The modern method of auction is an effective way to achieve a quick house sale should your property or personal circumstances not be suited to a traditional house auction.
For many people, the modern auction can be a quick house sale route to consider.
It’s not only rising in popularity every year, but it’s been around for nearly 20 years.
One of the big attractions for the modern auction is that when the property market is uncertain or slow, it can be a useful tool for home sellers to achieve a quick sale.
That’s because it combines the speed of a traditional auction sale, along with the excellent marketing efforts from an estate agent.
In many ways, the modern auction could be described as a hybrid auction, or an estate agency auction.
The modern method of auction sale
The success of the modern method of auction sale means it retains the efficiency and transparency of a traditional auction sale.
It’s important to appreciate that when an estate agent receives an offer and this is accepted by the vendor, they will then actively stop marketing that property.
The property will be labelled as being ‘sold subject to contract’ and potential viewings will not take place.
One of the obvious downsides to this process is that the sale process then passes to the buyer who is then free to walk away from the property sale or even reduce their offer.
And should they pull out, the house selling process begins again.
Prospective house buyers will be bidding against each other
That’s not the case with a modern home auction since prospective house buyers will be able to make an offer and they will be bidding against each other.
Among the positives for the home seller when using a modern auction are:
- There’s more than one buyer for the sales process;
- The seller will be able to claim the best possible price.
This is a very different approach to an estate agent who markets a property to generate interest, and then encourages a bid when they conduct a viewing.
That is the interested party being invited to make a bid which is a simple process, and the estate agent will be helping.
However, with a modern auction, it’s the home seller that sets the rules and they will:
- Set the reserve price – this is the minimum amount they will accept for a sale;
- The auction start date;
- The auction end date.
Generally, the auction will run for 30 days of more, but this timescale can be shorter if the home seller is looking for a quick sale.
What is the modern method of auction in the UK?
Put simply, the modern method of auction has an edge over the normal estate agency sale.
That’s because the modern method will combine the services of a local estate agent and an auctioneer. The benefits include:
- The buyer will be unable to reduce their bid;
- A bidder will only be allowed to increase their bid.
Also, the sale is less likely to fall through because the winning bidder will need to exchange contracts by an agreed date.
The modern auction process to selling a house
Another important issue to appreciate with the modern auction process to selling a house is that it also removes control from the estate agent.
That’s because this is not a normal estate agency sale and is carried out like a traditional public auction. This also means:
- The transparent sales process cannot be influenced or manipulated by the estate agent;
- The estate agent cannot favour one particular buyer over another;
- The estate agent is prevented from accepting any inducements from a potential buyer;
- The estate agent will only be able to accept a bid from the highest bidder.
The benefits to vendors with a modern auction
There are benefits that vendors need to consider, particularly if there has been a lack of interest in their home from buyers.
While most traditional estate agents do an excellent job in marketing properties to buyers, they may lose interest in a particular property.
With the modern auction, the vendor benefits with:
- All bids are made online with an estate agent;
- The vendor will see the bids that are being made;
- They can ask their estate agent to arrange a modern auction to help sell their home.
Why choose a modern auction sale?
There will be vendors wondering why they should choose a modern auction sale rather than opting for a traditional auction.
This will depend on your personal circumstances and property type and the pros and cons for both types of auctions.
The benefits of a traditional auction include:
- If the property being sold is not suitable for a mortgage, then a traditional auction is the best way to sell;
- A traditional auction will attract cash buyers who are willing to complete it quickly.
Also, the traditional house selling auction moves quickly and within three weeks of the auction catalogue being printed, the legal pack is available and viewings can be arranged.
A traditional auction also attracts lots of bidders to the auction room or bidding by proxy on the phone.
The Government also offers some sound advice for anyone thinking of buying a house at a traditional auction.
They say you should:
- Prepare – research and understand the arrangements;
- Bidding – understand how the auction will work.
The advantages of a modern auction include:
- The marketing process is extended to at least a month rather than three weeks with a traditional option;
- The modern auction gives the winning bidder the time to arrange a mortgage, if necessary;
- A modern auction is not restricted to cash buyers, or for those using a bridging loan, so more people are bidding;
- Attracting more bidders to a modern auction means the sale price will increase – experts say by up to 10%;
- Modern auctions are suitable for homes that are in good or fair condition, and which will attract a mortgage;
- The method also enables an estate agent to become involved in the sale and help reassure potential buyers and answer any questions;
- Homeowners tend to set a higher reserve price than they would at a traditional house auction.
Is a modern auction suitable for you?
Having mentioned the home seller’s personal circumstances, is a modern auction suitable for you?
One potential situation where a modern auction might be the ideal solution is if the home seller is not in a chain and needs to move quickly.
For example, they may be moving into a vacant property or a new-build home.
That means there is no upward chain so an auction could be a safe option to find a buyer.
It’s also worth considering if you have already looked at selling using a traditional auction, that the reserve price tends to be too low.
You need to be aware that a traditional auction may set the reserve at around 15% below the property’s actual market value.
That means using a traditional auction may not realise the market value, whereas a modern method of auction will see the reserve price tending to be higher.
How does a modern auction work?
When a successful bid has been made with a modern auction, the buyer is then required to pay a reservation fee which is non-refundable.
This is usually 5% of the property’s purchase price.
You need to be aware that this fee covers the auctioneer’s costs and will not be deducted from the property’s purchase price – it’s an added cost.
When their bid has been accepted, the buyer then has time to source funding so they are able to go ahead with the purchase.
With a traditional auction, the winning bidder has 28 days to complete the sale.
With a modern auction, this extends to 56 days from the auction ending and the exchange of contracts.
Other considerations for a modern auction
There are some other considerations to a modern auction, and these include:
With a traditional auction, the bidder will need to be available for the auction. With a modern auction, it is carried out online, so they don’t need to be in a set location to make a bid – or bid by phone.
The big risk when making a bid with a traditional auction is that the buyer has to pay for their initial legal fees, surveys and valuations. With no guarantee of being successful, this could be a waste of money.
For a successful bid under a modern auction, you’ll need to hand over 5% of the purchase price as the reservation fee. Since this is non-refundable you will lose the money should you pull out of the sale. You can only claim the reservation fee if the vendor pulls out.
Buyer pulls out
There’s another downside for sellers and that is the buyer could pull out of the process. Even though they will pay a reservation fee, there are no legal obligations currently for them to complete the purchase. This leaves the vendor back at square one trying to find a buyer for their home.
Modern property auctions
Essentially, traditional public auctions of homes account for just a fraction of the UK’s property sales – but modern property auctions are gaining interest.
And not every home seller will be wanting to complete their house sale within a few weeks but for those who do, and for those who want to earn the most money, then a modern auction is worth considering.