The modern method of auction is an online process that has simplified property auctions. The system makes auctions more accessible to a wider range of buyers, while delivering a reassuring level of certainty for the seller.
In this article, we will explain what the modern method of auction is, how it compares to selling in a traditional auction or via an estate agent, and how to sell your home using the modern method of auction.
1. Why sell your property at auction?
Selling your home via an estate agent can be a long and drawn-out process. It also involves a great deal of uncertainty. Even after agreeing a sale, buyers are able to change their mind or drop their offer at any time. If you want to avoid this, then using an auction can be a quick and convenient way to sell your home.
Selling at auction will not work as fast as selling to a home buying service, and may not achieve as high a price as you may get selling through an estate agent. However, it will usually achieve a good balance between the two, delivering a reasonably quick sale closer to the market value of your home. Properties sold at auction usually achieve around 90% of their market value.
2. What is the traditional method of auction?
A traditional property auction is a single event at which buyers bid for properties in real time, either in an auction room or via remote bids. These auctions are usually held on a monthly basis, and properties are advertised online, in the local press and in auction catalogues.
Sales begin at an agreed starting price called the “guide price” and are sold to the highest bidder on the day, as long as any reserve price is met. These auctions can be intimidating and highly competitive, which can put off many less experienced buyers.
Exchange of contracts takes place immediately when the auction ends. The winning bidder then has only 28 days to complete their purchase of the property. This is not usually long enough to secure a mortgage, and so limits the number of potential buyers.
For this reason, properties being sold in the traditional method of auction usually only attract cash buyers. This also limits the number of potential buyers.
As a result, they tend to attract sub-standard properties that are not suitable for a mortgage. This includes renovation properties, repossessions, uninhabitable premises and development opportunities.
2.1. How a traditional auction works
- Prospective buyers bid on a property at the auction
- The highest bid on the day wins
- Buyer is legally committed to purchase the property
- A 10% deposit is required on the day
- Buyer and seller exchange contracts on the same day
- Completion must happen within 28 days
- Deposit is lost if completion does not happen
- Penalty fees may be applied if the property sale does not complete
3. What is the Modern Method of Auction?
With the modern method, the auction takes place online over a period of 30 days or longer. Properties are listed on the leading portals, such as Zoopla and Rightmove. They're also sometimes actively marketed by estate agents too.
In these online auctions, bids can be placed without any of the stress of attending a live auction. Prospective buyers have much longer to make a considered decision and place their bid too. Just like eBay, you can bid incrementally, or place a maximum bid and allow the system to bid on your behalf up to this figure. The longer auction time usually increases the sale price.
Modern auctions are more accessible to the general public that traditional auctions. Instead of facing an intimidating auction alone, prospective buyers will have support and advice. This will usually be from their estate agency, or from the auction representative they’re dealing with over the phone.
They can bid online anytime at their convenience too. For buyers, this lifts much of the stigma attached to traditional property auctions. In turn, this helps attract higher quality properties.
Most importantly, buyers at a modern auction can opt to have twice as long to complete their purchase. Having 56 days to complete instead of only 28 days allows them to time to arrange a mortgage if necessary. This opens the bidding up to non-cash buyers, significantly increasing the number of bidders.
3.1. How does the modern method of auction work?
With the modern method of auction, winning bidders pay a reservation fee of around 5% at the end of the auction. They then have 28 days to exchange contracts on the property, and a further 28 days to complete. The 5% reservation fee is on top of the purchase price, and is liable to Stamp Duty.
If the sale does not complete due to a fault or a change of heart from the vendor, then the reservation fee is refunded to the purchaser.
However, they purchaser will lose their reservation if they're the one who decides to pull out of the purchase.
This modern auction process is different from a traditional auction. In the traditional auction, winning bidders must exchange contracts on the day and pay a 10% deposit. They then have 28 days in which to complete.
- Prospective buyers take part in a competitive bidding process, and can bid online or over the phone
- The highest bid before the auction deadline wins
- Buyer is committed to purchase the property
- A non-refundable reservation fee (around 5%) is paid
- Exchange of contracts within 28 days and 10% deposit paid
- If you do not exchange contracts, the reservation fee is lost
- Completion must take place within a further 28days
- If no completion, buyer loses reservation fee and deposit
4. Modern Method of Auction Pros and Cons
Why sell your house via modern auction? Here are the best reasons to - and some of the drawbacks.
4.1. Modern Auction "Pros"
The main benefits you'll enjoy when selling by modern auction are:
- Very likely to sell. The best modern auction houses successfully sell approximately 85% of properties they take on. This means you have a very high chance of selling. By comparison estate agents tend to sell less than half of the properties they take on.
- Speed. Secondly, it’s a quick sale. It'll usually take 2-3 weeks to get onboarded into the auction. You should then expect to have sold when the auction concludes around 3-4 weeks later. Completion happens either 28 days or 58 days weeks after that, depending on how the auction was structured.
- Certainty. Crucially, once you have a winning bidder (and if their bid exceeded your reserve price), you have a legally binding sale with them. They also pay a hefty reservation fee at this point. The result is that very few modern auction sales fall through. (As a point of comparison, when selling through an estate agency more like 30-40% of sales fall through after they've been agreed!)
So selling via modern auction offers three main benefits. First, you enjoy a very high likelihood of selling. Second, you’ll get a much faster sale. And finally, the risk of it falling through is drastically reduced, partly due to the reservation fee.
4.2. Modern Auction "Cons"
When going directly to a modern auction company some may charge an up-front "auction entry fee". This can sometimes be as high as £1,000. However, clients recommended to modern auction houses by Yes Homebuyers will not have to pay this. It's worth reaching out to our team for a referral if you're considering the modern auction route.
The main drawback of selling via modern auction is the compromise on price. You can usually expect to sell for around 85-95% of the full value of your home. However, just bear in mind that the buyer will usually cover the auction fees. This means you usually won't have any deductions from the sale price, other than your legal fees.
4.3. Is the modern method of auction right for me?
The best way to sell your home will depend on your circumstances.
- If you need to sell fast – to repair a broken chain, to free up cash or as a result of divorce or inheritance, then the best route may be to use a home buying service. You can sell your home in as little as two weeks but you will only get around 80-85% of the market value.
- If you want the best price – and have the luxury of time to wait for offers, then the best route is to use an estate agency. You will usually get close to 100% of market value, but it can take six months or more to sell your home.
- If you want the best of both worlds – with a faster sale at a better price, then selling at auction could be your answer. You can more than halve the time it takes to sell, and still return around 90% of the market value.
The modern method of property auctions can get you moving sooner, with more money in your pocket and the peace of mind of an almost certain sale.
However, it may not be right if you are in a chain. This is because it can be difficult to coordinate your auction sale with the sales of other properties.
5. Modern method of auction vs estate agent sales
The modern method of auction has a number of advantages over selling through a traditional estate agent:
The main disadvantage of modern auction sales vs estate agents is that you will normally receive around 10% less for your property.
However, it should also be noted that the auction fee, usually around 3-4%, is not taken off the money you receive. Instead, the buyer pays the auction’s costs separately. Although this means that the seller will avoid having to pay fees, it will reduce the amount that buyers have to spend and may result in lower prices.
The buyer’s fee is counted as part of the property price for Stamp Duty purposes, which increases the amount of stamp duty paid. This will again reduce the budget of potential buyers and can but a slight downward pressure on prices.
6. Modern method of auction vs traditional auctions
The modern method of auction has a number of advantages over selling using the traditional auction method:
From a seller's point of view, the main disadvantage of modern auctions is that winning bidders are not legally committed to the purchase in the same way. This is because an unconditional exchange of contracts does not always happen immediately.
However, there are still significant financial penalties if a buyer pulls out of the deal due to the non-refundable reservation fee they pay.
7. Modern method of auction vs home buying services
While home buying services will usually deliver the fastest and most flexible possible sale, there is a cost to this convenience.
Home buying services offer around 80-85% of the market value of your property, whereas a modern auction can deliver 90% or more. It will take a little longer to complete your sale, but you’ll get a lot more.
It should be noted that unfortunately, some homebuyers are known to reduce their offer price at the last minute. It is important to choose a reputable service such as Yes Homebuyers, where the purchase price is guaranteed not to change.
8. What does selling at a modern auction cost?
There are a number of costs involved in selling using the modern auction method. These are around the same as selling using an estate agent.
Bear in mind that conveyancers may charge more for auction work though. This is because they will inevitably have to field a number of enquiries from interested parties, as opposed to only dealing with a single buyer.
You may have to pay for the following:
- Auction house fees
- Legal pack
- Estate agent fees
Learn more about each one below.
8.1. Auction fees
Different auction houses apply their fees in different ways. Many will charge the buyer the full amount, some will only charge the seller, and some will charge hybrid fees.
In the hybrid-fee case, the buyer and the seller spread the cost between them. Here, the seller sometimes pays a significant auction entry fee to put their property into the auction system in the first place. The downside here is that if the property does fail to sell at auction, the seller is out of pocket for the cost of entering the auction.
Note that clients referred to auction houses by Yes Homebuyers do not have to pay any auction entry fees.
8.2. Auction Legal pack
In order for buyers to make an informed decision, sellers need to compile a legal pack for their property. This is similar to the information gathered by a potential home buyer during an ordinary house sale.
In this case, however, the information is put together by the seller at the start of the process, and at their expense.
An auction legal pack should contain the following information:
- Property valuation report – including guide and starting price
- Floor plans and pictures – just like in an estate agent’s listing
- EPC certificate – as a legal requirement
- RICS survey – this is optional, but will save time and encourage bidders
- HM Land Registry documents – showing property title, boundaries and extent of the land
- Searches – as would be done during conveyancing, covering your home and the immediate area
- Lease details – including length of remaining lease, ground rent etc. if the property is leasehold
- Fixtures and contents – detailing what is and is not included in the property sale. For example, light fittings, appliances, curtains, carpets etc.
- Terms and conditions – setting out the full terms of the modern auction sale process and the buyer’s obligations and timescales
8.3. Estate agent’s fees in auction
If you sell your home by auction in conjunction with a local estate agent, there may or may not be a fee to pay. They will either charge you a fee directly, or they may receive a share of the auctioneer’s fee.
If they do charge you a fee directly, it will usually be less than if they had arranged the sale themselves with no help of the auction.
Using an estate agent as part of your property auction process can be very helpful. They’re a local point of contact for you and can help with property photos and descriptions and local listings.
This will give your auction listing a professional look that will attract more potential bidders and higher bids. They can also assist with viewings and many other elements of the process.
A local estate agent isn’t totally necessary to assist with the process though. Auction companies use their own staff, or a variety of services, to cover these aspects.
For example, instructing professional photographers, viewing attendants etc to help with the process.
9. How to sell using the modern method of auction
It’s very simple to get started. If you contact an auction company they’ll begin by conducting an auction appraisal on your property.
9.1. Auction Appraisal
The auctioneer may send someone from their team to meet you at your property to carry out the valuation. However, more and more often they’re able to complete the valuation without a property visit. This is due to the huge amount of property data available online, and the surge in valuation tools.
The company will then call to discuss the feedback with you, and share their recommended reserve price.
If the price is something you’re happy with, the auctioneer will talk you through the rest of the process. This will include the next steps, and what to expect from online auctions.
If you decide to go ahead you move into the on-boarding process.
9.2. Onboarding: Preparing for Auction
If you decide to move forward with the auction then the next step is to prepare everything for your auction sale.
- 1. Auction Sign-up – The auctioneer will send you the agreement to get everything underway. This is similar to a regular estate agency contract in many ways, but includes the finer details about how the auction will work.
- 2. Legal pack – the auctioneer will then refer you to a solicitor (or you can use your own), who’ll begin putting the auction legal pack together for your sale. Any buyer can then access this later.
- 3. Property listing – someone will meet you at the property to prepare the listing. They'll take professional photographs, create a floor plan, and create the property description. (This is done at the auctioneer’s cost, so there’s nothing for you to pay).
Preparing your home photos and viewings
Unless your sale is urgent, it is worth spending time to present your property at its best, as this will ultimately be rewarded with a higher sale price.
Tidy and fix up your property, make the rooms appealing and present them in a way that helps potential buyers to picture themselves living there. Don’t neglect the little things like weeding flower beds and mowing the lawn.
Selling by auction is the same as any other property sale in that respect. Viewers will make up their mind very quickly based on their first impressions of your home, so try and make sure it's a positive one.
9.3. Going live: Viewings & Bids
Once the legal pack and property listing have been completed your property is ready to go live in the auction.
First, it will begin appearing on the major property portals. Then the auction company will begin proactively contacting buyers they’ve dealt with in the past to let them know about the new property.
When a potential buyer expresses an interest, the auction company will speak with them directly and talk them through the next steps. This will usually include them wanting to come and view the property.
Sometimes the auctioneer will attend with them directly. In other situations either a 3rd party "viewing attendant" will conduct the viewing, or you can choose to them yourself.
If the potential buyer is interested in your property, they’ll contact the auction company and may ask their solicitor to review a copy of the legal pack.
If they’re happy with everything they’ve seen they’ll submit their bid on the property. With most modern auction companies you’ll be made aware when you’ve received a bid.
9.4. Auction Deadline
As the deadline approaches activity usually heats up, and you should begin to see offers in excess of the reserve price you’ve set. When the bid passes your reserve price, the auction’s a success and your property will definitely sell.
Once the deadline passes, the winning bidder will pay their non-refundable deposit and the solicitors will get to work on. (This is when you get to celebrate!)
9.5. Completing the sale
When the auction ends, the winning bidder will pay their deposit for their new purchase, and instruct their solicitors.
Their solicitors will begin communicating with yours to work towards completion. Depending on whether the winning bidder was a cash buyer or a mortgage buyer, completion will take place in either 4 weeks or 8 weeks. This is to give them time to arrange finance or a mortgage, if required.
But don’t panic! The sale is legally binding and buyers pay a hefty non-refundable deposit straight away. This means it’s extremely rare for auction sales to fall through after the gavel has fallen.
In fact, less than 1% of auction sales fall through after being agreed. (Compare this to normal estate agency sales, where 30-40% of sales fall through!)
When completion takes places the solicitors will take care of paying off your mortgage (if you have one). They’ll then send the remaining funds directly to your bank. This is when you hand the keys over, and ownership legally passes to the new buyer.
10. How to find an auction house
Choosing the right auction house can make a huge difference to the ease of your sale and the final sale price. But few of us have much experience in the world of property auctions, and it may be unlikely that our friends and colleagues have either. So how do you choose a property auction house?
If you do have an auction house in mind, then you could approach them directly for advice. However, if you do not know any auction houses, then contact our friendly team to recommend one, on 0800 133 7687.
10.1. Things to consider when choosing an auction house
There are a number of things to consider when choosing an auction house:
- How long have they been established?
- What is their success rate in achieving reserve prices?
- How does their average sale price compared to market value?
- Do they have local knowledge and understand your area?
- What do their previous customers say about them?
- What certifications and memberships do they hold?
- Have they won any awards?
- After making your initial enquiries with a company, how do you feel about the person (or people) you’re dealing with?
All auction houses offering the modern method of auction will have a website. It's a good idea to read it carefully and assess their suitability. When you have a shortlist, talk to the staff at the auction house to get a feel for the company. If it doesn’t feel right, move on to one that does.
10.2. Get help finding the right auction company
Here at Yes Homebuyers we offer free advice, without obligation, to help you decide if the modern method of auction is right for you. If it is, we can put you in touch with one of the auction companies we ourselves use.
Clients recommended by Yes Homebuyers will not have to pay any auction entry fees either, saving you several hundred pounds.
11. Buying using the modern method of auction
There are many advantages in buying a property using the modern method of auction, however you need to be aware of the drawbacks too.
If you prepare properly and do your homework, buying using the modern method of auction can be an exciting experience. It could also save you around 10% of the market value of the property. With the average home in the England costing £268,000, that’s a saving of around £26,800.
You should treat an auction property purchase in the same way as you would when buying through an estate agent. Try to visit the property for a viewing and conduct due diligence on surveys and searches (or get your lawyers to do this on your behalf).
Once you have won a bid you are committed to buy, so make sure the property is what it seems and is what you want.
11.1. Advantages of buying using the modern method of auction
- Lower prices – purchase price is typically around 10% less than the market value
- Quicker sales – exchange of contracts in 28 days, completion in 56 days
- Transparent details – sellers often provide surveys etc so there are no surprises
- Convenient bidding – bid online at any time without attending the auction
- Time to consider – without the rush of a traditional auction
- Binding agreements – no danger of being gazumped at the last minute
11.2. Disadvantages of buying using the modern method of auction
- Auction fees – buyers pay a non-refundable reservation fee, usually around 3-4%.
- Stamp duty – fees are included in stamp duty calculations
- Commitment – winning bidders are committed to buying the property, or else lose their fee
- Short deadlines – just 28 days to arrange a mortgage and exchange contracts, and 56 days to complete
- Increased competition – sometimes more buyers than a local estate agent
- Uncertain price – you don’t know the final purchase price until the auction closes
- Inflexible timescales – making auctions unsuitable for people in property chains
The modern method of auction has changed the face of property auctions. Auctions are now more accessible to more buyers, and achieve higher prices for sellers.