Explaining what the modern method of auction is, how it works and whether it will help you get a fast house sale...
If you’re wanting to get a quick sale for your property, it’s likely you will start to look at other options beyond the open market.
The modern method of auction is something that has become increasingly more popular, providing sellers with a different option to a traditional auction.
But what is a modern auction? How does it work, and will it get me a fast sale?
We’re going to answer all these questions and more, to help you find the best option for you when you want (or need) a fast house sale.
To help you get around, use the menu below:
- What is a modern auction?
- How does the modern method of auction work?
- Modern method of auction pros and cons
- What's an alternative to the modern method of auction?
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The modern method of auction provides the opportunity for you to sell your property quickly, through an online auction, but with a longer timescale between the auction and completion, compared to a traditional auction.
The modern auction still works in the same way that potential buyers will bid against each other online, with the seller setting a reserve price and an end date for the auction.
Once the ‘virtual hammer’ comes down on a deal, the winning bidder will pay a non-refundable reservation fee. This fee provides the buyer with a period of exclusivity, which is generally around 4 weeks, or 28 days.
During this time, the buyer must exchange contracts, where they will pay their deposit. After these 28 days, the buyer has 28 days to complete the sale, where the remainder of the amount must be paid over.
There are two ‘parts’ to the modern method of auction. The first part is where an estate agent will generate interest, conduct viewings and encourage potential buyers to make an offer.
The second part of the modern method of auction is where the online auction takes place, with buyers bidding against each other before the set deadline date.
The modern method of auction creates a safe environment for buyers to bid on properties, making it become an increasingly popular method of selling your house.
Having said this, when the modern method of auction first came about, they faced some negative press. This was mainly because the buyers were incurring extra stamp duty liability.
This is because the amount of stamp duty payable is worked out from the sale price plus the reservation fee paid by the buyer. So, if, for example, a house sells for £300,000 plus the 5% reservation fee, the amount of stamp duty will be worked out based on the price of £315,000.
As a result of this, sellers may have to expect to get a lower price for their property, as the buyers are now aware of the extra charges.
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:
The auctioneer will use Land Registry data and RICS-approved Red Book guidelines to give you a property valuation as accurate as possible.
Sometimes in the modern method of auction, an estate agent is sent out to visit your property and inspect its condition, location, size and market conditions to decide what the property is worth.
To get an idea of what the recommended price may be, you could use an online valuation calculator, such as Zoopla.
It’s worth bearing in mind, though, that the auctioneer and/or estate agent are likely to value your property at too high a price in order to get your business.
Whilst this may feel great initially, you won’t feel so happy about it when it means bidders think your property is overpriced and no one meets the reserve price, leading to your house not selling.
Suggested guide and reserve prices
Once your house has been valued, the auctioneer in charge of your property will discuss with you the best pricing in order to get yourself a sale at a price you’re happy with.
You will decide upon the reserve price, the minimum figure you’re willing to sell at which won’t be known by the bidders. If this price isn’t met, your property won’t sell.
You will also decide upon the guide price for your property, which is essentially the same as the ‘asking price’ on the open market – the price which your property is worth in its current condition.
However, the modern method of auction tends to suggest higher reserve and guide prices, as the modern auction bidders are less time-pressured compared to a traditional auction, so therefore they have more time to organise their finances.
This part differs from what you would expect when selling on the open market.
Sellers will instruct a solicitor to prepare a set of legal documents to provide more transparency with buyers and minimises the risk of you getting an extremely low offer for your property.
We're not even half way through the process yet...
Photography, floorplans and EPC
If you’ve ever sold your house on the open market, then this is something you will already be familiarised with.
The photography and the floorplans are to help you advertise your property to buyers, allowing them to see what they’re bidding on.
An EPC is an Energy Performance Certificate that measures the energy efficiency of your house on a scale of A-G, with A being the best and G being the worst. More efficient homes should have the lowest heating and electric bills, making them more appealing.
Listing and marketing
Once you have the above in place, it’s time to get your property listed on the modern auction. Unlike a traditional auction, the modern method of auction lets you list your property as soon as you’re ready, rather than having to wait for a slot.
Your property will be marketed on the auction platform for buyers to see. However, a downside of the modern method of auction is that your property may not be marketed on the biggest property portals without you having to ask.
This is something that will have taken place in the ‘legal pack’, but some buyers may want to conduct their own house survey searches.
Whilst a survey isn’t something essential for you to conduct, it will help you with the selling of your property, as buyers can be more confident in the knowledge that there’s nothing wrong with your property and will therefore be more open to bidding.
The auctioneer will either request a set of keys to your property, install a key box or organise the viewings at a convenient time for you. You may also need to host open days to try attracting multiple viewers to attend at once.
Before potential buyers are able to bid, they must register. They will have to undertake various identification checks, such as email verification, proof of identity and address and accepting the terms and conditions of the modern auction.
Now it’s time for potential buyers to bid on your property. You can decide how long they have to bid, whether it’s 2 weeks, a week, or a few days.
Bidders will be notified when the auction is coming to an end so they can increase their bid if they have been outbid.
Some modern auction platforms allow bidders to set their maximum bid and allow the computer to automatically big on their behalf. This means if someone has outbid them, the computer will automatically place them in another bid.
Winner of auction
Once the time comes to an end, the highest bidder will be the winner and will have to put down the reservation fee, giving them the period of exclusivity where they will exchange contracts.
During this time, the winner is able to conduct their own survey and also secure their house repayments scheme.
The auctioneer will also create a Memorandum of Sale during this time.
Exchange of contracts
By the end of the period of exclusivity, the buyer and seller will exchange contracts. At this point, the buyer will pay a 10% deposit.
Once contracts are exchanged, the buyer has 28 days to complete.
On completion day, it’s time to drop off the keys and move out!
Before you decide whether the modern method of auction is for you, it’s key you learn the pros and cons to make a well-informed decision…
- Quicker and easier than using an estate agent
- Property can be listed immediately, unlike a traditional auction where you have to wait for your ‘slot’ which can potentially be a few months
- The auction being online makes it easier for international or domestic buyers
- It’s up to the seller to decide when they market their property and when they want the deadline date to be
- Less intimidating for buyers as the bidding takes place online
- No estate agent fees
- Less risk of buyer delaying procedure, as they risk losing their reservation fee and deposit
- People have become used to paying for things online, so that makes the modern method of auction feel more natural
- May receive a lower amount for your property as the buyer needs to take into account the extra stamp duty fees and reservation costs
- There are hidden fees in the small print
- The buyer can still pull out meaning it’s not a guaranteed sale
- If you’re trying to sell fast because your house is being repossessed, the modern method of auction may not be fast enough
- Concerns over a large amount of money being transferred online
- May get you a quicker sale compared to an estate agent, but still isn’t the fastest method of sale
- Modern auctions can overestimate the value of your property to get your business, similar to what an estate agent does. This can mean there’s a risk for the seller of the reserve price not being met, resulting in the house not selling
- With the modern method of auction, it’s quite common for your property to only be advertised on their own portals and not on big property portals, such as Rightmove or Zoopla
- The seller will have to allow for viewings and several open days, causing a fair bit of disruption and a lot of time needed to be spent on cleaning and tidying
Long list of 'cons' putting you off?
So, if you’re looking for a fast sale but have decided a modern auction isn’t the method for you, then there are other alternatives to get you a fast sale:
You do have the option of a traditional auction, instead of the modern method of auction. The traditional method of auction will get you a quicker sale, with contracts being exchanged as soon as the hammer comes down on a deal.
After contracts are exchanged, the buyer then has 20 to 28 days to complete.
Although the selling process may be faster in a traditional auction, you will have to pay room hire, legal fees, and marketing costs, whilst also paying a commission of the sales price to the auctioneer.
You may also have to wait weeks, if not months, to get a slot in the auction, meaning you may not end up selling your property for a lot longer than what you were hoping for.
A part exchange scheme allows you to trade your current property as part payment towards a new build property.
In part exchange, two or three independent estate agents will come and give your property a valuation. The new build developer will use these valuations to give you an offer for your property, which is the amount you can use against the price of your new build.
However, your house can’t be worth more than 60-70% of the asking price of the new build you will be buying. You will also find your house is given a low valuation, as the estate agents will be asked to value your house based on the ‘selling price’, rather than the asking price.
Your house may also not be eligible for a part exchange scheme, meaning a part exchange scheme won’t be suitable for everyone.
You will also have to wait until your new build is fully built, which could mean you won’t get that fast sale you’re after.
Using a cash buyer will allow you to get a quick house sale, without needing to use the modern method of auction.
A cash buyer doesn’t require house repayments or the need to sell a house in order to purchase your house, meaning there’s less paperwork and less room for things to go wrong, causing the sale to fall through.
Cash buyers are also happy to work around a timescale that suits you, as they’re financially able to exchange and complete when you choose.
So, where do you find a cash buyer?
That’s where we step in!
Here at The Property Buying Company, we’re a cash buyer of property, buying any property, in any location and any condition. We will cover all your fees, including the legal ones, leaving you with our cash offer in full in your bank.
We can complete in a fast timescale of your choice and we’re a guaranteed cash buyer – no need to worry about the sale falling through!
We’re also rated excellent on Trustpilot with over 1,000 reviews (feel free to check them out!)
Fill in our online form or give us a call to receive a no-obligation cash offer to guarantee a quick sale, without the need for a modern auction…
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