Modern Method of Auction Pros and Cons

Modern property auctions began to grow notably across the UK home sales market in the aftermath of the 2007-08 recession.

Continuing to divide opinion, in this article we’ll explore the main pro/con arguments of selling or buying a property in this way.

Modern Method of Auction Pros

Faster than a Private Treaty (Estate Agent) Sale

Modern auctions are a much easier way to sell and buy properties relative to using an estate agency.

Sellers using this channel can, for instance, immediately list rather than having to wait for the next available slot with a traditional auction house.

Indeed, it’s common to hear of vendors waiting for 2 to 3 months before the “in the room” auction event (followed by another 28-56 days for the sale to complete).

What’s more, it’s entirely possible to open a property up to pre-auction offers.  This means that sellers can secure a serious buyer and complete the sale much quicker.

Indeed, we’ve often worked with modern auction buyers who are keen and able to get the sale complete before the set deadlines.

Flexible and Convenient

As the seller, you can decide when to market the property and when the auction should close.

With set times for exchange and completion, both buyers and sellers know the exact move dates.

More Buyers…

Suitable for sellers with no onward chain, Modern Method of Auction (or MMoA) widens the ‘pool’ of potential buyers.

With the extra 28 days, they can organise mortgage finance and avoid taking on expensive short-term loans (such as auction funding or bridging).

Indeed, with the traditional auction model, 28 days isn’t enough time for most buyers to exchange and complete (hence the lower prices).

Sellers can also attract both domestic and international buyers in a way that’s not possible with traditional auctions.

More Security

Once the online hammer has fallen, the chances of the sale falling apart are very slim.

Buyers are under pressure to perform and have little opportunity to play games or delay things.  If they do, there’s a risk that they will lose both the reservation fee and, quite possibly, the deposit paid at exchange.

No Compromising on Price

With more time given to buyers to complete the sale, the chances of getting the full market value of the property are higher.

Here at Property Solvers Auctions, we generally achieve between 90 and 100% for our clients. The latter tends to happen in a hot sales market.

Online Property Auctions Are the Future

It’s said in the industry that the global pandemic accelerated the progress of modern and online auctions.

Although property is clearly a ‘high-ticket’ purchase, with more people accustomed to paying for goods and services online, it’s natural that auctions would follow suit.

Buyers can easily participate from the comfort of home or using their devices.  This makes the whole process simple and less intimidating.

Modern Method of Auction Cons

Extra Stamp Duty Liability for Buyers

Many modern method auctioneers attract sellers by offering ‘no fees’ and making their money on the non-refundable fee, due once the hammer falls.

Whilst at face value this is an excellent incentive for sellers, buyers will shoulder the fees and pay extra tax on this amount to HM Revenues & Customs (plus their own legal costs).  This is because the buyer’s fee is classified as a “chargeable consideration” for a property (or land) transaction.

Say a property sells at auction for £200,000 with a buyer’s fee of 5%, the stamp duty will be payable on £210,000.

Many buyers have subsequently complained that they were not warned about this extra cost.   This has led to the involvement of various consumer groups and even Trading Standards.

In response, most modern method auctioneers now make sure the extra stamp duty liability is explicitly stated on their websites.  Buyers are also advised to instruct a suitably qualified conveyancer before bidding.

The result is often low or no bidding at all, especially if the property has been overvalued in the first place.

As a result, some modern auctioneers adopt the typical estate agency fee structure of only charging the seller.  Others (like ourselves) split the fee between the buyer and seller.

Concerns Over Security

With such large sums of money being transferred, there are some concerns over online security.

These are often unwarranted as most transfers of money will be undertaken through conveyancers (in the same way as traditional auctions).

Multiple Viewings + Open Days

Sellers will still have to allow people to view the propery property.

Although many auctioneers minimise the level of disruption by running open days (with multiple viewings), it may be better to use a We Buy Any House service for a completely private sale.

Unnecessary Delays

There are some auction firms that are slow or work with poor estate agents.

We would urge sellers to work with a reputable modern auctioneer that knows how to process things efficiently.

Lack of Exposure

There are a number of modern method auctioneers that only market properties on their own portals.

Even though such exposure is welcome, sellers should make sure their property will appear on Rightmove, Zoopla and Prime Location as a minimum.

Over Valuation to Win Auction Business

Some modern auctioneers – particularly those associated with estate agencies – can sometimes over-estimate the value of properties to gain instructions.

This places a risk on sellers if auction bidding does not meet the reserve price.

Not Suitable for Time-Sensitive Property Sales

In house repossession scenarios, for example, there may not be enough time for the sale to complete.

Again, selling fast for cash can often be a better solution here.

Complaints Regarding Fees

Although some buyers and sellers protest the high fees, it’s worth understanding the extra work required to process modern auction sales.

Is the Modern Method of Auction the Future of House Sales?

Growing in popularity as more people use the internet to purchase properties, modern auctioneers are spearheading a new direction in the home sales market.

Crucially, more people also now see that modern method auctions are not exclusively for ‘motivated’ sellers (i.e. those who need to sell quickly).

Here at our Property Solvers Auctions, we take the time to understand our clients needs and build the most effective solution.  For more information, contact us 24/7.