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★The Modern Method of Property Auction Explained
Posted on: 30th June 2021 | Filled under: How to Sell a House
Written by: Mark King
What is the Modern Method of Property Auction?
The Modern Method of Property Auction has been a very popular topic of interest in the property market over the past few months, but for all the wrong reasons. After being asked many questions on this subject, I have decided that a blog post could be useful, to understand what this type of service involves, whom it benefits, and the many disadvantages.
What does the Modern Method of Property Auction Involve?
Essentially it is an estate agency sale that’s dressed up as a property auction. The process also comes with undisclosed costs and fees, which I will get into a little further along.
Many sellers enter into this type of transaction with no or very little knowledge of what to expect.
The Modern Method of Property Auction is considered a very lengthy and complicated process. Common delays can result in wasting time and money.
Why Does Selling a Property at Auction Take So Long?
Typically, months can go buy before a buyer can register interest in the property, and this does not include the mandatory 4-6 weeks of “exclusivity” before contracts can be exchanged. This means that from start to finish, you are looking at a timeframe of around 4-6 months.
As the Modern Method of Property Auction takes so long for buyers to register an interest in a property, it provides the opportunity for them to look and potentially find an alternative property elsewhere.
Costs Involved When Selling your House at Property Auction
This is where it becomes an even bigger concern, and the main area where people are feeling mislead, the lack of communication and transparency regarding the financials means that costs mount up with no prior warning, putting both buyer and seller at a huge disadvantage
Typically as soon as the original bid is accepted by the vendor, the buyer is required to pay a non-refundable reservation fee” of 3.5% + VAT, subject to a minimum of £3,000 + VAT. Fees are usually payable by the vendor once the sale is completed and, depending on the estate agent, will usually be between 1% and 2.5% of the purchase price.
There are also fees including a Solicitors Pack that will need preparing, an EPC and anything else they seem to feel like adding in, whether buyer and seller know about it or not.
No Binding Contract Despite Successful Bid at Property Auction
Once the non-refundable reservation fee is paid, it simply means that the interest is recorded, but there is no binding contract to legally enforce the sale. The lack of clarity means that it is unlikely that the sale will reach completion without added costs and complications.
Modern Method of Property Auction Means More Bad News for Landlords & Developers
It’s widely assumed, that the majority of auction buyers are Landlords and Property Developers, it’s also recognised that the buyer fees and premiums are extremely high, often totalling over £5000, this even applies to more moderately priced properties and a result, the bidding rates decline.
Property Auctions are NOT Appropriate for the Majority of House Sellers
Family homes that are in a good condition, properties that generate low rental yields, and lease hold flats, all prove to be very unpopular at auction, meaning that this type of service is not appropriate for the vast majority.
Property Auctions Can Be Incredibly Inconvenient
As many of the auctioneers are international, it results in them being harder to contact or meet in person, and this prevents them from providing the time and attention one would expect. Often, being in a different country can mean a difference in business hours which can also present challenges.
Modern Method of Property Auction Carries Clear Conflicts of Interest
When you enter into a property transaction, you trust that the Estate Agent will have your best interests at heart, and will guide you through the process with honest and expert advice, but this is strongly contested. Estate Agents proactively encourage clients to engage in this method of sale because it is financially beneficial to them and not because it is right for the client. This is because the commission earned is significantly higher than that of a typical open market sale
Property Ombudsman Declares a Lack of Transparency Modern Method of Property Auction
The Property Ombudsman has also expressed great concern for the “ lack of transparency” surrounding the Modern Method of Auction, this will set alarm bells ringing and raise further questions.
Do Seller’s Benefit from The Modern Method of Property Auction?
The unfortunate reality is, only two parties benefit from this kind of transaction and that is the Estate Agent and the Auction House, this is because the commission made is split equally between them.
Our Conclusion on Modern Method of Property Auctions
Put simply, there is nothing “modern” about this method of sale, if anything, it is a huge step back. Combined with other factors, I am reluctant to think that this method of auction would be the most efficient route for the vast majority.
Remember, if you are located in South Wales, and you wish to save time, skip the hassle and save money, I am more than happy to make you a fair, cash offer for your property, regardless of condition or circumstances.
If you’re unsure of what to look for, or the essential checks we recommend when choosing a Property Cash Buyer, I have a video that can help on my YouTube Channel.
