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Written by Ruban Selvanayagam
Ruban Selvanayagam
Ruban Selvanayagam is a professional cash homebuyer, private rented sector landlord, auction specialist, blogger and media commentator.
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Edited by James Durr
James Durr
James Durr is a passionate property entrepreneur with a strong foundation and background in business.
Many are confused about how modern method auctioneers charge for their services.
Often different from how estate agents operate, it’s worth understanding the different pricing models used in our industry…
Modern Method of Auction Fee Structures
The fee structure will vary according to the auction house service:
Buyer Pays
Some auctioneers charge a “buyers” or “reservation” fee.
Although this may seem like an excellent deal for the seller, it’s the buyer that foots the bill.
If a property is priced incorrectly, there is a risk that buyers will steer clear of placing bids after looking at their net costs.
Buyers will also have to pay stamp duty on the net purchase price – i.e. the cost of the property plus the reservation fee. At anything between 4-5%, the extra expense may have an off-putting effect.
The modern auctioneer therefore needs to be cautious about not pushing things too much.
Seller Pays
Inherited from the traditional estate agency model, the vendor will pay the fee and buyers will only have to pay for the property itself, legal costs and stamp duty (based on the property price).
Most modern method property auctioneers avoid using this fee structure. The level of security is lower as there’s no financial commitment on the part of the buyer.
Buyer and Seller Pays
The buyer and seller pay individual fees. The buyer usually pays at the close of the auction and the seller pays upon completion.
At Property Solvers Auctions, we find this keeps things fair.
It’s our hope that this fee structure will be the predominant way of working for many modern auction houses moving forward.
Are Modern Method of Auction Fees Worth It for Sellers?
As a property seller, unless you use an auctioneer that only charges the buyer, you may have noticed that modern auctions charge slightly more than estate agents.
However, there are a number of reasons as to why paying a little more can make sense…
Solicitors Draft Legal Contracts and Undertake Conveyancing Work Before Selling
The security offered through a modern auction sale is backed by much of the legal work being completed prior to the auction.
More Work Required Compared to a Standard Estate Agency Sale (With Shorter Timeframes for Viewings, Handling Prospective Buyer Enquiries and Preparing for Auction)
The auctioneer often has to double down on the amount of work and liaise with conveyancers to ensure the timely delivery of the legal pack.
Modern Online Auctions Need a Responsive Sales Team to Manage the Sale Property
Auctioneers need to handle the sales process much more attentively. For example, buyer enquiries must be handled quickly – especially given the time-sensitive nature of this type of sale.
Potential Buyers Are Checked Prior to the Competitive Bidding Process
Every potential buyer must be fully vetted before the auction. This consists of identification, anti-money laundering (AML) and proof of fund checks. This is for security purposes and means that not just anyone can jump into the auction and bid.
Detailed Anti-Fraud Checks Before the Auction
Modern auctioneers have extra legal and financial responsibilities when it comes to running a secure online platform. For example, having cyber-security and anti-fraud software in place is a must. Ultimately, therefore, the seller is in a much more secure position
Marketing Modern Auction Properties Can Often Cost More
Subscriptions to portals to advertise properties are not cheap – particularly with services like Rightmove, Zoopla and Prime Location. The platforms that run modern auctions are often expensive to run.
With the auction bidding process being quite ‘hands-on’, the auction house will need to make sure there are no hiccups (and respond to any enquiries from both the buyer and seller).
Post-Sale Processes Are Fully Handled by the Auction House (Ranging from Taking the Deposit on Exchange Through to Completion)
At the end of the bidding, the modern auctioneer must draft a sales memorandum and circulate it amongst the conveyancers. They will also need to make sure that everything moves in the right direction to meet the correct (legally-binding) deadlines.
Are Modern Method of Auction Fees Worth It for Buyers?
Whilst many buyers express their annoyance with paying auction fees (plus the additional Stamp Duty liability), it is worth noting the following:
- Modern properties are often competitively priced
- Many of the properties we sell often have excellent capital growth prospects
- A significant proportion of the fee is tax-deductible
- Buyer fees charged by modern auctioneers are similar to what professional property sourcers charge
- In the grand scheme of things, our fees often pale into insignificance.
For more information please contact us 24/7. We’re always happy to help…