As a prospective property buyer, you are likely familiar with the traditional auction process of buying a property. However, the modern method of auction offers a different approach that can benefit certain buyers. This detailed guide will provide key information to help you understand this alternative auction process. You will learn the definition of the modern method and how it differs from a traditional property auction. We will be explaining everything from the difference between a reservation fee and a deposit, time frames, pros and cons of the modern method of auction to how Express Conveyancing can assist you in purchasing a property through the modern method of auction. With this knowledge in hand, you will be well-prepared to consider this streamlined approach for your next property purchase.
What is the modern method of auction?
The modern method of auction is a hybrid auction model that combines elements of both traditional auctions and private sales. It allows the seller to set a reserve price while also enabling buyers to offer on a property with the peace of mind that the seller is committed to selling the property to you within a very specific time period.
- This method provides more flexibility and control for both the buyer and seller compared to traditional auctions. For sellers, they can be confident in the fact that the buyer has committed financially at the point of having their offer accepted meaning there are far less tyre kickers. For buyers, they can be confident that the seller is equally committed under the reservation terms meaning there is very less likely hood of the property transaction collapsing at the last minute, due to a change of heart or circumstances.
- With a traditional property auction, the property goes to the highest bidder on the day, regardless of whether or not the reserve price is met. The modern method allows the seller to consider offers and accept one prior to auction if they wish. This provides a safety net versus a traditional auction where the property fails to sell if bidding does not reach the reserve.
- Overall, the modern method combines the competitive bidding process of an auction with the flexibility of a private sale. This allows buyers and sellers greater control over the process.
How the modern method of auction differs from traditional auctions
The modern method of auction differs significantly from traditional property auctions in several key ways:
- Reservation fee vs deposit – With a traditional auction, the buyer typically pays a 10% deposit on the day of auction which forms part of the purchase price. By doing so, the buyer effectively exchanges contracts with the seller. With the modern method, the buyer pays a non-refundable reservation fee to secure the property. This can either be a set figure or a percentage of the bid price. The reservation fee however does not form part of the property price, meaning the buyer is not entering a legally binding contract with the seller.
- Sale conditions – Traditional auctions typically have anywhere between 14 to 28-day exchange and completion deadlines. The modern method allows buyers 56 days for exchange and completion, providing more flexibility.
- Financing – Due to the short completion windows, traditional auctions carry far greater risks to buyers who are dependent on mortgage finance. The modern method allows buyers a greater degree of flexibility where time is concerned to secure mortgage finance before exchanging contracts.
- Bidding process – Traditional auctions involve competitive bidding on auction day. This has always involved most buyers overbidding and being carried away in the heat of the moment. The modern method allows buyers to place bids during the marketing period allowing a much more rational bidding experience.
- Legal work – With traditional auctions, the buyer has no option to deal with legal issues, once the auction has completed, yet completion of the property remains outstanding. With the modern method, the legal work can carry on as with a normal property transaction, following a successful reservation being made.
- Risk of losing deposit – With traditional auctions, bidders risk losing the 10% deposit if they cannot complete. Additionally, the auction contract also exposes the buyer to additional liabilities such as notice costs, interest so on. The modern method’s reservation fee is only lost if the buyer pulls out after the seller accepts their bid. Although this fee is still substantial, it is typically a lot less than a ten percent of the purchase price.
The modern method allows buyers more time and flexibility. There is less risk relatively than with a traditional auction. With guidance from modern auction method conveyancing experts like Express Conveyancing, buyers can purchase at auction with confidence.
The reservation fee vs the deposit
- The reservation fee and the deposit are two separate payments that serve different purposes in the modern method of auction.
- The reservation fee is paid at the start of the process to secure a property. This fee is separate and in addition to whatever the purchase price of the property is. You reserving a property grants you an exclusivity period to purchase the property in contrast to making it a legal requirement to buy.
- The deposit, which is usually 105 of the purchase price is paid when you are ready to exchange contracts, similar to purchasing a property under conventional methods.
- If the buyer does not proceed with the purchase after paying the reservation fee, they lose the fee but not the full 10% deposit. This limits financial risk.
- For example:
- Reservation fee paid: £5,000
- Final purchase price: £200,000
- 10% deposit required: £20,000
- Buyer pays the remaining £180,000 at completion i.e. the seller still achieves the total sale price, without deduction from the buyer.
A step by step guide of how the modern method of auction work
The modern method of auction follows a straightforward process from start to finish. Here is an overview of what to expect:
- Property listing – The auctioneer lists the property online. A guide price is set, but this is not a reserve price.
- Bidding period – Interested buyers place bids during the bidding window, typically 4-6 weeks. Bids are legally binding contracts. The highest bidder at the end becomes the winning bidder.
- Fall of the (virtual) hammer – The bidding window closes on the final day. The highest bidder has now won and pay their non-refundable reservation fee. The auctioneer will issue a Memorandum of Sale/Reservation Form similar to that issued by a conventional estate agent.
- Conveyancing formalities – The buyer’s conveyancer has a 4-6 week window to complete title checks whilst the buyer has the same time frame to carryout surveys, valuations, and organise mortgage finance.
- Exchange of contracts – If the buyer is satisfied, contracts are exchanged within 28 days of the reservation with completion taking place on a date in the next 28 days.
- Completion and move in – Once contracts have exchanged, the full purchase price is paid on the agreed date of completion. The sale completes. If not, the reservation fee is lost and the property relists. Otherwise, the buyer receives keys on the day of completion and can move into their new property.
This structured approach provides certainty for both buyers and sellers. There are less risks than traditional auctions since buyers can conduct due diligence after making their bid. For personalised guidance through the modern method of auction, contact Express Conveyancing’s team of specialist auction conveyancing solicitors.
Pros and cons of the modern method of auction
The modern method of auction provides an alternative route to purchasing property that has both advantages and disadvantages compared to the traditional auction process. Carefully weighing the pros and cons will help you determine if this method is right for you.
- Faster timeline: The modern method typically has a shorter transaction period from the auction date to completion. This accelerated pace provides certainty of dates.
- Flexible financing: Unlike traditional auctions, you have a lot more time to explore different property financing options.
- Increased transparency: Properties are marketed with guide prices, property information packs, and surveys. This allows for informed bidding based on the condition of the property.
- Conditional purchases: Sales are not fully binding until exchange of contracts at a later date to the date of the auction. This provides better protections.
- Premium fees: You may pay a higher purchase price than the market value to secure the property if bidding is competitive. Non-refundable fees also apply.
- Limited viewings: There may be restricted opportunities for property viewings prior to auction.
- Strict timeframes: The accelerated pace means you must move quickly to arrange financing and complete conveyancing formalities. Although, auctions give you the certainty of completion dates, failing to meet these could result in significant financial losses.
Weighing the unique advantages and limitations will determine if the modern auction method aligns with your purchasing needs and priorities.
Finding properties for sale via modern method of auction
The modern method of auction provides more choice and accessibility when buying property. Here are some tips on finding available properties:
- Use property websites like RightMove and Zoopla – Set up email alerts for new ‘modern method’ listings.
- Check auction house websites – Leading auctioneers like IAM Sold and McHugh & Co regularly list properties for modern auction.
- Contact local estate agents – Many agents sell properties via the modern method. Ask to be notified of new instructions.
- Follow developers and investors – Many will market refurbished and renovated properties through the modern method.
- Search specialist modern auction sites – Some platforms like BidX1 and Clive Emson focus specifically on modern auction properties.
- Look for ‘conditional’ or ‘modern method’ tags – Listings will typically be tagged to show the auction type.
- Consider property location – Some regions like the North West and Wales have more stock sold via modern auction.
- Join property forums – Fellow buyers often share tips on finding modern auction deals.
With more properties being sold via modern auction, buying your next home this way can be an attractive proposition. We can provide guidance on reservations, deposits, conveyancing and more to support your purchase. Get in touch today to find out how we can help you secure your ideal property through the modern method.
Conveyancing and other checks to carry out prior to bidding
When purchasing a property through the modern method of auction, it is crucial that you carry out thorough due diligence before you consider bidding. This involves researching and inspecting the property fully to uncover any potential issues or risks.
- Have the legal pack reviewed by an auction conveyancer: The auctioneer will provide a legal pack containing important documents about the property. These must be thoroughly checked for any restrictions, covenants, easements etc. that could impact your plans for the property. An auction conveyancing solicitor can help review the legal pack.
- Commission surveys: Arrange for a RCIS surveyor to conduct structural surveys to identify defects like roof, damp, or asbestos. This professional insight informs if expensive repairs are needed.
- Research planning permissions: Contact the local authority to verify if any planning permissions or building regulations apply to the property for any work you have in mind. For example, permission may be needed for an extension. Review neighbourhood development plans also.
- Assess energy efficiency: The EPC rating indicates the property’s energy performance. A low rating means higher energy bills and potentially needed upgrades like insulation and also prohibitions on being able to let the property if this is your intended purpose of the purchase.
- Visit the property: Attend open viewings to inspect the property thoroughly. Look for signs of damage, wear and needed renovations. Take photos and notes to review later.
Undertaking thorough checks at this stage provides invaluable information to determine if the property suits your needs and budget and also avoids costly mistakes at a later date. Express Conveyancing’s expert conveyancers can support you through the process, providing guidance to identify any red flags. Their expertise helps you make an informed bidding decision, avoiding unexpected costs down the line. Reach out for transparent advice.
As we have explored, the modern method of auction offers you a more transparent and flexible approach to property auctions than traditional auctions. By understanding this differences, you will be better prepared to navigate the buying journey. With the help of services like Express Conveyancing, you can have a smoother experience purchasing a property through the modern method. Equipped with this knowledge, you are now ready to consider the modern auction as a viable option for your next property purchase.