Modern Method of Auction - The Pros & Cons
- Sell your house in as little as 7 (cash) or 56 (auction) days
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House auctions have long been a fixture in the housing market, but a new approach has emerged in recent years: the Modern Method of Auction (MMoA).
The Modern Method of Auction makes house auctions far more accessible and appealing to a wider range of buyers while still providing sellers with a level of certainty often associated with traditional auctions.
The Modern Method of Auction is essentially a conditional online auction, combining elements of traditional auctions and private treaty sales. It aims to address some of the disadvantages of traditional auctions, such as the need for immediate exchange of contracts and the limited pool of buyers, while offering a faster and more secure alternative to selling through an estate agent.
In this guide we'll cover the pros and cons of the Modern Method of Auction, its mechanics and how it differs from traditional house auctions.
What is the Modern Method of Auction?
The Modern Method of Auction (or conditional auction) is a hybrid approach to selling homes, blending elements of traditional auctions and private treaty sales. It aims to provide a more fast and seamless process for both buyers and sellers.
The Modern Method of Auction begins with an estate agent marketing the property and conducting viewings, encouraging buyers to make offers. Then, an online auction takes place, where buyers can bid against each other until a predetermined deadline.
The winning bidder secures the property by paying a non-refundable reservation fee, usually a percentage of the final selling price. This auction fee covers the estate agent’s commission and grants the buyer a period of exclusivity (usually 28 days) to exchange contracts and pay a deposit, followed by a further 28 days to complete the purchase.
The Modern Method of Auction offers several advantages. For sellers, it provides a faster and more certain sale compared to private treaty sales, with fixed timelines for exchange and completion.
The online auction process is transparent, allowing buyers to see competing bids. For buyers, it offers more flexibility than traditional auctions, with extended timelines for securing financing like Bridging loans or mortgages.
However, the non-refundable reservation fee doesn’t contribute to the purchase price and may increase the Stamp Duty payable, potentially impacting the final selling price.
Modern Method of Auction Fees
In the Modern Method of Auction, sellers don’t pay the auctioneers commission directly. Instead, the winning bidder pays a non-refundable reservation fee, usually around 5% of the purchase price, at the end of the auction.
This modern auction fee secures the property for the buyer for a set period (usually 28 days) to allow for due diligence and exchange of contracts. Importantly, this reservation fee is in addition to the purchase price and is subject to Stamp Duty.
Unlike traditional auctions where a 10% deposit is paid upon winning, the reservation fee in modern auctions covers the estate agent’s commission. If the sale falls through due to the seller’s fault, the reservation fee is refunded to the buyer. However, if the buyer decides not to proceed, they forfeit the reservation fee.
Traditional auctions on the other hand, require the winning bidder to exchange contracts and pay a 10% non-refundable deposit on the auction day itself, followed by a 28 day period for completion. This makes traditional auctions a more legally binding and immediate commitment for buyers compared to the modern auction.
Modern Method of Auction pros and cons
Modern Method of Auctions offer a seamless and straightforward way of selling a house. You’ll be able to sell your house in a dramatically faster timeline than open market sales but it’s important to weigh the potential pros and cons before making the decision.
| Pros of Modern Method of Auction | Cons of Modern Method of Auction |
|---|---|
| ✔ Wider pool of buyers | ✖ Longer timeline to cash buyers & traditional auctions |
| ✔ Higher sale price than traditional auctions, part exchange or cash buyers | ✖ Although higher sale price achieved, buyers tax liability may need to be accounted for (which brings the sale amount down) |
| ✔ Can easily sell residential or commercial properties | ✖ You still may not get full market value |
| ✔ Buyers covers the auction fees | ✖ If you are sentimental about the property, it may be sold to an investor looking to renovate & flip it. |
| ✔ Very low risk of sale falling through |
Disadvantages of Modern Method of Auction
High likelihood of sale
Modern auction houses boast a higher success rate (around 80%) compared to traditional estate agents (around 50%), increasing the chances of selling your property.
Speed
The process is typically faster than selling through an estate agent, with the entire process often taking 6-8 weeks, including onboarding, auction, and completion.
Greater certainty
The non-refundable reservation fee paid by the winning bidder creates a stronger commitment compared to offers made through estate agents, reducing the risk of the sale falling through.
Convenience
The online format offers greater accessibility for both domestic and international buyers, and sellers can control the marketing timeline and deadline.
No estate agent fees
The seller does not pay the estate agent’s commission directly, as it is covered by the buyer’s reservation fee.
Reduced risk of delays
The reservation fee incentivises buyers to proceed promptly, minimising the risk of delays caused by buyer hesitation.
Advantages of Modern Method of Auction
Potential for lower sale price
While the buyer usually covers the auction fees, sellers might need to compromise on the final selling price, usually achieving 85% to 90% of the property’s full market value. This is due to buyers factoring in the reservation fee and potential extra stamp duty costs.
Less finality than traditional auctions
Unlike traditional auctions, where contracts are exchanged immediately, the modern method allows for a cooling-off period. This can lead to a slightly higher risk of the buyer backing out, although it’s still less likely than in private treaty sales.
Limited marketing reach
Some modern auction platforms might not advertise on major property portals like Rightmove or Zoopla, potentially limiting exposure to potential buyers.
Additional fees
Sellers may still incur costs like entry fees or legal fees, and other additional marketing costs.
Inconvenience of viewings
Hosting viewings and open days can be disruptive and time-consuming for sellers.
Stamp Duty considerations
The buyer’s reservation fee is added to the purchase price for stamp duty calculations, potentially leading to higher tax liability for the buyer.
Modern Auction pitfalls to watch out for sellers
The Modern Method of Auction can be a great way for sellers to sell their house in a reasonably fast timeline, while achieving almost full market value. But, there are some pitfalls that many vendors fall into:
Limited buyer reach: While the online format can attract a wider audience, some sellers mistakenly assume it limits their reach. However, effective marketing by the auction house can overcome this, attracting a diverse pool of potential buyers, both local and international.
Underestimating preparation time: Sellers should be prepared for the time investment required for taks like preparing the legal pack, coordinating viewings and responding to inquiries. It’s important to factor this into your timeline to avoid rushing the process.
Neglecting post-auction follow-up: While the auction might be over, the seller’s responsibility isn’t. Proactive communication with the buyer, providing necessary documentation, and addressing any issues that arise can help ensure a smooth completion.
Overlooking benefits compared to traditional sales: The modern method offers distinct advantages like faster sales and greater certainty, but it’s important to understand how these benefits align with your specific needs.
Insufficient marketing efforts: While the auction house handles most of the marketing, sellers should still actively participate by providing accurate and appealing information about their property. This can significantly impact the final selling price.
By understanding and addressing these potential pitfalls, sellers can increase their chances of a successful and profitable sale through the Modern Method of Auction.
Modern Auction pitfalls to watch out for buyers
While you may be looking to sell your house at auction, understanding the points in the auction process which can become tricky for buyers can help you plan or make contingencies:
Buyers cover seller’s fees:
Unlike traditional sales, the buyer will pay the estate agent’s fees through a non-refundable reservation fee, usually 3% to 5% +VAT or a minimum of £6,000 (inc VAT), in addition to the purchase price.
Risk of losing the reservation fee:
If the buyer fails to complete the purchase within the specified timeframe (usually 56 days), they lose the reservation fee, which can amount to thousands of pounds.
Increased Stamp Duty:
The reservation fee is added to the purchase price when calculating Stamp Duty, potentially leading to a higher bill for the buyer.
Survey issues:
Buyers must decide whether to conduct a survey before bidding. If problems are discovered after the auction, the buyer cannot negotiate the price and will lose the reservation fee if they withdraw.
Conveyancing delays:
Unexpected delays in the conveyancing process, such as missing leasehold information can jeopardise the 28-day timeframe for exchange, putting the buyer’s reservation fee at risk.
Mortgage approval challenges:
Securing mortgage approval within the tight time frame can be difficult, especially if the property has issues that could make it unmortgageable.
Down valuation risk:
If the lender’’s valuation is lower than the agreed purchase price, the buyer cannot renegotiate and may lose the reservation fee if they cannot secure the necessary funds.
How does the Modern Method of Auction work?
The Modern Method of Auction offers a hybrid approach to selling houses, combining the best of traditional estate agency sales and private treaty sales with the transparency and competitive nature of house auctions.
Whether you’ve used a Modern Auction before or it’s a completely new process to you, it’s always a good idea to refresh on how it works:
1# Property valuation
Similar to traditional estate agent sales, the auctioneer will assess the property’s value using HM Land Registry data, local and national market conditions and using property surveys. While an online valuation calculator can offer an estimate, some auctioneers may propose higher values in order to secure your business.
2# Setting guide and reserve prices
After the valuation, you’ll work with the auctioneer to set a guide price (similar to an asking price) and a reserve price (the minimum you’re willing to accept). Due to the longer timelines compared to traditional auctions, modern auctions often have higher reserve and guide prices.
3# Legal pack preparations
Unlike standard traditional sales, the seller’s solicitor will prepare a comprehensive legal pack to increase transparency and minimise the risk of low offers. This pack, along with property photographs, floor plans and an Energy Performance Certificate (EPC), is made available to potential buyers.
4# Listing and marketing
Your property is then listed on the auction platform. While it might not be automatically featured on major property portals like Rightmove or Zoopla, the platform itself serves as the primary marketing tool.
5# Viewings and bidder registration
Viewings are arranged, and interested buyers are required to register on the auction platform, providing identification and agreeing to the auction terms.
6# Bidding time
The auction opens for a set period, during which buyers can place bids. Some platforms offer automatic bidding, where the system places bids on the buyer’s behalf up to a predetermined maximum.
7# Winning the auction and exchange of contracts
The highest bidder at the auction’s end secures the property by paying a non-refundable reservation fee, giving them exclusive rights to proceed with the purchase. During this period, they can conduct surveys and arrange financing. Then, contracts are exchanged and the buyer pays a 10% deposit.
8# Completion
The final step occurs 28 days after the exchange of contracts, where the remaining balance is paid, and the property is transferred to the buyer.
The Modern Method of Auction offers a faster and more secure sale than the open market for sellers, while providing buyers with more time and flexibility to arrange finances than traditional auctions. This method is suitable for all types of properties, regardless of condition and it eliminates the common price negotiations and uncertainties often associated with traditional sales.
How does the Modern Auction legal process work?
The Modern Method of Auction, while a relatively recent development, follows a legal process similar to an open market sale through an estate agent. However, it incorporates additional security measures from traditional property auctions, offering a blend of the two methods.
The key legal differences are:
Deadlines
A defining feature of MMoA is the autoneer’s specified deadlines for exchange and completion. This provides greater certainty and speed compared to open market sales.
Reservation fees
The winning bidder pays a non-refundable reservation fee, demonstrating their commitment to the purchase. This fee is usually a percentage of the purchase price and is forfeited by the buyer if they fail to meet the deadlines.
Exclusivity period
The buyer enters an exclusivity period, usually 28 days, during which the seller cannot accept other offers. This allows the buyer time to do their due diligence on the property and secure mortgage financing if needed.
Legal pack
A legal pack is prepared before the auction, containing all relevant information about the property. This transparency builds trust with buyers and encourages competitive bidding.
Preparing a legal pack upfront is crucial for a successful Modern Method of Auction. It provides transparency, builds trust with buyers, and encourages higher bids. Buyers are often wary of properties without a legal pack, fearing hidden issues and may bid lower or not at all.
Terms and conditions
The auction is governed by terms and conditions, often based on the RICS Common Auction Conditions. These outline the rights and obligations of both parties, including the consequences of failing to meet deadlines.
How long does a Modern Auction take?
The Modern Method of Auction takes around 56 days from the start of the online auction to completion. However the process can be longer as it includes the initial marketing and viewing period conducted by the auction house or estate agent.
Marketing and viewings (couple of weeks):
This initial phase can last a few weeks or longer, depending on the property’s appeal and market conditions. Your auction house will actively market the property through various channels including online listings on Rightmove or Zoopla, and buyer outreach.
During this time, interested buyers can view the property, request additional information, conduct surveys and prepare their finances.
Online auction (1 day):
The auction itself usually takes place over a single day, allowing for a competitive bidding process. Bidders can participate remotely, offering convenience and flexibility.
Reservation period (28 days):
Once the auction concludes, the winning bidder enters a 28-day reservation period. This period allows the buyer to finalise their mortgage arrangements if needed and complete legal due diligence.
The buyer pays a non-refundable reservation fee to secure the property during this time.
Completion (28 days):
The final stage involves the legal transfer of ownership and payment of the remaining balance. This takes another 28 days, but can vary depending on the complexity of the transaction.
From the start of marketing to completion, the entire process can range from 56 days or longer in some cases. However, the defined timelines for the auction and reservation periods offer sellers greater certainty compared to selling with an estate agent.
Can buyers get a mortgage on a modern auction?
Yes, buyers can absolutely secure a mortgage for properties sold through modern auctions, opening up your property to a wider range of potential buyers. This addresses a common concern for sellers who may worry about limiting their pool of interested parties to just cash buyers. However, there are specific criteria buyers need to meet:
Property condition: The property should be in good livable condition, with essential amenities like running water and heating. Mortgage lenders usually avoid properties requiring significant repairs.
Mortgage pre-approval: Buyers should ideally obtain a mortgage in principle beforehand, ensuring they are ready to proceed quickly once the auction concludes.
Deposit and completion timeline: Upon winning the auction, buyers need to pay a 10% deposit immediately, with the remaining balance due within 28 days. This tight timeline requires a prepared buyer with their finances in order.
As a seller, you can help smooth out the process by making sure your property is in good condition to attract mortgage approved buyers. Address any necessary repairs before listing the property.
You can also include detailed information about the property in the auction listing and legal pack in order to help buyers and their mortgage lenders assess the property’s suitability.
By addressing these aspects, you can confidently sell your house via modern auction, knowing that it’s accessible to a wider range of buyers, including those who require a mortgage.
What are the main differences to a traditional auction?
An alternative to the Modern Method of Auction is the traditional auction, offering a faster sale timeline with contracts exchanged as soon as the gavel falls.
However, unlike the modern method, the traditional auction requires sellers to cover expenses such as a room hire, legal fees, marketing costs and a commission on the sales price.
Additionally, waiting for an available auction slot can lead to delays in listing and selling the property. The key differences between traditional and modern auctions are:
| Feature | Traditional Auction | Modern Method of Auction |
|---|---|---|
| Fees | 1.5% - 2.5% +VAT, plus entry fee (usually paid by the seller) | 3% - 4% +VAT, plus entry fee (usually paid by buyer) |
| Buyer Type | Cash buyers, experienced investors, property developers | Similar to traditional auction but also mortgage buyers, families & first-time buyers |
| Time To Agree A Sale | 6-8 weeks | 6-8 weeks |
| Time To Complete | 4 weeks | 6-8 weeks |
| Property Type | “Problem properties” (unmortgageable, needing renovation) | “Normal properties” (mortgageable well-presented) |
| Likelihood of Sale | 70% - 80% | 60% - 70% |
| Likelihood of Completion | Very high (1% fall-through rate) | High (5% fall-through rate) |
| Price Achieved | 80% - 90% of market value | 85% - 95% of market value |
Choosing between these two auction methods involves weighing the speed and certainty of the traditional auction against the potential for higher sale prices and broader buyer buyer pool in the modern auction.
Private Treaty vs Modern Auction: How do they compare?
Private treaty sales (or the open market) and modern house auctions are two different methods of selling property, each with its own advantages and disadvantages:
| Private Treaty Sale | Modern Auction | |
|---|---|---|
| Process | Involves negotiation between the buyer and seller, usually handled by an estate agent. | A competitive bidding process with a predetermined end date. |
| Timeline | No fixed timeframe, resulting in lengthy completion periods often surpassing 100 days. | Fixed and shorter completion timescales at 56 days for the MMoA and 28 days for traditional auctions. |
| Risk | Higher risk of the sale falling through (approximately 30%), as neither party is financially committed until contracts are exchanged. | Lower risk of the sale falling through (around 5%) due to the buyer paying a non-refundable reservation fee or exchanging contracts immediately, solidifying their commitment. |
A private treaty sale offers more negotiation flexibility and may be suitable for unique properties or those requiring a longer marketing period. On the other hand, a modern auction is ideal for sellers looking for a faster and secure sale with less risk of the deal falling through.
Is a Modern Auction for me
Choosing the best way to sell your home will depend how fast you want to sell, how much you want to sell it for and how secure you want your house sale to be.
If a fast sale is your very top priority, due to a broken chain, financial urgency or life event like divorce or inheritance, a cash house buying service is the quickest option. You can sell your home in as little as two weeks, but expect to receive around 80% to 85% of the market value.
Here at The Property Buying Company, we are one of the UK’s leading cash house buying services and we can buy your house in as little as 7 days. You won’t face any fees, as we cover all your legal fees and we don’t have any selling costs. We are hands down the fastest route to sell your house in the UK.
Alternatively, traditional auctions are another option for a fast sale, often completion within 28 days. However, they usually yield lower prices (80% to 90%) and might attract a more limited pool of buyers, usually cash buyers or experienced investors.
If achieving the highest possible price is your primary goal and you have time on your side, using an estate agent is the way to go. You can expect to get close to 100% of market value, but the process may take six months or more.
But, if you want a faster sale that can get you close to market value (90%+), then choosing the Modern Method of Auction is your best route. It provides a higher degree of certainty than private treaty sales, but may not be suitable if you’re in a property chain.
Although we are a cash house buying company, one of our child companies, The Property Auction Company, is an online auction that can help you sell within 56 days or less. As a seller you won’t face any fees, and we can help you achieve close to market value.
Modern Auction FAQs
Can a buyer pull out of a Modern Auction?
Yes, a buyer can technically pull out of a modern auction after winning the bid, but it comes at a cost. Unlike traditional auctions where contracts are exchanged immediately, the modern method allows a reservation period for the buyer to conduct due diligence and secure financing.
However, if the buyer decides to withdraw during this period, they forfeit their non-refundable reservation fee, which is usually a percentage of the purchase price.
Why would you sell by Modern Auction?
There are several reasons why you should choose to sell by modern auction including a higher chance of sale, a faster sale, greater certainty, transparency and control.
Modern auction houses boast higher success rates compared to traditional estate agents, increasing the likelihood of selling your house. The process is usually quicker than selling through an estate agent, with a fixed timeline for completion.
The reservation fee paid by the winning bidder creates a stronger commitment than a simple offer, reducing the risk of the sale falling through. The online auction process is open and transparent with all bidders able to see competing offers.
Sellers have more control over the marketing timeline and can set a reserve price to ensure they achieve their desired minimum sale price.
What happens if the house does not sell at auction?
If the property doesn’t reach its reserve price during the modern auction, it’s considered unsold. In this scenario, you have a few options.
You will be able to relist your property in another auction (with the same company) with a revised reserve price. If the highest bid was close to the reserve you may also be able to try negotiate a private sale with that bidder.
Alternatively, you may be able to explore other options, like selling through a cash house buyer like us, an online estate agent or a traditional estate agent.
How much less do houses sell for at auction?
In traditional auctions, houses often sell for around 80% to 90% of their market value. With the Modern Method of Auction, prices tend to be higher, usually achieving 85% to 95% of the market value.
However, the buyer’s reservation fee is added to the purchase price when calculating Stamp Duty which can slightly impact the final selling price from the seller’s perspective.
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