knowing that the buyer is committed to the purchase and cannot just simply walk away from the transaction at a late stage like normal sale transactions, even if this comes at a higher price in the form of an agent fee payable by the buyer.

If you are interested in selling or buying a property using the modern auction process, then contact Charlotte Cope at Attwells on 01473 229200 or e-mail her at charlotte.cope@attwells.com to find out more.