Many agents and auction houses are now selling property under the Modern Method of Auction. This means that once an offer has been accepted, or at the close of an auction, the successful buyer must pay a non-refundable reservation fee to the agents to reserve the property. If the sale of the property falls through because of the seller, the reservation fee will be refunded to the buyer in full. However, if the sale falls through because of the buyer, the reservation fee will not be refunded.
Importantly, the auction part of the sale takes control away from the buyer and places it squarely with the seller. Instead of a sale price being chipped away bit by bit (as often happens following a survey or a few days before completion), with the modern method of auction, the price can only increase. In addition, the risk of the sale falling through is negligible because the winning bidder is financially committed.
The reservation fee payable varies from agent to agent and is typically based on a percentage of the final sale price, subject to a minimum sum. It is important to note that the deposit does not contribute towards the purchase price of the property, and 10% (of the purchase price) is still required upon exchange of contracts with the balance payable upon completion.
Once the buyer’s offer has been accepted and they have paid the reservation fee, the buyer has 28 days to exchange, and then an additional 28 days to complete. Although this is a fixed timescale, it allows longer periods for exchange and completion to take place to accommodate the residential buyer over the more traditional method of auction.
What If The Buyer Does Not Pay The Reservation Fee?
This is unlikely to happen as the auctioneer will register the potential buyer’s debit or credit card and place a hold on funds without charging. This is called a ‘payment shadow’. Once the auction has ended, the winning buyer’s card will be automatically debited. The losing buyers will have their payments released.
Advantages of using the modern method of auction
- It is a quicker way to sell a property relative to using a traditional estate agent. Once the auction has ended, the chances of the sale falling through are minimal.
- More time is given to buyers to complete the purchase, so the chances of the seller achieving the full market value are greater.
- Because everything is online, you are likely to attract buyers from a wider pool in a way that is not possible with more traditional ways of selling a property.
- The modern method of auction is flexible and convenient. The seller can determine when to market the property and when it should close.
Buying a property via the modern method of auction is a bit like buying on eBay. There are more twists and turns, and you must be careful to make sure you are fully aware of the fees involved, but it can be a very efficient way to purchase a property.
It might also be sensible you conduct a pre-auction title check on the property and its legal documents prior to you paying the reservation deposit. Here at Express Conveyancing we can assist you with both the pre-auction and post, modern method of auction formalities. Why not contact us today by clicking here to see how we can help?